You are on page 1of 33

Planning for Electronic

Commerce
Objectives

In this chapter, you will learn about:

• Planning electronic commerce initiatives

• Strategies for developing electronic


commerce Web sites

• Managing electronic commerce


implementations

E-Commerce: The Second Wave, Fifth Annual Edition 2


Planning Electronic Commerce
Initiatives

• Objectives of electronic commerce


– Increasing sales in existing markets
– Opening new markets
– Serving existing customers better
– Identifying new vendors
– Coordinating more efficiently with existing
vendors
– Recruiting employees more effectively

E-Commerce: The Second Wave, Fifth Annual Edition 3


Linking Objectives to Business
Strategies

• Downstream strategies
– Used to improve the value that the business
provides to its customers

• Upstream strategies
– Focus on reducing costs or generating value
• Work with suppliers or inbound shipping and
freight service providers

E-Commerce: The Second Wave, Fifth Annual Edition 4


Linking Objectives to Business
Strategies (Continued)
• Electronic commerce opportunities can
inspire businesses to undertake activities
such as
– Building brands
– Enhancing existing marketing programs
– Selling products and services
– Selling advertising
– Developing a better understanding of
customer needs

E-Commerce: The Second Wave, Fifth Annual Edition 5


Measuring Benefits
• Tangible benefits of electronic commerce
initiatives

– Increased sales

– Reduced costs

• Intangible benefits of electronic commerce


initiatives

– Increased customer satisfaction

E-Commerce: The Second Wave, Fifth Annual Edition 6


Managing Costs

• Total cost of ownership


– Includes costs of hardware, software, design
work outsourced, and salaries
• Change management
– Process of helping employees cope with
changes
• Opportunity costs
– Lost benefits from an action not taken

E-Commerce: The Second Wave, Fifth Annual Edition 7


Web Site Costs
• International Data Corporation and Gartner,
Inc.

– Cost for large company to build and implement


entry-level electronic commerce site is about
$1 million

• 79 percent of cost is labor related

• 10 percent is the cost of software

• 11 percent is the cost of hardware

E-Commerce: The Second Wave, Fifth Annual Edition 8


Starting a Web Business: Three Price
Tags

E-Commerce: The Second Wave, Fifth Annual Edition 9


Web Site Costs (Continued)
• Experts agree that annual cost to maintain
and improve site will be
– 50 and 200 percent of initial cost

• McKinsey & Company study


– Full portal site cost estimate was $2.4 million
to build and $4.3 million per year to maintain
– Companion site cost estimate was $150,000
to build and $270,000 per year to maintain

E-Commerce: The Second Wave, Fifth Annual Edition 10


Comparing Benefits to Costs
• Capital projects (Capital investments)
– Major investments in equipment, personnel,
and other assets
• Key part of creating business plan for
electronic commerce initiatives
– Identifying potential benefits
– Identifying costs required to generate benefits
– Evaluating whether benefits exceed costs

E-Commerce: The Second Wave, Fifth Annual Edition 11


Cost/benefit Evaluation of Electronic
Commerce Strategy Elements

E-Commerce: The Second Wave, Fifth Annual Edition 12


Return on Investment (ROI)
• Techniques provide a quantitative expression
of a comfortable benefit-to-cost margin
• Built-in biases that can lead managers to
make poor decisions
– ROI requires that all costs and benefits be
stated in dollars
– Focus is on benefits that can be predicted
– Tends to emphasize short-run benefits over
long-run benefits

E-Commerce: The Second Wave, Fifth Annual Edition 13


Strategies for Developing Electronic
Commerce Web Sites
• Typical early Web site
– Static brochure not updated frequently
– Seldom had any capabilities for helping the
company’s customers
• Today’s Web site includes
– Transaction-processing tools
– Automated homes for business processes of
all kinds

E-Commerce: The Second Wave, Fifth Annual Edition 14


Increasing Complexity of Web Site
Functions

E-Commerce: The Second Wave, Fifth Annual Edition 15


Internal Development vs. Outsourcing
• Outsourcing
– Hiring another company to provide outside
support for all or part of a project
• Internal team
– Should include people with enough knowledge
about the Internet and its technologies
– Should be creative thinkers
• Measuring achievements of internal team is
very important

E-Commerce: The Second Wave, Fifth Annual Edition 16


Early Outsourcing

• Outsource initial site design and development to


launch project quickly

• Outsourcing team trains company’s information


systems professionals in the new technology

• It is best to have

– Company’s own information systems people


working closely with outsourcing team

E-Commerce: The Second Wave, Fifth Annual Edition 17


Late Outsourcing
• Information systems professionals
– Do initial design and development work
– Implement system
– Operate system until it becomes a stable part
of business operation
• Once company has gained competitive
advantage
• Maintenance of electronic commerce system
can be outsourced

E-Commerce: The Second Wave, Fifth Annual Edition 18


Partial Outsourcing
• Company identifies specific portions of the
project that can be completely:

– Designed, developed, implemented, and


operated by another firm

• Many smaller Web sites

– Outsource their e-mail handling and response


functions

E-Commerce: The Second Wave, Fifth Annual Edition 19


Selecting a Hosting Service
• Factors to evaluate when selecting a hosting
service
– Functionality
– Reliability
– Bandwidth and server scalability
– Security
– Backup and disaster recovery
– Cost

E-Commerce: The Second Wave, Fifth Annual Edition 20


New Methods for Implementing Partial
Outsourcing
• Incubators

– Company that offers start-up companies a


physical location with

• Offices, accounting and legal assistance

• Computers, and Internet connections

– Receive ownership interest in company

E-Commerce: The Second Wave, Fifth Annual Edition 21


New Methods for Implementing Partial
Outsourcing (Continued)
• Fast venturing
– Existing company that wants to launch an
electronic commerce initiative joins external
equity partners and operational partners
• Equity partners
– Banks or venture capitalists
• Operational partners
– Firms that have experience in moving projects
along and scaling up prototypes

E-Commerce: The Second Wave, Fifth Annual Edition 22


Managing Electronic Commerce
Implementations
• Project management
– Formal techniques for planning and controlling
activities undertaken to achieve a specific goal
• Project plan
– Includes criteria for cost, schedule, and
performance
• Project management software products
– Microsoft Project
– Primavera Project Planner

E-Commerce: The Second Wave, Fifth Annual Edition 23


Tracking Activities in Primavera
Project Planner

E-Commerce: The Second Wave, Fifth Annual Edition 24


Project Portfolio Management
• Each project is monitored as if it were an
investment in a financial portfolio
• Chief Information Officer
– Records projects in a list
– Updates list with current information about
each project’s status
– Assigns ranking for each project based on
importance and level of risk

E-Commerce: The Second Wave, Fifth Annual Edition 25


Staffing for Electronic Commerce
• General areas of staffing
– Business managers
– Project managers
– Account managers
– Applications specialists
– Web programmers
– Web graphics designers
– Customer service
– Systems administration

E-Commerce: The Second Wave, Fifth Annual Edition 26


General Areas of Staffing
• Business manager
– Should be member of internal team that sets
objectives for project
• Project manager
– Person with specific training or skills in
• Tracking costs and accomplishment of specific
objectives
• Account manager
– Keeps track of multiple Web sites in use by a
project

E-Commerce: The Second Wave, Fifth Annual Edition 27


General Areas of Staffing (Continued)
• Applications specialists
– Maintain accounting, human resources, and
logistics software
• Web programmers
– Design and write underlying code for dynamic
database-driven Web pages has increased
• Web graphics designer
– Person trained in art, layout, and composition
– Understands how Web pages are constructed

E-Commerce: The Second Wave, Fifth Annual Edition 28


General Areas of Staffing (Continued)
• Customer service personnel
– Help design and implement customer
relationship management activities
• Call center
– Company that handles incoming customer
telephone calls and e-mails for other
companies
• Systems administrator
– Responsible for the system’s reliable and
secure operation
E-Commerce: The Second Wave, Fifth Annual Edition 29
Postimplementation Audit
• Formal review of a project after it is up and
running
• Gives managers a chance to examine
– Objectives
– Performance specifications
– Cost estimates
– Scheduled delivery dates

E-Commerce: The Second Wave, Fifth Annual Edition 30


Postimplementation Audit (Continued)
• Allows internal team, business manager, and
project manager to
– Raise questions about the project’s objectives
– Provide feedback on strategies
• Final report should analyze
– Project’s overall performance
– How well the project was administered
– Specific performance of the project team(s)

E-Commerce: The Second Wave, Fifth Annual Edition 31


Summary
• Plans for electronic commerce implementations
– Set objectives
– Benefit and cost objectives should be stated in
measurable terms
• Project evaluation technique
– Return on investment
• Determining an outsourcing strategy
– Form internal team that includes knowledgeable
individuals from within company
E-Commerce: The Second Wave, Fifth Annual Edition 32
Summary
• Project management
– Formal way to plan and control specific tasks
and resources used in a project
• Project portfolio management techniques
– Used to track and make trade-offs among
multiple ongoing projects
• Critical staffing areas
– Business management
– Application specialists
– Systems administration
E-Commerce: The Second Wave, Fifth Annual Edition 33