MANAGEMENT INFORMATION SYSTEMS 8/E

Raymond McLeod, Jr. and George Schell

Chapter 3
Using Information Technology
to Engage in Electronic
Commerce

3-1
Copyright 2001, Prentice-Hall, Inc.
 Learning Objectives
 Recognize the importance and advantages of
electronic commerce.
 Understand how electronic commerce is being
blended into everyday business processes.
 Understand the difference between business-
to-business electronic commerce and business-
to-commerce electronic commerce.
 Be familiar with examples of good business-
to-business electronic commerce and business-
to-consumer electronic commerce.
 Learning Objectives (Cont’d)
 Know the role that interorganizational systems,
the Internet, and the world Wide Web play in
electronic commerce.
 Know what factors influence the adoption of
Interorganizational systems.
 Recognize the movement from electronic data
interchange to various Web-standard data
exchange practices.
 Understand why many firms choose to have
both a virtual store and a physical store.
 Environmental Responsibilities
of Functional Areas
Human Information
Finance Resources Services Manufacturing Marketing
Customers
X X
Suppliers
X X
Stockholders X
Labor Unions X X
Government X X X X X
X
Financial Community
X
Global Community
X
Competitors 3-4
 Electronic Commerce
 Electronic commerce is the use of
computers to facilitate the firm’s
operations
– internal (finance, marketing,
manufacturing, ...)
– external (customers, suppliers,
government, ...)
3-5
 Electronic Commerce
 Electronic Commerce (E-commerce)
refers to a business transaction that uses
network access, computer-based systems,
and a Web browser interface.
 Business-to-consumer (B2C) refers to
transactions between a business and the
final consumer of the product.
 E-commerce (Cont’d)
 Business-to-business (B2B) refers to
transactions between businesses in which
neither one is the final consumer.
 Electronic Government (E-gov) refers
to transactions between a government
agency and typically a citizen.
Main Benefits E- Commerce to Firms

 Improved service, especially to

customers
 Improved relationships to suppliers
and the financial community
 Increased return on stockholder and
owner investments

3-8
 E-commerce Constraints
 Main constraints to firms:
– High costs
– Security concerns
– Immature or unavailable software
 Scope of E-commerce
– WWW.CENSUS.GOV
– Link to the E-stats Web page to find the
most current e-commerce figures.
New Electronic Commerce Era
 Instead of specialized software,
firms are designing systems to use
Internet Browsers
 Making a common interface for
customers and electronic commerce
partners
3-10
Table 3.1 E-commerce Sales
How to Use E-Commerce
with
Competitive Advantage
 Selection of Electronic Commerce
Strategy, Methodology, and Technology
Strategic Business Plan

Enabling Enabling Enabling

strategy methodology
technology
Business Interorganiza- System life Competitive
Intelligence Direct Advantage
tional cycle
connectivity
Electronic Business
data process Value-added
interchange redesign networks
The Internet
3-13
 Business Intelligence
 Business Intelligence (BI) is the activity of
gathering information about the elements in
the environment that interacts with the firm.
 External databases are commercial databases
that, usually for a fee, provide information and
analyses on virtually any subject.
WWW.LEISNEXIS.COM,
WWW.DIALOG.COM, WWW.GXS.COM,
WWW.THOMASNET.COM
 Business Intelligence (Cont’d)
 Firms use these databases to gather BI
because it is faster and less expensive than
trying to research a wide array of
information sources.
 Government databases offer a wide range
of topics for researchers in many fields.
WWW.LOC.GOV, WWW.CENSUS.GOV,
WWW.BLS.GOV
 Business Intelligence (Cont’d)

 Firms are more inclined to initiate their

own external searches for market
intelligence.
 Search engines are the most popular
means for people to obtain information
available from the Web.
Business Intelligence (Cont’d)
 Search engine is a special computer program
that asks a user for a word or group of words
to be found. WWW.GOOGLE.COM,
WWW.YAHOO.COM, WWW.MSN.COM,
WWW.ASKJEEVES.COM
– Searches the content of web sites on the Internet to
see if the word or words are on any Web sites.
– Makes it possible to scan large volumes of
information quickly, easily, and thoroughly.
 Figure 3.1 Search Engines
Explore the Internet to find Sites Containing
Information You Seek
 E-commerce Strategy and
Interorganizational Systems
 Interorganizational system (IOS) is the
strategy in which a firm is linked with
transmissions of electronic data with other
firms so that all of the firms work together as a
coordinated unit, achieving benefits that each
could not achieve alone.
– Participating firms are called trading partners,
business partners, or a business alliance.
 E-commerce Strategy and
Interorganizational Systems
 E-commerce is fundamental to IOSs.
 Electronic data interchange (EDI) is a
means for achieving an IOS; a subset.
 Extranets are another alternative.
 IOS Benefits
 Comparative Efficiency is obtained by
the IOS because the trading partners can
produce their goods and services with
greater efficiency and provide their
goods and services at lower costs to their
customers. (price advantage over
competitors)
 IOS Benefits (Cont’d)
Comparative Efficiency Improvements
 Internal efficiency within the firm’s own
operations.
– Gather and analyze data quickly.
– Make decisions faster.
 Interorganizational efficiency gained by
working with other firms.
– Offer more products and services.
– Serve more customers.
– Shift certain work to suppliers or customers.
– Gather environmental data more easily.
 IOS Benefits (Cont’d)
 Bargaining Power is the ability of a firm
to resolve disagreements with its
suppliers and customers to its own
advantage.
 Bargaining Power
Improvements
 Unique product features enable firms to offer
better service to their customers in the form of
easier ordering, quicker shipments, and faster
response times to requests for information.
– This better service becomes a feature of the firm’s
products, making them more appealing than
similar products offered by competitors.
Bargaining Power Improvements
(Cont’d)
 Reduced search-related costs can reduce the
firm’s “shopping” cost that its customers incur
in searching for a supplier, identifying
alternative products, and getting the lowest
price.
– The firm is a customer of its suppliers, the firm can
realize the same shopping-cost reductions when
ordering from its suppliers.
 Bargaining Power
Improvements (Cont’d)
 Increased switching costs is when a firm
makes it more expensive, in cost and/or
convenience, for customers to switch to a
competitor.
– Providing customers with such information
resources as hardware, software, and data
communications channels that would have to be
replaced if products were purchased from another
firm.
 IOS Expansion
 Vendor stock replenishment is a special type
of IOS in that the customer trusts the supplier
enough to allow the supplier to access its
computer-based inventory system.
– The supplier initiates the replenishment process by
electronically monitoring the firm’s inventory
levels.
– Wal-Mart uses the IOS strategy extensively.
 EDI
 EDI consists of direct computer-to-
computer transmissions of data in a
machine-readable, structured format.
 Older technology, but majority of B2B
commerce use
 Enables data to be transmitted and
received without rekeying
 EDI (Cont’d)
 Equipment (communications lines,
hardware, etc.) and support services
provided by telephone companies (AT&T,
MCI, et al.)
 Value-added network (VAN) is when the
services that operate and manage the
communications line (circuit) are provided
in addition to the line itself.
 EDI (Cont’d)
 EDI is the dominant implementation of an
IOS.
– More that two-thirds of e-commerce is
conducted using EDI compared to other
alternatives.
– More costly: $5,000-$30,000 per year with a
single vendor or customer
– More bulky than newer IOS systems
 Extranet
 Extranets enable the sharing of sensitive
computer-based information with other firms
using information technology over the internet.
– Used in collaboration with trusted suppliers and
large customers
– Security and privacy are serious concerns, so
extranets are generally secured behind a firewall
and use encryption such as Pretty Good Privacy
(PGP).
 Extranet (Cont’d)
 Firewall permits only authorized users to
access the firm’s information.
 Extranets allow for the same type of data
exchange as EDI.
 Extranets incorporate the common
protocols and communication networks
of the Internet, which results in a great
cost savings (EDI is costly to use).
 IOS Adoption Influences
 Proactive and reactive business partners
 Adoption influences
– Competitive pressures (HIGH, firm is reactive in
adopting IOS, usually EDI)
– Exercised power (powerful firm is proactive in
adopting/demanding IOS)
– Internal need (firms see participation as a way to
improve)
– Top management support (ALWAYS influences the
decision)
Figure 3.2 Internal and Environmental
Influences on IOS Adoption
 IOS Benefits
 Direct benefits
– Reduced data entry errors
– Lower costs
– Increased operational efficiency
 Indirect benefits
– Increased ability to compete
– Improved relationships with trading partners
– Better customer service
Figure 3.3 IOS Direct and Indirect
Benefits
B2C Strategies for E-commerce
 Important to understand B2C Strategies
– More products and services are becoming available
for digital delivery.
– More consumers are overcoming their reluctance
to purchase using the Web.
– Higher communication speeds in homes has made
delivery of digital products practical.
– Fear of information theft has been replaced with
acceptance.
 Digital Products
 Entertainment–songs, albums, movies, etc.
WWW.SONY.COM
 Computer programs and updates–virus
protection software, tax software, etc.
 Services–WWW.LENDINGTREE.COM
 Can be consumed as soon as they are
downloaded
 Purchasers incur a substantial cost of the
transaction in terms of computer cost, online
connection fees, storage media, and so on.
 Physical Products
 Items must be transported to the consumer.
 Shipment has to be arranged.
 Traditional delivery methods are slow.
 Faster delivery time options are costly.
 Mail/shipping companies offer services
such as online tracking that allows more
information and control over delivery.
 Virtual vs. Hybrid Sales
 Virtual sales are those made by a firm that
does not operate a physical storefront.
– Customer can’t enter and purchase the product.
 Hybrid sales occur when firms have both a
physical storefront and a Web site where
customers can purchase products.
– Brick-and-click operations
 Virtual Sales Challenges
 Provide necessary product information
without overwhelming the customer.
 Communicating image files from the
Web site to the customer’s computer can
take time.
 Payment over the Internet has suffered
bad press–credit card fraud.
 Hybrid Sales
 Most firms had storefronts before sales over the
Internet were possible.
 Both a physical storefront and the Internet are
necessary to their business plans.
 Stores act as showcases for products.
 Customers enjoy convenience of shopping over
the Web.
 B2C sales means less inventory at its store;
more sales floor space.
 Virtual Sales
 Limit images displayed response time,
WWW.OFFICEDEPOT.COM.
 Secure data transfer of credit card
information.
– VeriSign
– PayPal
The Next Step for E-commerce
 Mobile commerce (m-commerce) is the use of
cell phones and personal digital assistants
(PDAs) to engage in wireless e-commerce.
 Third generation (3G) telecommunications is
data-capable wireless technologies.
– Europe purchased 3G licenses in 2000; United
States in 2004.
– $40 billion per year global industry by 2009.
 M-commerce
 Early applications included news services,
financial information alert/transactions, and
banking.
 Movie ticket purchases, parking payments,
etc. gaining acceptance.
 Japan is 1st country to have a 3G carrier
(almost all Japanese have a cell phone).
 United States-only about 40% have a cell
phone.
 The Next Step … (Cont’d)
 Wireless Internet Hot spots are created
using a wired connection (for high
communications speed) and then broadcast
via a wireless access point to an area
approx. 100 meters; Starbucks.
 Business-class wireless computing would
provide fast wireless communication
everywhere over the same communications
carrier as cell phones; Verizon.
 Using the Internet
 The origin of the Internet can be traced to
1969, when the U.S. government
established a network called ARPANET.
 ARPANET demonstrated that it was
possible for a person to request and receive
data over a complex network that included
many computers and network connections.
 World Wide Web
 World Wide Web (WWW) efforts began in
1989 when Tim Berners-Lee came up with a
idea for physicists to communicate.
 Hypertext-electronic documents that are
linked together.
 Physicists would be able to click on words or
phrases displayed on their computer screens
and retrieve the hypertext.
 World Wide Web (Cont’d)
 Hypertext became a reality in 1992.
 Hypermedia is the transmission of multimedia
consisting of text, graphics, audio, and video
over the WWW.
 WWW (Web) is information accessible via
the Internet whereby hypermedia documents
(computer files) are stored and then retrieved
by means of a unique addressing scheme.
 World Wide Web Terms
 Web site–collection of Web pages
 Hypertext link–pointer (text or a graphic) used
to access hypertext stored at a Website
 Web page–hypermedia file stored at a unique
Web site address
 Home page–first page of a Web site
 Browser–software designed to find and read
files on the Internet written in hypertext
markup language (HTTP).
 World Wide Web Terms
(Cont’d)
 Uniform resource locator (URL)–unique address of
a Web page
 Protocol–set of standards that govern communication
of data (HTTP, FTP, URL)
 Domain name–address of the website where a Web
page is stored
 Path–certain directory/subdirectory and file at the
Web site
 File Transfer Protocol (FTP) users can copy files
onto their computers from any Web site.
Figure 3.5 World Wide Web
Terminology
Understanding the Difference
 The Internet is a global communications
network that connects millions of computers.
– Provides the network architecture
 The Web is a collection of computers acting as
content servers that host documents formatted to
enable viewing of text, graphics, and audio as
well as allowing linkages to other documents on
the Web.
– Provides the method for storing and retrieving its
documents
 Cyberspace and the
Information Superhighway
 Cyberspace1: a society that had become
a slave to technology.
 Information Superhighway describes a
positive force that gives everyone access
to the wealth of information that exists in
modern society.

1
Term coined in 1984, author William Gibson Neuromancer
 Internet Standards
 Internet Society (1992) promotes
commercial Internet use.
 Internet Engineering Task Force
(IETF) responsible for Internet
standards.
 World Wide Web Consortium (W3C)
responsible for Web standards.
 E-commerce and Hospital
Supply Chain Management
 Hospitals conduct most of their purchases online.
– Only 5 % benefit compared to manual purchasing.
 Hospitals can use a standard protocol such as the Internet
to replace EDI.
– Global Healthcare Exchange (WWW.GHX.COM) help hospitals
implement clinical commercial exchange
– Hospitals have hundreds, sometimes thousands, of vendors; the
savings is substantial.
 Speed and ease of connection to a new vendor for e-
commerce is a strong incentive for change.
– Analyze purchase requests.
– Find less expensive substitute or less costly vendor.
 Business Applications of the
Internet
 Retailing Operations
– Most of the large retail chains have established a Web presence.
– Retailers make their home pages directly accessible through the
Web.
 Virtual mall combine with other stores in a collection
sites.
 Retailing organizations changing the face of Web
information.
– WWW.AUTOBYTEL.COM
– WWW.AMAZON.COM
 Over 70% of Internet users make a yearly online
purchase.
 Suggestions for Successful
Internet Use
 Make sure your Web site is robust.
 Make sure your browser and database structure are both
flexible and intuitive.
 Emphasize content.
 Update often.
 Look beyond customers.
 Target content to specific users’ needs.
 Make the interface intuitive.
 Be in the right Web location.
 Create a sense of community.
 Get help if you need it.
 Future Impact of the Internet
on Business
 E-commerce is growing in the United States
and worldwide (15% annually past 5 years).
 3G cellular technology will enable users to
make purchases using their phones as a debit
or credit card; 4G service will soon be
available.
 By 2008 phones will be used routinely for
purchases.