Lecture 6 (Chapter 12):

Planning for Electronic Commerce

Electronic Commerce,
Seventh Annual
Edition
 Objectives
In this chapter, you will learn about:

• Planning electronic commerce initiatives

• Strategies for developing electronic

commerce Web sites

• Managing electronic commerce

implementations

Electronic Commerce, Seventh 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

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 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

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 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

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 Measuring Benefits
• Tangible benefits of electronic commerce
initiatives include:
– Increased sales

– Reduced costs

• Intangible benefits of electronic commerce

initiatives include:
– Increased customer satisfaction

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Electronic Commerce, Seventh Annual Edition 7
 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

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 Web Site Costs
• International Data Corporation and Gartner,
Inc. estimate that the cost for a large
company to build and implement an 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

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Electronic Commerce, Seventh Annual Edition 10
 Web Site Costs (continued)
• Experts agree that the annual cost to
maintain and improve a site will be between
50 and 200 percent of the initial cost

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 Comparing Benefits to Costs
• Capital projects (capital investments)
– Major investments in equipment, personnel, and
other assets

• Key part of creating a business plan for

electronic commerce initiatives includes:
– Identifying potential benefits
– Identifying costs required to generate benefits
– Evaluating whether benefits exceed costs

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Electronic Commerce, Seventh Annual Edition 13
 Return on Investment (ROI)
• Return on investment 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

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 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

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Electronic Commerce, Seventh Annual Edition 16
 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

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 Early Outsourcing
• Outsource the initial site design and
development to launch a project quickly

• Outsourcing team trains the company’s

information systems professionals in the new
technology

• It is best to have the company’s own information

systems people working closely with the
outsourcing team

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

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 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

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

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 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 the company

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 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

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Electronic Commerce, Seventh Annual Edition 24
 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

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 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 the list with current information about
each project’s status
– Assigns a ranking for each project based on
importance and level of risk

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

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 Staffing for Electronic Commerce
(continued)
• Business manager
– Should be a member of the internal team that sets
objectives for a 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

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

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 Staffing for Electronic Commerce
(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

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 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

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 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)

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 Summary
• Plans for electronic commerce implementations
include:
– Setting objectives
– Determining benefit and cost objectives which
should be stated in measurable terms
• Project evaluation technique
– Return on investment
• Determining an outsourcing strategy
– Form an internal team that includes knowledgeable
individuals from within the company

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 Summary (continued)
• 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

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