Electronic Commerce COMP3210

Dr. Paul Walcott

Contents Part I

Planning E-commerce Initiatives Part II

Strategies for developing e-commerce Web sites

Part III Managing Electronic Commerce Initiatives

Planning E-commerce Initiatives A successful business

plan should include activities that: Identify objectives Link objectives to

business strategy

Identifying Objectives Objectives businesses strife to achieve using e-

commerce include: Increase sales in existing markets Launching out into new markets Improve service to existing customers Identifying new vendors Coordinating more efficiently with existing vendors More effective recruiting

Types of Objectives Vary with the size of the organisation, for

example: Small companies might want to build a Web site to

encourage customers to do business using existing channels. A site offering only product or service information is less

costly do design and implement Larger companies that might want to build sites that

offer transaction handling, bidding, communication and other capabilities have to pay much more

SMART Objectives Objectives must be:

Specific Measurable Achievable Results-based Time-bound

Example of ObjectivesGIST To create a comprehensive tester's guide

to the Icon Income system. SCALE Percentage completed at the specified

milestonePLAN 50% (Icon 5.01), 100% (Icon 5.02).

MUST 25% (Icon 5.01), 75% (Icon 5.02).

ACTUAL 10% (Icon 5.01), 25% (Icon 5.02)

Linking Objectives to Business Strategy After identifying objectives a company

must identify business strategies that will help to

realise these objectives E.g. a small company’s object might be to become

a global player within a year and as a result one of its activities is to build a brand

Linking Objectives to Business Strategy (I) Businesses can use downstream strategies

to improve the value that the business provides to customers

Or can pursue upstream strategies that focus on reducing cost or generating value by working with suppliers or inbound shipping and freight service providers

Linking Objectives to Business Strategy (II) E-commerce can inspire businesses to partake in

activities such as: Build brands Enhance existing marketing programs Sell products and services Sell advertising Develop a better understanding of the customer’s

need Improve after sales support and service

Linking Objectives to Business Strategy (III) E-commerce can inspire businesses to partake in

activities such as: Purchase products and services Manage supply chains Operate auctions Build virtual communities

However, these can not be done in an ad hoc manner. It is important to measure the benefit and cost of each activity

Measuring Benefit Some benefits are tangible and easy to measure,

for example increase sales, decrease cost Others are intangible thus difficult to measure, for

example increased customer satisfaction Managers need to try to set objectives that are

measurable even for intangible benefits E.g. increased customer satisfaction might be

measured by counting the number of first-time customers who return to the Web site and buy

Measuring Benefit (I)Build brand Surveys or opinion polls

that measure brand awareness

Enhance existing marketing program

Change in per-unit sales volume

Improve customer service Customer satisfaction surveys, quantity of customer complaints

Measuring Benefit (II)Reduce cost of after-sale support

Quantity and type (telephone, fax, e-mail) of support activities

Imply supplier chain operation

Cost, quality and on-time delivery of materials or services purchased

Hold auctions Quantity of auctions, bidders, sellers, items sold, registered participants, dollar value of items sold

Provide portals Number of visitors

Managing Cost IT projects are often difficult to estimate

and control E.g. web development technologies change

rapidly, thus it is difficult for managers to estimate cost These cost include hardware and software

Even though hardware cost tend to decrease, new software often demands new hardware, thus increase cost

Total Cost of Ownership The project budget must include

Hardware and software cost Costs of hiring, training and paying personnel

Web site designers, developers, content providers, operators and maintainers

Organisations tend to track cost by activity

Total Cost of Ownership (I) The total cost of ownership (TCO) includes

Cost of hardware (servers, routers, firewalls and load balancing devices)

Cost of software (licenses for operating systems, Web server software, database software, and application software)

Cost of outsourced design work Salaries and benefits for employees Cost of maintaining the site once operational

A good TCO will include cost of future redesign

Change Management Every project involves change Change management is the process of

helping employees cope with change Change management techniques include

Communicating the need for change Inclusion in the change decision process Inclusion in the planning for the change

Change Management (I) If change is not properly managed,

employees feel Uncomfortable Inadequate Stressed which leads to reduced work

performance Unable to do the job properly Powerless

Opportunity Cost Opportunity cost is the benefit that will be

lost if a company chooses not to initiate an e-commerce initiative

This is of great concern to management and accountants

Web Site Costs The cost required for a large company to

build an entry-level e-commerce site is $1 million 79% is labour cost 10% software cost 11% hardware cost

Source: International Data Corporation and Gartner Inc.

Web Site Costs (I) The cost required for a large company to build a

site that is comparable to leading sites is $2 - $5 million

To build a Web site that is noticeably better than competitors will cost a minimum of $15 million

10 of the top 100 e-commerce sites spent over $10 million for Web site development and implementation

Source: International Data Corporation and Gartner Inc

Web Site Costs (II) A small company can put a Web site online for

$5000 For a business with full transaction and payment

processing capabilities, it is difficult to keep it under $10,000 per year

Construction of new Web sites for small businesses actually averages $140,000

Minimum amount to open a complete e-commerce Web site is $150,000

Web Site Costs (III) Web site costs include

Start-up cost Ongoing costs (between 50% - 200% of

initial cost)

Web Site Costs (IV) The cost for a full portal magazine site

To build: $2.4 million $4.3 million per year to maintain with a staff

of 35 people The cost for a more limited site

To build: $150,000 $270,000 per year to maintain with a staff of

2 people

Web Site Costs Example Kmart (http://www.kmart.com/)

>$140 million to create online retail website Much of the site’s cost is hidden from the

user Cost of customising middleware that connects the

Web site to Kmart’s vast inventory and logistics databases

Web Site Costs: A Final Word The high cost of creating e-commerce Web sites

can serve as a discouragement to small businesses Smaller organisations can control costs by:

Using a combination of third party hosting services and packaged e-commerce software

Sign up for mall-style service providers This provides low initial cost and controls annual

TCO, however cost of related activities can not be ignored, e.g. creating and maintaining a product catalog

Comparing Benefits to Costs

Identify benefits

Identify costs

Determine value of benefits

Determine value of costs

Compare valueof benefits to value of cost

Return On Investment (ROI) Return on Investment techniques measure

the amount of income (return) that will be provided by a specific expenditure ROI requires that all costs are stated in a

dollar amount ROI focuses on benefits that can be predicted

Many benefits are often hidden ROI tends to emphasize short-term benefits

over long term benefits

ROI Hidden Benefits Example CISCO systems created an on-line customer

forum to discuss product issues The intended benefits were to

Reduce customer service costs Increase customer satisfaction regarding the

availability of product information Additional (hidden) benefit

Cisco engineers were able to get feedback on new products

ROI Problems If managers rely only on ROI incorrect

decision may be made Due to biases towards short term cost and

benefits rather than long term

Strategies For Developing E-commerce Web Sites 1994-1996 Static Brochures

Contact information Logos and or other branding Some product information Financial statements

Strategies For Developing E-commerce Web Sites (I) 1996 – 1999 Transaction Processing

Static brochures plus Complete product catalog Shopping cart Secure payment processing Other information queries Shipment tracking

Strategies For Developing E-commerce Web Sites (II) 1992 – Present Full Range of Automated

Business Processes Transaction processing, plus

Personalisation Interactive capabilities Frequently updated content Customer relationship Management tools

Internal Development v. Outsourcing Definition:

Outsourcing is the hiring of outside support to do all or part of a project

E-commerce site development problems can not be avoided by outsourcing

Success depends on how well the e-commerce initiative is integrated into and supports business activities

Internal Development v. Outsourcing Using internal people to lead e-commerce

initiatives helps to ensure that the companies specific needs are addressed and that the plan fits the culture Outside consultants are seldom able to learn

enough about the culture (in the contract period) in order to accomplish all the objectives

Internal Development v. Outsourcing Example Few companies are large enough or have

sufficient expertise to launch an e-commerce project without external help E.g. Wal-mart (with annual sales of $150

billion) in 2000 hired another company for outside support

Internal Teams In determining which parts of an e-project

to outsource first create an internal team Include people:

With technical know-how about the Internet Creative thinkers Already successful employees

Internal Teams (II) Do not select a technical wizard as project

leader if he/she does not have the necessary business skills Is not well-known and respected by the

operating function managers Is not creative

Internal Teams (III) Set aside between 5-10% of a project’s

budget for quantifying the projects value and measuring

the achievement (e.g using metrics) More and more companies are realising the

importance of their staff’s knowledge about the business and its processes These resources do not appear in companies

financial statements

Internal Teams (IV) The internal team decides

Which part of the project to outsource Who the parts will be outsourced to Which partners the company needs to hire for

the project

Types of Outsourcing There are three types of outsourcing

Early outsourcing E-commerce initiatives lend themselves more to

early outsourcing Late Outsourcing Partial outsourcing

Early Outsourcing The initial site design and development is outsourced

in order to launch it quickly An e-commerce site can rapidly become a source of

competitive advantage for a company Outsourcing team trains company information system

professionals in the technology and hands over the operation of the site

It is best for the company’s own information systems people to work closely with the outsourcing team and develop ideas for improvements as early as possible

Late Outsourcing This is the more traditional way The company’s information system professionals

do the initial design and development work, implement the system and operate it until it becomes a stable part of the business

After the competitive advantage is gained, the system is outsourced, allowing the team to pursue new technology projects

Partial Outsourcing The company identifies specific portions of

the project that can be completely designed, developed, implemented and operated by another firm that specialises in a particular function In both early and late outsourcing a single

group is responsible for the entire design, development and operation of a project

Partial Outsourcing (I) E-commerce initiatives can benefit from

partial outsourcing Partial outsourcing is also called

component outsourcing

Partial Outsourcing Example Many smaller Web sites outsource their email

handling and response functions Electronic payment systems

A company may use an external vendor to take care of payment processing When the customer is ready to pay, he/she is taken to

another site and then returned to the original site The most common part of an e-commerce project

that is outsourced is the web-hosting activity

Selecting a Web Hosting Service The internal team should be responsible for

selecting the ISP to host the site For smaller e-commerce projects teams can

consult an ISP dictionary (for ISPs, web hosting services or ASPs (application service provider))

Larger companies should use consultants or other firms that rate service providers

Selecting a Web Hosting Service (I) The most important factors to use when

evaluating a hosting service are: Functionality Reliability Bandwidth and server scalability Security Backup and disaster recovery Cost

New Methods for implementing Partial Outsourcing In the past five years new ways of

implementing partial outsourcing have been creating Incubators Fast venturing

Incubators A company that offers start-up companies a

physical location with offices, accounts and legal assistance, computers, and Internet connections at a very low monthly cost Some also offer seed money, management

advice an marketing assistance In exchange the company gives 10-50%

ownership of the company to the Incubator

Incubators (I) When the company grows and can obtain

venture capital financing or can publicly offer stock, the Incubator sells all or part of its interest and re-invests in a new incubator candidate

Example: Idealab (www.idealab.com/) was one of the

first Internet incubators and helped www.carsdirect.com/home

Internal Incubators Internal incubators are incubators that are

set up by a company (using internal staff), e.g. Kodak internal venturing program of the

1980s Most of these were unsuccessful because

employees found it difficult to maintain an entrepreneurial spirit when what ever they developed would be taken away and controlled by the parent company

Internal Incubators (I) A new internal incubator model has emerged

were the resulting technology is left under the control of the team, who forms a company

The parent company and the new company that become strategic partners

This new internal incubator model promises to be more successful that the traditional model

Fast Venturing An existing company that wants to launch an e-

commerce initiative joins with external equity and operational partners that can offer the experience and skills that can scale up the project rapidly Equity partners are usually banks or venture

capitalist that can offer money or expertise Operational partners are firms, such as system

integrators, consultants and Web portals who have the experience in moving projects along and scaling up prototypes

Fast Venturing (I)Venture sponsorDevelop ideas.Staffs internal team.Create prototype.Provide all or most of the start-up funds.

Equity partnersReview and refine ideas.Provide advice.Evaluate prototype.Provide contacts (including operational partners).

Operational partnersTurn ideas into a business plan.Provide financial, technical and operations expertise.Provide industry best practice knowledge.Scale up prototype to an operating model.

Managing Electronic Commerce Initiatives To manage complex e-commerce

implementations formal management techniques should be used: Project management Project portfolio management Specific staffing Post-implementation audits

Project Management A collection of formal techniques for planning and

controlling the activities undertaken to achieve a specific goal

The project plan includes cost, schedule and performance

Applications such as Microsoft Project and Primavera Project Planner help with project planning

These type of projects (e-commerce projects) have a reputation for failing

Project Portfolio Management A technique used to manage multiple

projects Each project is monitored as if it is an

investment in a financial portfolio Each project is assigned a rank based on its

importance to the strategic goals of the business and level of risk

E-commerce projects are viewed as investments in assets

Staffing for E-Commerce The internal team must determine the staffing

needs for the e-commerce initiatives The general areas of staffing required are:

Business, project and account managers Application specialists Web programmers and graphic designers Content creators, managers or editors Customer service System, and database administration Network operations

Business Manager Should be a member of the internal team Sets objectives for the project Responsible for implementing the elements of the

business plan and reaching the objectives set Develops proposal for plan revisions and funding Should have the required domain knowledge (e.g.

retail knowledge if a retail Web site is being built)

Project Manager Specific training or skills in tracking costs

and accomplishing project goals Certification might be useful (e.g. Project

Management Institute) or MBA Skills in the use of project management

software

Account Manager Keeps track of multiple Web sites in use by a

project Or keeps track of projects that will combine to

make a larger Web site The account manager supervises the location of

specific Web pages and related software installations as they are moved from test, to demonstration, to production

In smaller companies they handle the project and account management functions

Application Specialist Maintain accounting, human resources, and

logistics software Must maintain e-commerce software, e.g.

catalogs, payment processing

Other Roles Web programmers

Design and write code for Web site Web graphics designers

A person trained in art, layout, composition and understands how Web pages are constructed

Content creators Write original content

Content managers/editors Purchase existing material and adapt it

Other Roles (I) Customer service personnel

Help design and implement customer relationship management activities, e.g. issue passwords, design customer interface features, handle customer e-mail and telephone requests for service and conduct telemarketing for the site Some companies hire a call centre to handle phone

calls and e-mail

Other Roles (I) Systems administrator

Responsible for system reliability and security Network operation staff

Load estimation and monitoring, resolving network problems and managing network operations

Database administration Support activities such as transaction processing,

order entry, inquiry management or shipment logistics

Post-Implementation Audits A formal review of a project after it is up

and running Managers compare the the objectives,

performance specifications, cost estimates, and scheduled delivery dates plans with the actuals

Post-Implementation Audits The purpose is not to lay blame but to:

Provide project and business managers to raise questions about the objectives and use the feedback in other projects

The audit should result in a comprehensive report that analyses the project performance, the administration, organisational structure and the performance of the project team

Some audits contain a confidential section which evaluates the performance of individual team members – to help when choosing teams in future