Chapter 4
The Digital Firm:
Electronic Business
and Electronic
Commerce
4.1
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
OBJECTIVES
• Analyze how Internet technology has changed
value propositions and business models
• Define electronic commerce and describe how it
has changed consumer retailing and business-tobusiness transactions
4.2
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
OBJECTIVES (Continued)
• Compare the principal payment systems for
electronic commerce
• Evaluate the role of Internet technology in
facilitating management and coordination of
internal and interorganizational business
processes
• Assess the challenges posed by electronic
business and electronic commerce and
management solutions
4.3
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
Corrugated Supplies Case
• Challenge: trillions of product configurations, short
lead times, many competitors
• Solution: Web extranet for order entry, customization,
inventory, change orders, and shipping
• Demonstrates how IT and the Web coordinate the
flow of information about orders, production,
inventory and shipment
• Illustrates how systems in the digital firm connect
demand, supply, and fulfillment to achieve
operational excellence
4.4
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm
• Information technology infrastructure: The
Internet provides a universal and easy-to-use set
of technologies and technology standards that
can be adopted by all organizations.
• Direct communication between trading partners:
Disintermediation removes intermediate layers
and streamlines processes.
4.5
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm (Continued)
• Round the clock service: Web sites available to
consumers 24 hours
• Extended distribution channels: Outlets created
for attracting customers who otherwise would not
patronize a firm
• Reduced transaction costs: Costs of searching for
buyers declines
4.6
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
New Business Models and Value Propositions
Business Model:
• Defines an enterprise
• Describes how the enterprise delivers a product
or service
• Shows how the enterprise creates wealth
4.7
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
The Changing Economies of Information
• Information asymmetry: One party in a transaction
has more information than the other. The Internet
decreases information asymmetry.
• Increases richness: The Internet increases the
depth, detail, and scope of information.
• Increases reach: The Internet increases the
number of people who can be contacted
efficiently.
4.8
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
The Changing Economics of Information
4.9
Figure 4-1
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Business Models
• Virtual storefront: Sells goods or services online
(Amazon.com)
• Information broker: Provides information on
products or services (Edmunds.com)
• Transaction broker: Provides online transaction
facility (eTrade.com, Expedia.com)
• Online marketplace: Provides a trading platform
for individuals and firms (eBay.com)
4.10
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Business Models (Continued)
• Content provider: Creates revenue by providing
content (WSJ.com, TheStreet.com)
• Online service provider: Provides online services,
including search service. (Google.com,
Xdrive.com)
• Virtual community: Provides an online community
to focused groups (Friendster.com, iVillage.com)
• Portal: Provides initial point of entry to Web,
specialized content, services (Yahoo.com,
MSN.com)
4.11
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Categories of Electronic Commerce
• Business-to-customer (B2C): Retailing of products
and services directly to individual customers
(Wal-Mart.com)
• Business-to-business (B2B): Sales of goods and
services to other businesses (Grainger.com,
Ariba.com)
• Consumer-to-consumer (C2C): Individuals using
the Web for private sales or exchange (eBay.com )
4.12
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Business-To-Consumer
Advantages of E-commerce:
• Customer-centered retailing: Closer and more
personalized relationship with customers is
possible
• Web sites: Provide a corporate-centered portal for
the consumer to quickly find information on
products, services, prices, orders
4.13
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Business-To-Consumer
Advantages of E-Commerce: (Continued)
• Disintermediation: The elimination of
organizations or business process layers
responsible for certain intermediary steps in a
value chain, reducing costs to the consumer
• Reintermediation: The shifting of the intermediary
role in a value chain to a new source, adding
additional value to the consumer
4.14
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
The Benefits of Disintermediation to the Consumer
4.15
Figure 4-2
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Interactive Marketing and Personalization
Clickstream tracking tools:
• Collect data on customer activities at Web sites
and store them in a log
4.16
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Site Visitor Tracking
4.17
Figure 4-3
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Personalization
• Create unique personalized Web pages for each
customer
• Increased closeness to customer increases value
to the customer, while reducing costs of
interacting with the customer
4.18
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Site Personalization
4.19
Figure 4-4
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Collaborative filtering:
• Compares information gathered about a specific
user’s behavior at a Web site to data about other
customers with similar interests to predict what
the user would like to see next. The software then
makes recommendations to users based on their
assumed interests.
4.20
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Customer self-service:
• The use of Web sites to provide customers with
access to information and answers to questions
• Replacing human call center operators and clerks
• UPS.com: Customer tracking of packages
• Orbitz.com: Customer self-help for organizing and
managing a trip
• Dell.com: “My Order Status” facility
4.21
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Business-to-Business Electronic Commerce: New
Efficiencies and Relationships
• Electronic Data Interchange (EDI): Enables the
computer-to-computer exchange between two
organizations of standard transactions. Currently
80% of B2B e-commerce uses this system.
• EDI is being replaced by more powerful Webbased alternatives.
4.22
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Net Marketplaces
Four different types of Net Marketplaces:
• Distributors: B2B online catalogs provide buyers with
access to thousands of parts and other goods
(Grainger.com)
• Procurement platforms: Platforms for purchasing
goods and materials and also sourcing, negotiating
with suppliers, paying for goods, and making delivery
arrangements (Ariba.com)
4.23
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Net Marketplaces
Four different types of Net Marketplaces: (Continued)
• Independent exchanges: Third-party Net marketplace
that is primarily transaction-oriented and that connects
many buyers and suppliers for spot purchasing
(Freemarkets.com, GEPolymerland.com)
• Industry consortia: Industry-owned Net marketplaces
used primarily for long-term sourcing of direct inputs
to production (ChemConnect.com)
4.24
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Electronic Data Interchange (EDI)
4.25
Figure 4-5
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Private Industrial Networks
• The largest Web-based form of B2B commerce
• Private B2B extranets that focus on continuous
business process coordination between a small group
of companies for collaboration and supply chain
management. Wal-Mart uses its own private network
to coordinate more than 15,000 suppliers to its stores.
4.26
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
A Private Industrial Network
4.27
Figure 4-6
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
A Net Marketplace
4.28
Figure 4-7
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Electronic Commerce Payment Systems
4.29
Credit cards
The most common form of payment. $50 Limited customer liability.
Digital wallets
Electronic storage of I.D. and digital cash. Not widely used.
Accumulated balance
Used for micro payments. Similar to monthly telephone bills.
Stored value
Used for micro payments. Pre-payment of funds, debited on use.
Smart Cards
I.D. and credit information stored on a chip attached to a card. Used in Europe.
Digital cash
Electronic currency that can be transferred over the Web.
Peer-to-Peer payment
Interpersonal transfer of funds such as PayPal.
Digital checking
Electronic checks with digital signatures, used most often in B2B commerce.
Electronic billing presentment
and payment
Used by consumers to pay bills online, provided by many banks.
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
How Intranets Support Electronic Business
• Benefits
• Functional applications
• Good examples: CARE and Mitre Corporation
4.30
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Benefits of Intranets
• Connectivity: Accessible from most computing
platforms
• Can be tied to internal corporate systems and
core transaction databases
• Platforms for interactive applications
• Scalable to larger or smaller computing platforms
4.31
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Benefits of Intranets (Continued)
• Easy to use, universal standard Web interface
• Low start-up costs
• Richer, more responsive information environment
than corporate manuals
• Reduced information distribution costs
4.32
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Functional Applications of Intranets
• Finance and accounting
• Human resources
• Sales and marketing
• Manufacturing and production
4.33
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Functional Applications of Intranets
4.34
Figure 4-8
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Finance & Accounting
• General ledger reporting
• Project costing
• Annual reports
• Budgeting
4.35
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources
Company:
• Online publishing of corporate policy
• Job postings and internal job transfers
• Company telephone directories, training
4.36
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources (Continued)
Employees:
• Healthcare
• Employee savings
• Competency tests
4.37
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Sales and Marketing
• Competitor analysis
• Price updates
• Promotional campaigns
• Sales presentations
• Sales contracts
4.38
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Manufacturing and Production
• Quality measurements
• Maintenance schedules
• Design specifications
• Machine outputs
• Order tracking
4.39
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Business Process Integration
The Internet and collaborative commerce:
• Collaborative commerce: When firms use the
Internet to cooperate closely in the development,
production, and distribution of products and
services
• GE Plastics maintains an Intranet where its
customers (selected fabricators) can find
information on product design and new
developments.
4.40
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Collaborative Commerce
4.41
Figure 4-9
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS
Management Opportunities:
The Internet provides firms with extraordinary
opportunities to develop new products and
services, new distribution channels, new avenues
for marketing and sales, and even entirely new
business models.
4.42
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS
Management Challenges:
• Finding a successful Internet business model
• Organizational change challenges
• Trust, Security, and Privacy
4.43
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS
Solution Guidelines:
• Determining how Internet technology can provide
value for the business
• Managing business process changes
• Safeguarding security and privacy
4.44
© 2006 by Prentice Hall