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
ELECTRONIC BUSINESS, ELECTRONIC COMMERCE,
AND THE EMERGING DIGITAL FIRM
Internet Technology and the Digital Firm
• Information technology infrastructure: The
Internet provides a global, easy-to-use, and
inexpensive communication platform for all
organizations and individuals.
• Direct communication between trading partners:
Disintermediation (direct buying) removes
intermediate (in the middle) layers and speeds up
buying and selling as well as making both sides
financially better off (no middleman).
4.2
© 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
• Additional sales channels (via internet):
Customers have wider choice, either physical
shops nearby or internet. Companies also have
many more customers from all over the world.
• Reduced information costs: Costs of searching
for buyers and sellers decreases
4.3
© 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)
• Higher enforcement (legal) costs: Since buyer and
seller may be far away from each other
(sometimes in different countries), it is difficult to
use courts to settle problems. More problems
arise in internet shopping since customers cannot
easily handle the product (compared to physical
shops).
4.4
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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 (sometimes).
• Increases richness: The Internet increases the
depth, detail, and scope of information at very low
cost.
• Increases reach: The Internet increases the
number of people who can be contacted
efficiently.
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 has made it possible for entrepreneurs to create
New Business Models and Value Propositions
Business Model: Just means what kind of product or
service you sell and to which customers and how,
e.g. selling books in a shop is one model, amazon
is another model, selling both in shops and on
internet (like Marks and Spencer) would be a third
model.
Value Proposition:The value proposition just means
the reasons why customers choose that firm and
not other firms, e.g. What does Mercedes-Benz
give that other car companies do not?
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
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)
4.7
© 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
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)
4.8
© 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 )
4.9
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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
4.10
© 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
4.11
• Reintermediation: Instead of middleman, now we
have information-providing companies. They help
us to find what we want on the internet and give
us (objective??) advice on products, services, and
sellers.
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
The Benefits of Disintermediation to the Consumer
4.12
Figure 4-2
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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
4.13
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Site Visitor Tracking
4.14
Figure 4-3
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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
4.15
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Web Site Personalization
4.16
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. E.g. in Amazon you see
“customers who purchased this book also
purchased …..”
4.17
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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
4.18
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Electronic Data Interchange (EDI)
4.19
Figure 4-5
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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.
• In the last 15 years EDI is being replaced by more
powerful and cheaper Web-based alternatives
(more powerful because of search, prioritize,
compare, etc. capabilities)
4.20
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
Net Marketplaces
Improve B-2-B commerce
• B2B online catalogs provide buyers with access to
thousands of parts and other goods (Grainger.com)
• Procurement (finding, buying, paying for, transporting)
inputs becomes easier (Ariba.com)
4.21
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
A Net Marketplace
4.22
Figure 4-7
© 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)
• Third-party Net marketplaces help many buyers and
suppliers to meet each other for spot purchasing
(Freemarkets.com, GEPolymerland.com)
• Industry-owned Net marketplaces are used mainly for
long-term (annual or more) contracts to buy directly
inputs to production (ChemConnect.com)
4.23
© 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.
4.24
© 2006 by Prentice Hall
Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC COMMERCE
A Private Industrial Network
4.25
Figure 4-6
© 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
• Intranets are organisational information
systems which help share data between
people (who have passwords) in various
departments of that organisation.
• Extranets are parts of intranets which (with
password) is available to outsiders (suppliers,
customers, transportation companies) who
need some of that organisation’s data to
coordinate activities such as delivering inputs
from suppliers or finished products to
customers.
4.26
© 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
• Compared to computer networks (using physical
wired connections) connecting or disconnecting
someone to the organisational information
system network is as easy as creating a new user
and password.
• And other benefits are…
4.27
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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 costs
• Richer, more responsive information environment
than corporate manuals
• Reduced information distribution costs
4.28
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Finance & Accounting Information on an Intranet
• Project costing
• Annual reports
• Budgeting
4.29
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Human Resources Information on an Intranet
Company:
• Online publishing of corporate policy
• Job postings and internal job transfers
• Company telephone directories, training
4.30
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Sales and Marketing Information on an Intranet
• Competitor analysis
• Price updates
• Promotional campaigns
• Sales presentations
• Sales contracts
4.31
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Management Information Systems
Chapter 4
The Digital Firm: Electronic Business and Electronic Commerce
ELECTRONIC BUSINESS AND THE DIGITAL FIRM
Manufacturing and Production Information on an Intranet
• Production schedules
• Maintenance schedules
• Design specifications
• Order tracking
4.32
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