Chapter 4
Essentials of Management Information Systems, 6e
Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce
The Digital Firm: Electronic Business
and Electronic Commerce
4.1
© 2005 by Prentice Hall
Management Challenges
1. Digitally integrating the enterprise requires a
complete change of mind-set.
2. Finding a successful Internet business model.
4.2
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
Internet Technology and the Digital Firm
The Internet
• Rapidly becoming infrastructure of choice
• Universal, easy-to-use set of technologies and
standards
• Web sites available 24/7
• Extended distribution channels
• Reduced transaction costs
• Reduced network and coordination costs
4.3
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
New Business Models and Value Propositions
• Past: Information about products and
services bundled with their physical value
chain
• Today: The Internet has unbundled
information from traditional value chain,
creating new business models
4.4
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
New Business Models and Value Propositions
Information Asymmetry
• One party has more information essential to the
transaction than the other party
• The Internet shrinks information asymmetry
4.5
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
New Business Models and Value Propositions
Richness and Reach
• Richness: depth and detail of information
• Reach: how many people a business can connect
with; how many products offered those people
• Internet allows much richer communication with
farther reach
4.6
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
The changing economics of information
Figure 4-1
4.7
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
New Business Models and Value Propositions
Internet Business Models
• Virtual storefront: Sells physical products directly
to consumers or businesses.
• Information broker: Provides product pricing and
availability information; generates revenue from
advertising or directing buyers to sellers.
• Transaction Broker: Processes online sales
transactions for fee.
4.8
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
New Business Models and Value Propositions
Internet Business Models
• Online Marketplace: Provides digital environment
where buyers and sellers meet
• Content Provider: Provides digital content, such as
news; revenue from fees or advertising sales
• Online Service Provider: Provides connectivity;
revenue from fees, advertising, or marketing
information
4.9
Electronic Business, Electronic Commerce, and the Emerging Digital Firm
New Business Models and Value Propositions
Internet Business Models (cont.)
• Virtual Community: Provides online meeting
place for people of similar interests
• Portal: Provides initial point of entry to the Web,
along with specialized content and services
• Syndicator: aggregates content or applications to
resell as package to third-party Web sites
4.10
Electronic Commerce
Categories of Electronic Commerce
• Business-to-consumer (B2C): Retailing products
and services to individual shoppers
• Business-to-business (B2B): Sales of goods and
services among businesses
• Consumer-to-consumer (C2C): Consumers selling
directly to consumers
4.11
Electronic Commerce
Customer-Centered Retailing
Direct Sales Over the Web
• Disintermediation: Removal of intermediary steps
in a value chain, selling directly to consumers,
significantly lowers purchase transaction costs
• Reintermediation: Shifting intermediary function
in a value chain to a new source, such as “service
hubs”
4.12
Electronic Commerce
The benefits of disintermediation to the consumer
Figure 4-2
4.13
Electronic Commerce
Customer-Centered Retailing
Interactive Marketing and Presentation
• Collection of customer information using Web site
auditing tools less expensive than surveys and
focus groups
• Web personalization technology customizes
content on Web site to individual’s profile and
purchase history
• Web sites and marketing shorten sales cycle and
reduce time spent in customer education
4.14
Electronic Commerce
Web site personalization
Figure 4-3
4.15
Electronic Commerce
Customer-Centered Retailing
Customer Self-Service
• Web-based responses to customer questions cost a
fraction of telephone costs for live customer
service representation
• Web-based customer self-service applications,
such as airline flight information sites
• Traditional, phone-based customer call centers
being integrated with Web
4.16
Electronic Commerce
Business-to-Business Electronic Commerce
•
Web, Internet streamlining procurement process
•
E-procurement eliminates inefficient, paperbased processes
•
Selling through Web sites, private industrial
networks, or Net marketplaces
4.17
Electronic Commerce
Business-to-Business Electronic Commerce
Private Industrial Network
•
•
•
4.18
Private exchange; typically consists of large firm
using extranet to link to its suppliers and
business partners
Permits firm and partners to share product
design, development, marketing, scheduling,
inventory management, and unstructured
communication
Fastest-growing type of B2B commerce
Electronic Commerce
A private industrial network
Figure 4-5
4.19
Electronic Commerce
Business-to-Business Electronic Commerce
Net Marketplace
•
•
•
4.20
E-hub; provides single Internet-based
marketplace for many different buyers and
sellers
Industry owned or independent intermediaries
Transaction oriented; generates revenue from
purchase and sales transactions and other
services
Electronic Commerce
A Net marketplace
Figure 4-6
4.21
Electronic Commerce
Business-to-Business Electronic Commerce
Exchanges
•
•
•
4.22
Third-party Net marketplaces connecting
thousands of suppliers and buyers for spot
purchasing
Proliferated during early years of e-commerce
Exchanges encouraged competitive bidding,
driving prices down; suppliers reluctant to
participate
Electronic Commerce
Electronic Commerce Payment Systems
•
Digital credit card payment systems: Secure
credit card payment over Web
•
Digital wallet: Stores credit card and owner
identification, shipping information, to facilitate
payment process
•
Accumulated balance digital payment systems:
Accumulates micropayment purchases as debit
balance paid periodically on credit card or
telephone bills
4.23
Electronic Commerce
Electronic Commerce Payment Systems
•
Stored value payment system: Enables
consumers to make instant payments based on
value stored in digital account
•
Digital cash: Digital currency that can be used
for micropayments or larger purchases
•
Peer-to-Peer payment systems: Enables
payments to vendors not set up for credit-card
payments
4.24
Electronic Commerce
Electronic Commerce Payment Systems
•
Digital checking: Electronic check with secure
digital signature
•
Electronic billing presentment and payment
system: Supports electronic payment for online
and physical store purchases after purchase has
taken place
4.25
Electronic Commerce
Electronic commerce information flows
Figure 4-7
4.26
Electronic Business and the Digital Firm
How Intranets Support Electronic Business
•
Connectivity: accessible from most platforms
•
Can be tied to internal corporate systems and
core transaction data
•
Can create interactive applications with text,
audio, and video
4.27
Electronic Business and the Digital Firm
How Intranets Support Electronic Business
•
•
•
•
•
4.28
Scalable to larger or smaller computing
platforms as requirements change
Easy to use, universal Web interface
Low start-up costs
Rich, responsive information environment
Reduced information distribution costs
Electronic Business and the Digital Firm
Intranet Applications for Electronic Business
•
Finance and Accounting: Integrated view of
financial and accounting information online
•
Human Resources: Rapid delivery of
information to employees; online publishing
•
Sales and Marketing: Collaborative place to
coordinate activities of sales force
•
Manufacturing and Production: Distribute
manufacturing information to different parts of
organization
4.29
Electronic Business and the Digital Firm
Functional applications of intranets
Figure 4-8
4.30
Electronic Business and the Digital Firm
Business Process Integration
•
•
•
•
•
4.31
Pre-Internet, integration costly and difficult
Internet technology less expensive than building
enterprise systems
Intranets: improve coordination among internal
business processes
Extranets: coordinate processes shared with
customers and partners
Intranet promotes collaborative commerce
Management Challenges and Opportunities
Business Process Change Requirements
•
Unproven business models
•
Business process change requirements
•
Channel conflicts
•
Legal issues
•
Trust, security, and privacy
4.32
Electronic Business and the Digital Firm
Window on Organizations
Can Online Brokers Survive in Europe?
Is providing online financial services over the
Internet a viable business model? Why or why
not?
4.33
Chapter 4 Case Study
Can the Music Industry Change Its Tune?
1. Apply the value chain and competitive forces
models to the music recording industry.
2. What role did the Internet play in changing
value propositions and the competitive
environment? To what extent has it been
responsible for declining CD sales? Explain
your answer.
4.34
Chapter 4 Case Study
Can the Music Industry Change Its Tune?
3. Analyze the response of the music recording
industry to these changes. What management,
organization, and technology issues affected this
response?
4. What is the current business strategy of the
music industry? Do you think it is viable?
Explain your answer.
4.35