Management
Information Systems,
10/e
Raymond McLeod Jr. and George P. Schell
© 2007 by Prentice Hall
Management Information Systems, 10/e
Raymond McLeod and George Schell
1
Chapter 3
Using Information Technology to
Engage in Electronic Commerce
© 2007 by Prentice Hall
Management Information Systems, 10/e
Raymond McLeod and George Schell
2
Learning Objectives
► Recognize
the importance and advantages of
electronic commerce.
► Understand how electronic commerce is being
blended into everyday business processes.
► Understand the difference between business-tobusiness electronic commerce and business-tocommerce electronic commerce.
► Be familiar with examples of good business-tobusiness electronic commerce and business-toconsumer electronic commerce.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
3
Learning Objectives (Cont’d)
► Know
the role that interorganizational systems,
the Internet, and the world Wide Web play in
electronic commerce.
► Know what factors influence the adoption of
Interorganizational systems.
► Recognize the movement from electronic data
interchange to various Web-standard data
exchange practices.
► Understand why many firms choose to have both
a virtual store and a physical store.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
4
Electronic Commerce
► Electronic
Commerce (E-commerce)
refers to a business transaction that uses
network access, computer-based systems,
and a Web browser interface.
► Business-to-consumer (B2C) refers to
transactions between a business and the
final consumer of the product.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
5
E-commerce (Cont’d)
► Business-to-business
(B2B) refers to
transactions between businesses in which
neither one is the final consumer.
► Electronic Government (E-gov) refers to
transactions between a government agency
and typically a citizen.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
6
E-commerce (Cont’d)
► Main
benefits to firms:
 Improved customer service before, during, and
after the sale
 Improved relationships with suppliers and the
financial community
 Increased economic return on stockholder and
owner investments
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Management Information Systems, 10/e
Raymond McLeod and George Schell
7
E-commerce (Cont’d)
► Main
constraints to firms:
 High costs
 Security concerns
 Immature or unavailable software
► Scope
of E-commerce
 WWW.CENSUS.GOV
 Link to the E-stats Web page to find the most
current e-commerce figures.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
8
Table 3.1 E-commerce Sales
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Management Information Systems, 10/e
Raymond McLeod and George Schell
9
Business Intelligence
► Business
Intelligence (BI) is the activity of
gathering information about the elements in the
environment that interacts with the firm.
► External databases are commercial databases
that, usually for a fee, provide information and
analyses on virtually any subject.
WWW.LEISNEXIS.COM, WWW.DIALOG.COM,
WWW.GXS.COM, WWW.THOMASNET.COM
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Management Information Systems, 10/e
Raymond McLeod and George Schell
10
Business Intelligence (Cont’d)
► Firms
use these databases to gather BI
because it is faster and less expensive than
trying to research a wide array of
information sources.
► Government databases offer a wide
range of topics for researchers in many
fields. WWW.LOC.GOV, WWW.CENSUS.GOV,
WWW.BLS.GOV
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Management Information Systems, 10/e
Raymond McLeod and George Schell
11
Business Intelligence (Cont’d)
► Firms
are more inclined to initiate their own
external searches for market intelligence.
► Search engines are the most popular means
for people to obtain information available
from the Web.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
12
Business Intelligence (Cont’d)
► Search
engine is a special computer program
that asks a user for a word or group of words to
be found. WWW.GOOGLE.COM,
WWW.YAHOO.COM, WWW.MSN.COM,
WWW.ASKJEEVES.COM
 Searches the content of web sites on the Internet to see
if the word or words are on any Web sites.
 Makes it possible to scan large volumes of information
quickly, easily, and thoroughly.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
13
Figure 3.1 Search Engines
Explore the Internet to find Sites Containing
Information You Seek
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Management Information Systems, 10/e
Raymond McLeod and George Schell
14
E-commerce Strategy and
Interorganizational Systems
► Interorganizational
system (IOS) is the
strategy in which a firm is linked with
transmissions of electronic data with other firms so
that all of the firms work together as a
coordinated unit, achieving benefits that each
could not achieve alone.
 Participating firms are called trading partners,
business partners, or a business alliance.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
15
E-commerce Strategy and
Interorganizational Systems
► E-commerce
is fundamental to IOSs.
► Electronic data interchange (EDI) is a
means for achieving an IOS; a subset.
► Extranets are another alternative.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
16
IOS Benefits
► Comparative
Efficiency is obtained by
the IOS because the trading partners can
produce their goods and services with
greater efficiency and provide their goods
and services at lower costs to their
customers. (price advantage over
competitors)
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IOS Benefits (Cont’d)
Comparative Efficiency Improvements
► Internal
efficiency within the firm’s own
operations.
 Gather and analyze data quickly.
 Make decisions faster.
► Interorganizational
with other firms.




efficiency gained by working
Offer more products and services.
Serve more customers.
Shift certain work to suppliers or customers.
Gather environmental data more easily.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
18
IOS Benefits (Cont’d)
► Bargaining
Power is the ability of a firm
to resolve disagreements with its suppliers
and customers to its own advantage.
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Bargaining Power Improvements
► Unique
product features enable firms to offer
better service to their customers in the form of
easier ordering, quicker shipments, and faster
response times to requests for information.
 This better service becomes a feature of the firm’s
products, making them more appealing than similar
products offered by competitors.
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Management Information Systems, 10/e
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20
Bargaining Power Improvements
(Cont’d)
► Reduced
search-related costs can reduce the
firm’s “shopping” cost that its customers incur in
searching for a supplier, identifying alternative
products, and getting the lowest price.
 The firm is a customer of its suppliers, the firm can
realize the same shopping-cost reductions when
ordering from its suppliers.
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Management Information Systems, 10/e
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21
Bargaining Power Improvements
(Cont’d)
► Increased
switching costs is when a firm
makes it more expensive, in cost and/or
convenience, for customers to switch to a
competitor.
 Providing customers with such information resources as
hardware, software, and data communications channels
that would have to be replaced if products were
purchased from another firm.
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22
IOS Expansion
► Vendor
stock replenishment is a special type
of IOS in that the customer trusts the supplier
enough to allow the supplier to access its
computer-based inventory system.
 The supplier initiates the replenishment process by
electronically monitoring the firm’s inventory levels.
 Wal-Mart uses the IOS strategy extensively.
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23
EDI
► EDI
consists of direct computer-to-computer
transmissions of data in a machinereadable, structured format.
► Older technology, but majority of B2B
commerce use
► Enables data to be transmitted and received
without rekeying
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Raymond McLeod and George Schell
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EDI (Cont’d)
► Equipment
(communications lines,
hardware, etc.) and support services
provided by telephone companies (AT&T,
MCI, et al.)
► Value-added network (VAN) is when the
services that operate and manage the
communications line (circuit) are provided in
addition to the line itself.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
25
EDI (Cont’d)
► EDI
is the dominant implementation of an
IOS.
 More that two-thirds of e-commerce is
conducted using EDI compared to other
alternatives.
 More costly: $5,000-$30,000 per year with a
single vendor or customer
 More bulky than newer IOS systems
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26
Extranet
► Extranets
enable the sharing of sensitive
computer-based information with other firms using
information technology over the internet.
 Used in collaboration with trusted suppliers and large
customers
 Security and privacy are serious concerns, so extranets
are generally secured behind a firewall and use
encryption such as Pretty Good Privacy (PGP).
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Management Information Systems, 10/e
Raymond McLeod and George Schell
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Extranet (Cont’d)
► Firewall
permits only authorized users to
access the firm’s information.
► Extranets allow for the same type of data
exchange as EDI.
► Extranets incorporate the common protocols
and communication networks of the
Internet, which results in a great cost
savings (EDI is costly to use).
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IOS Adoption Influences
► Proactive
and reactive business partners
► Adoption influences
 Competitive pressures (HIGH, firm is reactive in
adopting IOS, usually EDI)
 Exercised power (powerful firm is proactive in
adopting/demanding IOS)
 Internal need (firms see participation as a way to
improve)
 Top management support (ALWAYS influences the
decision)
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Management Information Systems, 10/e
Raymond McLeod and George Schell
29
Figure 3.2 Internal and Environmental
Influences on IOS Adoption
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Management Information Systems, 10/e
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30
IOS Benefits
► Direct
benefits
 Reduced data entry errors
 Lower costs
 Increased operational efficiency
► Indirect
benefits
 Increased ability to compete
 Improved relationships with trading partners
 Better customer service
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Management Information Systems, 10/e
Raymond McLeod and George Schell
31
Figure 3.3 IOS Direct and Indirect
Benefits
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Management Information Systems, 10/e
Raymond McLeod and George Schell
32
B2C Strategies for E-commerce
► Important
to understand B2C Strategies
 More products and services are becoming available for
digital delivery.
 More consumers are overcoming their reluctance to
purchase using the Web.
 Higher communication speeds in homes has made
delivery of digital products practical.
 Fear of information theft has been replaced with
acceptance.
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33
Digital Products
► Entertainment–songs,
albums, movies, etc.
WWW.SONY.COM
► Computer programs and updates–virus protection
software, tax software, etc.
► Services–WWW.LENDINGTREE.COM
► Can be consumed as soon as they are downloaded
► Purchasers incur a substantial cost of the
transaction in terms of computer cost, online
connection fees, storage media, and so on.
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Management Information Systems, 10/e
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34
Physical Products
► Items
must be transported to the consumer.
► Shipment has to be arranged.
► Traditional delivery methods are slow.
► Faster delivery time options are costly.
► Mail/shipping companies offer services such
as online tracking that allows more
information and control over delivery.
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35
Virtual vs. Hybrid Sales
► Virtual
sales are those made by a firm that does
not operate a physical storefront.
 Customer can’t enter and purchase the product.
► Hybrid
sales occur when firms have both a
physical storefront and a Web site where
customers can purchase products.
 Brick-and-click operations
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36
Virtual Sales Challenges
► Provide
necessary product information
without overwhelming the customer.
► Communicating image files from the Web
site to the customer’s computer can take
time.
► Payment over the Internet has suffered bad
press–credit card fraud.
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37
Hybrid Sales
► Most
firms had storefronts before sales over
the Internet were possible.
► Both a physical storefront and the Internet
are necessary to their business plans.
► Stores act as showcases for products.
► Customers enjoy convenience of shopping
over the Web.
► B2C sales means less inventory at its store;
more sales floor space.
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38
Virtual Sales
► Limit
images displayed response time,
WWW.OFFICEDEPOT.COM.
► Secure data transfer of credit card
information.
 VeriSign
 PayPal
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39
The Next Step for E-commerce
► Mobile
commerce (m-commerce) is the use of
cell phones and personal digital assistants
(PDAs) to engage in wireless e-commerce.
► Third generation (3G) telecommunications is
data-capable wireless technologies.
 Europe purchased 3G licenses in 2000; United States in
2004.
 $40 billion per year global industry by 2009.
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M-commerce
► Early
applications included news services,
financial information alert/transactions, and
banking.
► Movie ticket purchases, parking payments,
etc. gaining acceptance.
► Japan is 1st country to have a 3G carrier
(almost all Japanese have a cell phone).
► United States-only about 40% have a cell
phone.
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The Next Step … (Cont’d)
► Wireless
Internet Hot spots are created using
a wired connection (for high communications
speed) and then broadcast via a wireless access
point to an area approx. 100 meters; Starbucks.
► Business-class wireless computing would
provide fast wireless communication everywhere
over the same communications carrier as cell
phones; Verizon.
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42
Using the Internet
► The
origin of the Internet can be traced to
1969, when the U.S. government
established a network called ARPANET.
► ARPANET demonstrated that it was possible
for a person to request and receive data
over a complex network that included many
computers and network connections.
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43
World Wide Web
► World
Wide Web (WWW) efforts began in 1989
when Tim Berners-Lee came up with a idea for
physicists to communicate.
► Hypertext-electronic documents that are linked
together.
► Physicists would be able to click on words or
phrases displayed on their computer screens and
retrieve the hypertext.
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World Wide Web (Cont’d)
► Hypertext
became a reality in 1992.
► Hypermedia is the transmission of multimedia
consisting of text, graphics, audio, and video over
the WWW.
► WWW (Web) is information accessible via the
Internet whereby hypermedia documents
(computer files) are stored and then retrieved by
means of a unique addressing scheme.
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45
World Wide Web Terms
► Web
site–collection of Web pages
► Hypertext link–pointer (text or a graphic) used
to access hypertext stored at a Website
► Web page–hypermedia file stored at a unique
Web site address
► Home page–first page of a Web site
► Browser–software designed to find and read files
on the Internet written in hypertext markup
language (HTTP).
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46
World Wide Web Terms (Cont’d)
►
►
►
►
►
Uniform resource locator (URL)–unique address of a
Web page
Protocol–set of standards that govern communication of
data (HTTP, FTP, URL)
Domain name–address of the website where a Web page
is stored
Path–certain directory/subdirectory and file at the Web
site
File Transfer Protocol (FTP) users can copy files onto
their computers from any Web site.
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Management Information Systems, 10/e
Raymond McLeod and George Schell
47
Figure 3.5 World Wide Web
Terminology
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48
Understanding the Difference
► The
Internet is a global communications network
that connects millions of computers.
 Provides the network architecture
► The
Web is a collection of computers acting as
content servers that host documents formatted to
enable viewing of text, graphics, and audio as well
as allowing linkages to other documents on the
Web.
 Provides the method for storing and retrieving its
documents
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49
Cyberspace and the Information
Superhighway
► Cyberspace1:
a society that had become a
slave to technology.
► Information Superhighway describes a
positive force that gives everyone access to
the wealth of information that exists in
modern society.
1
Term coined in 1984, author William Gibson Neuromancer
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50
Internet Standards
► Internet
Society (1992) promotes
commercial Internet use.
► Internet Engineering Task Force (IETF)
responsible for Internet standards.
► World Wide Web Consortium (W3C)
responsible for Web standards.
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51
E-commerce and Hospital Supply
Chain Management
►
Hospitals conduct most of their purchases online.
 Only 5 % benefit compared to manual purchasing.
►
Hospitals can use a standard protocol such as the Internet
to replace EDI.
 Global Healthcare Exchange (WWW.GHX.COM) help hospitals
implement clinical commercial exchange
 Hospitals have hundreds, sometimes thousands, of vendors; the
savings is substantial.
►
Speed and ease of connection to a new vendor for ecommerce is a strong incentive for change.
 Analyze purchase requests.
 Find less expensive substitute or less costly vendor.
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52
Business Applications of the
Internet
►
Retailing Operations
 Most of the large retail chains have established a Web presence.
 Retailers make their home pages directly accessible through the
Web.
Virtual mall combine with other stores in a collection
sites.
► Retailing organizations changing the face of Web
information.
►
 WWW.AUTOBYTEL.COM
 WWW.AMAZON.COM
►
Over 70% of Internet users make a yearly online purchase.
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Management Information Systems, 10/e
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53
Suggestions for Successful
Internet Use
►
►
►
►
►
►
►
►
►
►
Make sure your Web site is robust.
Make sure your browser and database structure are both
flexible and intuitive.
Emphasize content.
Update often.
Look beyond customers.
Target content to specific users’ needs.
Make the interface intuitive.
Be in the right Web location.
Create a sense of community.
Get help if you need it.
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54
Future Impact of the Internet on
Business
► E-commerce
is growing in the United States
and worldwide (15% annually past 5 years).
► 3G cellular technology will enable users to
make purchases using their phones as a
debit or credit card; 4G service will soon be
available.
► By 2008 phones will be used routinely for
purchases.
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Raymond McLeod and George Schell
55