Information Systems:
Creating Business Value
John Wiley & Sons, Inc.
Mark Huber, Craig Piercy, and
Patrick McKeown
Copyright 2007 John Wiley & Sons, Inc.
Chapter 7:
E-Commerce for Consumers
and Organizations
Copyright 2007 John Wiley & Sons, Inc.
What We Will Cover:
•
•
•
•
E-Commerce: An Overview
The E-Commerce Difference
E-Commerce for Consumers
E-Commerce Between Organizations
Copyright 2007 John Wiley & Sons, Inc.
Student ROI (Return on Investment)
Your investment of time and effort in this course will result in
your being able to answer these questions:
1. What is e-commerce and how is it a part of today’s
economy?
2. How does e-commerce make a difference to
businesses and consumers?
3. How does e-commerce allow businesses to create
value for their consumers?
4. How do businesses use e-commerce to enhance the
products and services that they trade with business
partners, as well as to improve their supply chain
efficiency?
Copyright 2007 John Wiley & Sons, Inc.
What is e-commerce?
• E-commerce is the use of information systems,
technologies, and computer networks to carry out
transactions in order to create or support the creation of
business value.
• Note that we do not say “to buy and sell over the
Internet” in our definition – why?
–
–
Copyright 2007 John Wiley & Sons, Inc.
E-commerce (cont.)
Uneven penetration into areas of commerce
–
Travel Industry versus Retail Clothing Industry
(clothing is trending upward)
–
Most people think of e-commerce as electronic
shopping over the WWW or Business to Consumer
e-commerce (B2C - transactions in hundreds of
millions of dollars)
–
However, Business to Business e-commerce (B2B)
transactions are valued in trillions of dollars!
Copyright 2007 John Wiley & Sons, Inc.
Types of E-Commerce
Transactions
Transaction
Description
Example Web sites
Business-toconsumer (B2C)
www.landsend.com,
www.overstock.com,
www.amazon.com
Business-to-business
(B2B)
www.manheim.com,
www.boeing.com
Business-togovernment (B2G)
www.irs.gov,
www.fedbizopps.gov,
App.mt.gov/bustax
Consumer-togovernment (B2G)
www.irs.gov/individuals,
express.hsmv.state.fl.us
Consumer-toconsumer (C2G)
www.ebay.com,
auctions.yahoo.com
Copyright 2007 John Wiley & Sons, Inc.
E-Commerce and Products:
Physical and Electronic
• Products can be divided into two primary categories:
__________and __________.
• Physical products include ….
• Electronic products ….
• E-commerce companies must have ________ - ________
________ to handle order fulfillment and to handle returns for
physical goods,
• Companies experienced in order fulfillment and returns have tended
to be successful in dealing with physical goods using E-commerce.
– Examples Copyright 2007 John Wiley & Sons, Inc.
Types of E-Commerce Transactions and
Associated Goods
Transaction Example Physical
Goods
Example Electronic Goods
B2C
B2B
B2G
C2G
C2C
Copyright 2007 John Wiley & Sons, Inc.
Purchase of Physical Goods
v. Electronic Products
Physical Goods
Electronic Products
The “E-Commerce Difference”
• The use of computer networks, especially the Internet, to
carry out transactions between a variety of buyers and
sellers is creating a tangible “e-commerce difference” in our
economy, especially with regard to
–
–
–
• Over 1 billion potential customers around the world in the
marketspace due to increasing Internet access.
• Universal standards make it work the same way no matter
where in the world you might be.
Copyright 2007 John Wiley & Sons, Inc.
Impact of E-commerce
Technologies on Business
Copyright 2007 John Wiley & Sons, Inc.
E-Commerce Differences
• Innovative uses of the Internet have produced global competition
with sellers being able to reach any potential buyer in the world.
• This is true for both the large retailers and for those selling in niche
market.
• Technology has increased information density—the quality and
quantity of information about products and services.
• Customers can obtain product guides, reviews, and prices from a
myriad of Web sites creating business challenges.
• This sort of commerce can be developed when one thinks about
products / services / processes / relationships in terms of leveraging
information intensity – the extent to which these things are
comprised of information (Note: this is the only Salisbury change to
this slide).
Copyright 2007 John Wiley & Sons, Inc.
Mass Customization and Personalization
• One response to information density is to create
business value based on a customization-oriented
approach to e-commerce.
• Two approaches to customization are: mass
customization and personalization.
• Mass customization -
• Personalization • Richness versus Reach Copyright 2007 John Wiley & Sons, Inc.
UDMIS.info
E-commerce and Competition
• E-commerce is having a dramatic effect on
competition between organizations in a
number of ways including:
–
–
–
–
–
Copyright 2007 John Wiley & Sons, Inc.
Business and E-commerce Strategy
•E-commerce has changed business strategy.
•A strategy is a broad-based formula for how a business is
going to compete, what its goals should be, and what plans
and policies will be needed to carry out those goals.1
1Michael
Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.
Copyright 2007 John Wiley & Sons, Inc.
E-commerce Strategy
• An e-commerce strategy is a …
•
• To build an e-commerce strategy requires two view of an
organization’s strategy: what is wants to do (conceptual) and how it
will do it (technology strategy).
• One strategy being used by many companies is customer
relationship management which enables them to create to one-toone marketing experience for their customers.
• Other e-commerce strategies include virtual showrooms, increased
channel choices, wider component choice, and use of mobile
technology.
• Mobile commerce is …
Copyright 2007 John Wiley & Sons, Inc.
Benefits and Limitations of B2C E-commerce for
Consumers1
Benefits
Limitations
•Potential for channel conflict.
(NOTE: THIS POINT IS THE
ONLY CHANGE ADDED BY
SALISBURY TO THIS SLIDE.
1Some
but not all of these were taken from E. Turban, et. al., Electronic Commerce:
A Managerial Prospective 2002, Prentice-Hall: Upper Saddle River, NJ, pp. 26-28.
Copyright 2007 John Wiley & Sons, Inc.
UDMIS.info
Benefits and Limitations of B2C E-commerce for
Businesses1
Benefits
Limitations
Copyright 2007 John Wiley & Sons, Inc.
E-commerce Business Models
• A business model defines how a company will
meet the needs of its customers while making a
profit.
• An e-commerce business model is a …
• The next three slides list and give examples of
e-commerce business models (Source: adapted
from Michael Rappa,
http://digitalenterprise.org/models/models.html.
Copyright 2007 John Wiley & Sons, Inc.
E-commerce Business Models (cont.)1
Business
Model
Description
Brokerage
Brokers bring
buyers and sellers
together for a fee.
There are many types of
brokerage models in all
types of e-commerce.
Advertising
An extension of the
traditional media
broadcasting model
in which ads appear
on Web sites.
There are many different
types of advertising, but
all depend on a large
volume of viewer traffic.
Merchant
Sell products, both
physical and
electronic, to
consumers
Commonly referred to as
e-tailers, merchants can
use pure e-commerce or a
combination (click and
mortar).
1Adapted
Examples
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
Copyright 2007 John Wiley & Sons, Inc.
Comments
E-commerce Business Models (cont.)1
Business
Model
Description
Manufacturer
Direct
Make and sell
products directly
to customer
Products can be
purchased (PCs),
leased (servers), or
licensed (software).
Affiliate
Affiliate Web sites
are paid a fee
when purchases
come through
them.
Can also include
banner ad exchange
between affiliated sites
as well as revenuesharing.
Community
Based on user
loyalty because of
high investment of
time and emotion.
Revenue is generated
through sale of ancillary
products or voluntary
contributions
1Adapted
Examples
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
Copyright 2007 John Wiley & Sons, Inc.
Comments
E-commerce Business Models (cont.)1
Business
Model
Description
Subscription
Users are charged
fee to subscribe to
service to service
or information
source
Subscription may be
for premium services;
advertising model may
be combined with this
model
Infomediary
Provides data on
consumers and
consumption
habits
Usually aimed at
helping businesses
rather than consumers
Coopetitive
Enable
competitors to
cooperate on a
Web site
Usually aimed at
individuals or small
businesses that cannot
attract customers to
their own Web site.
1Adapted
Examples
from Micheal Rappa, http://digitalenterprise.org/models/models.html.
Copyright 2007 John Wiley & Sons, Inc.
Comments
E-commerce Web site Purpose
•The purpose of an e-commerce website is another way
to understand businesses’ e-commerce business
models.
•No matter how good the business model, it will not
generate a profit if not associated with a Web site that
brings in customers or at least visitors.
•There are eight commonly accepted types of Web
sites: portal, search engine, Browse or search and buy,
sales support, information service, auction, travel, and
special interest or services.
•A number of these match up with multiple business
models.
Copyright 2007 John Wiley & Sons, Inc.
Web Sites Classified By Purpose
Web Site Type
Purpose
Example
Portal
A gateway to many
other Web sites
Advertising,
Affiliate
Search Engine
Finds Web sites that
contain a word or
phrase
Advertising,
Affiliate,
Infomediary
Browse or
search and buy
Sell goods and
services
Merchant,
Infomediary,
Manufacturer
Direct, Coopetitive
Sales Support
To provide
information on a
product before or
after the sale
Community,
Infomediary
Copyright 2007 John Wiley & Sons, Inc.
Business Model
Web Sites Classified By Purpose
(Cont.)
Web Site Type
Purpose
Example
Information
Service
To provide news,
information,
commentary, and so on.
Subscription,
Community,
Affiliate
Auction
Facilitate sales between
third parties
Brokerage
Travel
Sell travel tickets and
tours
Merchant,
Brokerage,
Coopetitive
Special Interest Provide information,
or Services
product sales and
support, and contacts
between visitors
Copyright 2007 John Wiley & Sons, Inc.
Business Model
Community,
Merchant,
Affiliate,
Infomediary,
Advertising
B2B e-commerce: E-Commerce
Between Organizations
• Doing business with other organizations (B2B) is by far
larger than with consumers (B2C).
• It is also quite different in terms of the scope of the
purchases and the complexity involved in them—
especially in the decision making required to make a
purchase.
• For example, while you buy one PC, a company may
buy thousands.
• What are Interorganizational systems (IOS)?
Copyright 2007 John Wiley & Sons, Inc.
Comparing B2C to B2B
Process
Individual
Business Organization
Decision to
purchase
Made based on own
needs
Made based on the organization’s needs
which are a combination of many different
departmental and individual needs
Decision
where to buy
Made after own research
into market
Made through a systematic process that
involves considering what each vendor can
provide the organization in terms of setup,
networking, and so on.
Number of
Items
One
Many
Actual
Purchase
Buy computer online or in
person with personal
credit card
Buy computers only after significant
negotiations over price and terms with
vendor
Payment
Pay credit card bill with
personal check
Pay by company check only after assuring
that all computers have been delivered and
setup by vendor
Copyright 2007 John Wiley & Sons, Inc.
B2B Transactions
• B2B transactions can be divided into two types: spot
buying and strategic sourcing.
• What is spot buying?
• Companies often use spot buying to purchase
commodities, i.e., uniform in quality differing only in price
like gasoline, paper, and cleaning supplies.
• What is strategic sourcing?
• A company’s large-scale computer purchases often
result from strategic sourcing.
Copyright 2007 John Wiley & Sons, Inc.
B2B Business Models
• Strategic sourcing is often carried out through a one-to-one
business model, but company-centric and exchange models
are also used.
• In the one-to-one business model …
• In the company-centric business model …
• The single company dominates the market and controls the
information systems that supports the transactions. Electronic
data interchange (EDI) or an extranet is often used to link
trading partners.
• E-procurement is often the name for B2B e-commerce in the
many-to-one business model.
Copyright 2007 John Wiley & Sons, Inc.
Company Centric Business
Model
Copyright 2007 John Wiley & Sons, Inc.
Exchange Model
• In the exchange business model, many
companies use an exchange to buy and sell
from each other through spot-buying
transactions.
Copyright 2007 John Wiley & Sons, Inc.
Types of Exchanges
• Exchanges can be cooperative ventures among
the companies or it can be run by a larger
company that profits from the transactions.
• What is a vertical exchange?
• What is an horizontal exchange?
• From an e-commerce point-of-view, exchanges
are often Web sites that buyers and sellers post
their needs and offerings.
Copyright 2007 John Wiley & Sons, Inc.
Services in B2B E-Commerce
Just as services are an important part of B2C e-commerce, they are also an
important part of B2B e-commerce.
Service or Electronic
Product
Comments
Software
Leasing
Travel
Copyright 2007 John Wiley & Sons, Inc.
Services in B2B E-Commerce (cont.)
Service or
Electronic Product
Comments
Insurance
Banking
Stock trading
Financing
Copyright 2007 John Wiley & Sons, Inc.
Using B2B e-commerce and IOS to
Improve Supply Chain Efficiency
• What is a supply chain? 1
• Procurement is a big part of the supply chain
and using e-commerce for e-procurement has
resulted in money savings.
• To see why, we first need to understand the
traditional procurement process.
1 “An
Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison,
http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html
Copyright 2007 John Wiley & Sons, Inc.
Traditional Procurement Process
In the traditional procurement process, there are
five steps involving three elements—purchase
order, invoice, and receipt of goods:
1. Purchase order (PO) to vendor
2. Goods to buyer along with bill of lading (BOL)
3. Upon receipt of goods and BOL, signed copy of
BOL returned to vendor and receipt of goods is filed
4. Vendor sends invoice to buyer
5. Buyer’s accounting department compares PO to
receipt of goods and invoice. If there is a match,
buyer pays the vendor.
Copyright 2007 John Wiley & Sons, Inc.
Traditional Procurement Process
Copyright 2007 John Wiley & Sons, Inc.
Interorganizational Systems (IOS)
• An interorganizational system (IOS) is a
networked information system used by two
or more separate organizations to perform
a joint business function.1
• Electronic Data Interchange (EDI)
• Extranets
1Cash,
J. I. Jr., F. W. McFarlan, J. L. McKenney, and L. M. Applegate. 1994.
Corporate information systems management: text and cases. 4th ed. Homewood, IL: Irwin, p. 339.
Copyright 2007 John Wiley & Sons, Inc.
Using E-commerce to Improve
the Procurement Process
• What is Electronic Data Interchange (EDI)?
• Even though often overshadowed by newer technology, EDI
remains the engine behind the majority of e-commerce
transactions worldwide. It is, however, too expensive for most
small businesses.
• What are extranets?
• An extranet can be thought of as two connected intranets.
Copyright 2007 John Wiley & Sons, Inc.
Extranets
Copyright 2007 John Wiley & Sons, Inc.
Comparing EDI and Extranets
EDI
Security
Cost
Flexibility
Trend
Copyright 2007 John Wiley & Sons, Inc.
Extranet