Chapter 13
Planning for Electronic
Business
Learning Objectives
In this chapter, you will learn about:
• Identifying the value of electronic commerce
initiatives
• Aligning implementation plans with strategies
• Deciding which electronic commerce project elements
to outsource
Learning Objectives (cont.)
• Selecting Web hosting services
• Using incubators and fast venturing techniques to
launch Internet business initiatives
• Using project and portfolio management techniques
to plan and control electronic commerce activities
• Staffing electronic commerce activities
Planning the Electronic
Commerce Project
• A successful business plan for an electronic
commerce initiative should include activities that will:
• Identify the initiative’s specific objectives
• Link those objectives to business strategies
• Manage the implementation of those business
strategies
• Oversee the continuing operations of the initiative
after it is launched
Identifying Objectives
Common objectives include:
• Increasing sales in existing markets
• Opening new markets
• Serving existing customers better
• Identifying new vendors
• Coordinating more efficiently with existing
vendors
• Recruiting employees more effectively
• Resource decisions should consider the expected
benefits and costs of meeting the objectives.
Linking Objectives to Business
Strategies
• Businesses can use downstream strategies, which
are tactics that improve the value that the business
provides to its customers.
• Businesses can pursue upstream strategies that
focus on reducing costs or generating value by
working with suppliers or inbound logistics.
Linking Objectives to Business
Strategies
• The Web is an attractive sales channel.
• The Web can be used to complement business
strategies and improve competitive positions.
• Electronic commerce opportunities can inspire
businesses to undertake many activities.
Linking Objectives to Business
Strategies
• More companies are taking a closer look at the
benefits and costs of their electronic commerce
projects.
• A good business plan will set specific objectives for
the benefits to be achieved and costs to be incurred.
• Companies use pilot Web sites to test an electronic
commerce idea, and then release a production
version when it works well.
Measuring Benefit Objectives
• Many companies create Web sites to build their
brands or enhance existing marketing programs.
• These companies can set goals in terms of increased
brand awareness, as measured by market research
surveys.
• Companies that sell goods or services on their sites
can measure sales volumes in units or dollars.
Measuring Benefit Objectives
• Companies can use a variety of similar measurements
to assess the benefits of other electronic commerce
initiatives.
• Supply chain managers can measure supply cost
reductions, quality improvements, etc.
Measuring Benefit Objectives
Measuring Cost Objectives
• Many changes in the cost of hardware are downward.
• The increasing sophistication of software provides an
ever-increasing demand for newer hardware.
• The project budget must include the cost of hiring,
training, and personnel.
Measuring Cost Objectives
• Based on data collected in separate recent surveys,
International Data Corporation and the GartnerGroup
both estimated that the cost for a large company to
build and implement an adequate entry-level
electronic commerce site was about $1 million.
• About 79% of that cost was labor related
• 10% was the cost of software
• 11% was the cost of hardware
Measuring Cost Objectives
• Recent estimates of the cost to build small Web sites
have continued to increase as more companies
establish themselves on the Web.
• Expensive features, such as shopping carts and
search engines, have become standard on even the
most basic sites.
• Analysts have estimated the minimum dollar amount
needed to open an entry level electronic commerce
Web site at $150,000.
Measuring Cost Objectives
Measuring Cost Objectives
• The McKinsey study estimated costs for two types of
magazine sites: a full portal site that would serve as a
destination in itself and a more limited magazine
companion site.
• The full portal site cost estimate was $2.4 million to
build and $4.3 million per year to maintain, with a staff
of 35 people.
• The companion site cost estimate was $150,000 to
build and $270,000 per year to maintain, with a staff of
two people.
Measuring Cost Objectives
• Kmart’s Web store, Blue-Light.com, cost more than
$140 million to create.
• The site is certainly well designed and highly
functional, but the typical visitor would never guess
how much this site cost.
Measuring Cost Objectives
Comparing Benefits to Costs
• If the benefits exceed the cost of a project by a
comfortable margin, the company invests in the
project.
• Companies should evaluate each element of their
electronic commerce strategies using this
cost/benefit approach.
• Managers often use return on investment (ROI) to
evaluate any capital investment.
Comparing Benefits to Costs
Comparing Benefits to Costs
• Although most companies evaluate the anticipated
value of electronic commerce initiatives in some way
before approving them, many companies see these
projects as absolute necessities.
• These companies fear being left behind as
competitors stake their claims in the online market
space.
• The value of early positioning in a new market is so
great that many companies are willing to invest large
amounts of money with few near-term profit
prospects.
Comparing Benefits to Costs
• Newspaper Web sites are a good example of this
desire to establish a foothold in the online market
space.
• Profitable electronic commerce initiatives in the
newspaper business, such as Gannet’s USA Today
and The Wall Street Journal’s WSJ.com sites, are few.
Strategies for Web Site Development
• The evolution of Web site functions:
• From the static brochures of the early days of
electronic commerce
• To transaction processing tools
• To today’s automated homes for business
processes of all kinds
Strategies for Web Site Development
Strategies for Web Site Development
• The transformation of Web site functions occurred
rapidly, taking only a year or two in most companies.
• Few businesses have caught up with the changes in
terms of how they develop Web sites.
• The purposes and scope of Web sites have increased
greatly, but few businesses today manage them as the
dynamic business applications they have become.
Strategies for Web Site Development
• Many large and medium-sized companies have found
it extremely difficult to develop new information
systems and Web sites that work with their existing
systems to create new markets or reconfigure their
supply chains.
Internal Development vs. Outsourcing
• The key to success is finding the right balance
between outside and inside support for the project.
• Hiring another company to provide the outside
support for the project is called outsourcing.
The Internal Team
• The first step in determining which parts of a project
to outsource is to create an internal team that is
responsible for the project.
• Business knowledge and creativity are much more
important than technical expertise in establishing
successful electronic commerce.
The Internal Team (cont.)
• Measuring the achievement of an internal team is very
important.
• Customer satisfaction, number of sales leads
generated, and reductions in order-processing time
are examples of metrics that can provide a sense of
the team’s level of accomplishment.
Early Outsourcing
• In many electronic commerce projects, the company
outsources the initial site design and development to
launch the project quickly.
• The outsourcing team then trains the company’s
employees in the new technology before handing the
operation of the site over to them .
• This approach is called early outsourcing.
Late Outsourcing
• The company does the initial design, development,
implementation, and operates the system until it
becomes stable.
• After the company has gained all the competitive
advantages provided by the system, the maintenance
of the electronic commerce system can be
outsourced.
• This approach is called late outsourcing.
Partial Outsourcing
• In partial outsourcing, the company identifies specific
portions of the project that can be completely
designed, developed, implemented, and operated by
another firm that specializes in a particular function.
• E-mail systems, electronic payment systems, and
Web hosting are examples of partial outsourcing
projects.
Partial Outsourcing
• Another common example of partial outsourcing is an
electronic payment system.
• Web hosting is one of the most common elements of
electronic commerce initiatives that companies
outsource using partial outsourcing.
Selecting a Hosting Service
• The internal team should be responsible for selecting
the ISP that will provide the site’s hosting service.
• For smaller electronic commerce projects, teams can
consult an ISP directory, such as ‘The List’.
• For larger Web sites, the team will want to obtain the
advice of consultants or other firms that rate ISPs and
CSPs, such as ‘Keynote Systems’.
Selecting a Hosting Service (cont.)
• The factors to evaluate when selecting a hosting
service include:
• Functionality
• Reliability
• Bandwidth and server scalability
• Security
• Backup and disaster recovery
• Cost
Selecting a Hosting Service (cont.)
• Determine the functionality offered by a hosting
service and carefully evaluate whether that
functionality will be sufficient to meet the needs of
your Web site.
• Because the company’s information on customers,
products, pricing, and other data will be placed in the
hands of the service provider, the vendor’s security
policies and practices are very important.
New Methods for Implementing
Partial Outsourcing
• New ways of implementing the partial outsourcing
strategy have evolved for Web businesses.
• Two of the more popular methods are:
• Incubators
• Fast venturing
Incubators
• An incubator is a company that offers start-up
companies a physical location with offices,
accounting and legal assistance, computers, and
Internet connections at a very low monthly cost.
• Incubators might offer seed money, management
advice, and marketing assistance.
• In exchange, the incubators receive an ownership
interest in the company.
Incubators
• Some companies have created internal incubators.
• A number of companies have used internal incubators
in the past to develop technologies that the
companies planned to use in their main business
operations.
• Recently companies, such as Matsushita Electric’s
U.S. Panasonic division, have started internal
incubators to help launch new companies that will
grow to become important strategic partners.
Fast Venturing
• In fast venturing, an existing company that wants to
launch an electronic commerce initiative joins
external equity partners and operational partners to
scale up the project rapidly.
• Equity partners are usually banks or venture
capitalists.
• Operational partners are firms that have experience in
moving projects along.
Fast Venturing
Managing Electronic Commerce
Implementations
• The best way to manage any complex business
software implementation is to use formal project
management techniques.
• Individual projects can become so large that it
becomes impossible for managers to maintain control
without some kind of assistance.
Project Management
• Project management is a collection of formal
techniques for planning and controlling the activities
undertaken to achieve a specific goal.
• The project plan includes criteria for cost, schedule,
and performance.
• It helps project managers make intelligent trade-off
decisions regarding these three criteria.
Project Management (cont.)
• Project managers use specific application software
called project management software to help them
manage projects.
• Microsoft Project and Primavera Project Planner are
tools for managing resources and schedules.
Project Management (cont.)
• Project management software can help the team
manage the tasks assigned to consultants,
technology partners, and outsourced service
providers.
• The Project Management Institute is a not-for-profit
organization devoted to the promotion of professional
project management practices.
Project Portfolio Management
• Project portfolio management is a technique in which
each project is monitored as if it were an investment
in a financial portfolio.
• In project portfolio management, the CIO assigns a
ranking for each project based on its importance to
the strategic goals of the business and its level of
risk.
Staffing the Operation
• Regardless of outsourcing, an internal team must
determine the staffing needs of the electronic
commerce initiative.
• The general areas of staffing include:
• Business management
• Application specialists
• Customer service staff
• Systems administration
• Network operations staff
• Database administration
Staffing the Operation
• Some companies outsource parts of their customer
relationship management operation to independent
call centers.
• A call center is a company that handles incoming
customer telephone calls and e-mails for other
companies.
Post-Implementation Audits
• A post-implementation audit is a formal review of a
project after it is up and running.
• The post-implementation audit gives managers a
chance to examine the objectives, performance
specifications, and cost estimates; to schedule
delivery dates that were established in its planning
stage; and to compare them to what actually
happened.