Chapter 14
Implementing EC Systems:
From Justification to Successful
Performance
Learning Objectives
1. Describe the major components of EC
implementation.
2. Describe the need for justifying EC investments.
3. Understand the difficulties in measuring and
justifying EC investments.
4. Recognize the difficulties in establishing intangible
metrics.
5. List and describe traditional and advanced
methods of justifying EC investments.
6. Describe some examples of EC justification.
Learning Objectives
7. Describe the role of economics in EC evaluation.
8. Discuss the steps in developing an EC system.
9. Describe the major EC development strategies.
10. List the various EC development methods along
with their benefits and limitations.
11. Discuss the major outsourcing strategies.
12. Describe EC organizational structure and change
management.
13. Understand how product, industry, seller, and
buyer characteristics influence the success of EC.
The Implementation
Landscape
• The Major Implementation Factors
o Justification/Economics
o Acquire or Self Develop Your E-Commerce
System
o Organizational Readiness and Impacts of ECommerce
o How to Succeed
The Elements in EC Implementation
Why Justify E-Commerce Investments?
How Can They be Justified?
•
•
•
•
Increased Pressure for Financial Justification
Other Reasons Why EC Justification Is Needed
EC Investment Categories and Benefits
How Is an EC Investment Justified?
o *Cost–benefit analysis
o Cost–Benefit Analysis and the Business Case
• What Needs to be Justified? When Should
Justification Take Place?
Why Justify E-Commerce Investments?
How Can They be Justified?
• Using Metrics in EC Justification
o Metrics, Measurements, and Key Performance
Indicators
• *Key performance indicators (KPIs)
• *Web Analytics
How Metrics Are Used in
Performance Management
Difficulties in Measuring and
Justifying E-Commerce Investments
• The EC Justification Process
• Difficulties in Measuring Productivity and
Performance Gains
o Data and Analysis Issues
• Relating EC and ITS Expenditures to Organizational
Performance
o Other Difficulties
• Intangible Costs and Benefits
o Tangible Costs and Benefits
o Intangible Costs and Benefits
o Managing Intangible Benefits
A Model for IT Project Justification
Sources: Based on Gunasekaran et al. ( 2001 ) and Misra ( 2006 ); and the authors’ experience.
Difficulties in Measuring and
Justifying E-Commerce Investments
• The Process of Justifying EC and IT Projects
• The Use of Gartner’s Hype Cycle
o What Is Gartner’s Hype Cycle?
o *Hype cycle
o The five stages of the hype cycle are:
1.
2.
3.
4.
5.
Technology trigger
Peak of inflated expectations
Trough of disillusionment
Slope of enlightenment
Plateau of productivity
o Application of the Hype Cycle
Methods and Tools for Evaluating and
Justifying E-Commerce Investments
• Opportunities and Revenue Generated by EC
Investments
• Methodological Aspects of Justifying EC
Investments
o Types of Costs
• Distinguish between initial (up-front) costs and
operating costs
• Direct and indirect shared costs
• In-kind costs
Methods and Tools for Evaluating and
Justifying E-Commerce Investments
• Traditional Methods for Evaluating EC Investments
o
o
o
o
o
o
The ROI Method
Payback Period
NPV Analysis
Internal Rate of Return (IRR)
Break-Even Analyses
The Total Costs and Benefits of Ownership
• *Total cost of ownership (TCO)
• *Total benefits of ownership (TBO)
o Economic Value Added
o Using Several Traditional Methods for One Project
o Business ROI Versus Technology ROI
Methods and Tools for Evaluating and
Justifying E-Commerce Investments
• *ROI Calculators
o The Offerings from Baseline Magazine
o Other Calculators
• Advanced Methods for Evaluating IT and EC
Investments
o
o
o
o
Financial approaches
Multicriteria approaches
Ratio approaches
Portfolio approaches
Examples of E-Commerce Metrics and
Project Justification
• Justifying E-Procurement
• Justifying Social Networking and the Use of Web
2.0 Tools
• Justifying an Investment in Mobile Computing
and in RFID
o Justifying Investing in RFID
• Justifying Security Projects
• Justifying Buying Products or Services from
Vendors
The Economics
of E-Commerce
• Reducing Production Costs
o
o
o
o
Product Cost Curves
*Production Function
* Agency Costs
* Transaction Costs
1.
2.
3.
4.
5.
6.
Search costs
Information costs
Negotiation costs
Decision costs
Monitoring and policing costs
Legal-related costs
Average Cost Curve of
(a) Regular and (b) Digital Products
The Economic Effects of EC: The
Production Function and Agency Costs
The Economic Effects of EC:
Transaction Costs
The Economics
of E-Commerce
• Increased Revenues
o Reach Versus Richness
• Facilitating Product Differentiation
o *Product differentiation
• EC Increases Agility
• Valuation of EC Companies
o * Valuation
Reach vs. Richness
E-Commerce System Life Cycle
A Five-Step Approach to
Developing an E-Commerce System
• The Essentials of the SDLC: An EC Application
o The Five Traditional Steps
Step 1: Identifying, justifying, and planning EC systems
Step 2: Creating an EC architecture
Step 3: Selecting a development option
Step 4: Installing, testing, integrating, and deploying EC
applications
• Step 5: Operations, maintenance, and updates
•
•
•
•
• Managing the Development Process
The EC Application Development Process
Development Strategies
for E-Commerce Projects
• There are four popular options for developing
an EC website:
1.
2.
3.
4.
Develop the site in-house
Buy a packaged application
Outsource the system development
Lease the application
Development Strategies
for E-Commerce Projects
• In-House Development: Insourcing
o *Insourcing
• Buy the Applications (Off-the-Shelf Approach)
o * Turnkey approach
o Advantages and Limitations of Ready Made
Packages
• Outsourcing EC Systems Development and
Applications
o Types of Outsourcing Options
Development Strategies
for E-Commerce Projects
• Leasing EC Applications: Cloud Computing and
Software As A Service (SAAS)
o * Cloud Computing
o Advantages of Cloud Applications
• Other Development Options
o
o
o
o
o
Join an e-marketplace
Join a consortium
Join an auction or reverse auction third-party site
Form joint ventures
Use a hybrid approach
Development Strategies
for E-Commerce Projects
• Selecting a Development Option
o Before choosing an appropriate development
option, you need to consider the following
factors:
•
•
•
•
•
•
•
Customers
Merchandising
Sales service
Promotion
Transaction processing
Marketing data and analysis
Branding
Organizational Impacts
of E-Commerce
• Improving Direct Marketing and Sales
• Transforming Organizations and Work
o
o
o
o
Technology and Organizational Learning
The Changing Nature of Work
Disintermediation and Reintermediation
Restructuring Business Processes
• Redefining Organizations
o New and Improved Products and Services
o *Mass Customization and *On-Demand
Manufacturing
o The On-Demand Revolution
o * 3D Printing
How Customization Is Done
Online: The Case of Nike Shoes
Organizational Impacts
of E-Commerce
• *Change Management
• How to Organize an EC Unit in a Company
o Options for Organizing the EC Workforce
•
•
•
•
•
•
•
Report to the Marketing Department
Report to the Finance Department
Report to the Chief Operating Officer
Distribute the EC Workforce in Several Departments
Report to the IT Department
Create a New, Possibly Autonomous EC Department
No Formal Structure for EC Exists
o Create an Autonomous Division or a Separate
Online Company
Opportunities For Success In
E-Commerce and Avoiding Failure
• Factors That Determine E-Commerce Success
o E-Commerce Failures
• E-Commerce Successes
o Strategies for EC Success
• Cultural Differences in EC Successes and
Failures
o Can EC Succeed in Developing Economies?
Managerial Issues
1. How should the value of EC investments be justified?
2. Which investment analysis method should we adopt for
EC justification?
3. Who should conduct the justification?
4. Should we use the hype cycle?
5. Should we embark on cloud computing products for
our EC initiatives?
6. Which strategy should we choose for vendor selection:
the inside-out or outside-in approach?
7. What kinds of organizational changes may be needed?
8. Is it possible to predict EC success?
Summary
1. The major components of EC
implementation.
2. The need for EC justification.
3. The difficulties in justifying EC investment.
4. Difficulties in establishing intangible metrics.
5. Traditional methods for evaluating EC
investments.
6. Describe the justification of representative
EC projects.
Summary
7. EC economic evaluation.
8. The major steps in developing an EC system.
9. The major EC development strategies, along
with their advantages and disadvantages.
10. The variety of EC application development
methods, along with their benefits and
limitations.
11. EC application outsourcing strategies.
12. Organizational structure and change
management.
13. Reasons for EC success and failure.