© Prentice Hall, 2000 1 Chapter 1 Foundations of Electronic Commerce
© Prentice Hall, 2000 1
Chapter 1Foundations of Electronic
Commerce
© Prentice Hall, 2000 2
Learning Objectives
Define electronic commerce and describe its various categories
Distinguish between electronic markets and inter-organizational systems
Describe the benefits of electronic commerce to organizations, consumers, and society
Describe the limitations of electronic commerce Understand the forces that drive the widespread use of
electronic commerce Describe and discuss the changes that will be caused by
electronic commerce Discuss some major managerial issues regarding
electronic commerce
© Prentice Hall, 2000 3
Opening Vignettes:Intel Corp. and Happy Puppy
Intel Corporation Business-to-business (B2B) products selling Customer service Purchasing from and dealing with suppliers
Happy Puppy Retailing company’s games Marketing others’ games Business-to-consumers (B2C)
© Prentice Hall, 2000 4
Definitions and Content of Field
Electronic Commerce (EC) is where business transactions take place via telecommunications networks, especially the Internet. Electronic commerce describes the buying and selling of
products, services, and information via computer networks including the Internet.
The infrastructure for EC is a networked computing environment in business, home, and government.
E-Business describes the broadest definition of EC. It includes customer service and intrabusiness tasks. It is frequently used interchangeably with EC.
© Prentice Hall, 2000 5
A global networked environment is known as the Internet
A counterpart within organizations, is called an intranet
An extranet extends intranets so that they can be accessed by business partners.
Definitions and Content of Field (cont.)
© Prentice Hall, 2000 6
Pure Vs. Partial Electronic Commerce
Three dimensionsthe product (service) sold [physical / digital];the process [physical / digital] the delivery agent (or intermediary) [physical / digital]
Traditional commerceall dimensions are physical
Pure ECall dimensions are digital
Partial ECall other possibilities include a mix of digital and physical
dimensions
© Prentice Hall, 2000 7
Physical agent
Digital agent
Digital Product
Physical Product Physical process
Digital process
Virtual process
Virtual delivery agent
Vir
tual
pro
du
ctElectronic commerce areas
The core of electronic commerce
The Dimensions of Electronic Commerce
Traditional commerce
© Prentice Hall, 2000 8
Figure 1.2 shows that the EC applications are supported by infrastructures, and their implementation is dependent on four major areas (shown as supporting pillars) people, public policy, technical standards and protocols, and other organizations.
The EC management coordinates the applications, infrastructures, and pillars. It also includes Internet marketing and advertisement.
The Electronic Commerce Field
A Framework for Electronic Commerce 9
Electronic Commerce Applications
• Stocks Jobs • On-line banking
• Procurement and purchasing• Malls • On-line marketing and advertising
• Home shopping • Auctions • Travel • On-line publishing
People:
Buyers, sellers,
intermediaries,
services, IS people,
and management
Public
policy,
legal, and
privacy
issues
Technical standards
for documents,
security, and
network protocols
payment
Organizations:
Partners,
competitors,
associations,
government services
Infrastructure
(1)
Common business
services infrastructure
(security smart
cards/authentication
electronic payment,
directories/catalogs)
(2)
Messaging and
information distribution
infrastructure
(EDI, e-mail, Hyper Text
Transfer Protocol)
(3)
Multimedia content
and network
publishing infrastructure
(HTML, JAVA, World
Wide Web, VRML)
(4)
Network infrastructure
(Telecom, cable TV
wireless, Internet)
(VAN, WAN, LAN,
Intranet, Extranet)
(5)
Interfacing
infrastructure
(The databases,
customers, and
applications)
Management© Prentice Hall, 2000
© Prentice Hall, 2000 10
A market is a network of interactions and relationships where information, products, services, and payments are exchanged.
The market handles all the necessary transactions.
An electronic market is a place where shoppers and sellers meet electronically.
In electronic markets, sellers and buyers negotiate, submit bids, agree on an order, and finish the execution on- or off-line.
Electronic Markets
11
Shopper/Purchaser Seller/Supplier
Electronic Market
(Transaction Hander)
Electronic commerce
network
(Infrastructure)
Product/service information request
Purchase request
Payment or payment advicePurchase fulfillment request
Purchase change request
Response to fulfillment request
Shipping notice
Payment approval
Electronic transfer of funds Electronic transfer of funds
Shopper/Purchaser’s Bank
Payment remittance notice
Electronic transfer of funds
Transaction Handler’s Bank
(Automated Clearing House)
Seller/Supplier’s Bank
Electronic Markets© Prentice Hall, 2000
Response to information request
Purchase acknowledgment
Shipping notice
Purchase/service delivery (if online)
Payment acknowledgment
© Prentice Hall, 2000 12
An interorganizational information system (IOS) involves information flow among two or more organizations.
Its major objective is efficient routine transaction processing, such as transmitting orders, bills, and payments using EDI or extranets.
Scope: An IOS is a unified system encompassing two or several business partners.
A typical IOS includes a company and its suppliers and and/or customers.
Interorganization Information Systems
© Prentice Hall, 2000 13
Electronic data interchange (EDI) Extranets Electronic funds transfer (EFT) Integrated messaging systems Shared databases Electronically-supported supply chain
management
Types of Interorganizational Systems
© Prentice Hall, 2000 14
Business-to-business Business-to-customer Intra business transactions Others
ElectronicCommerce
Business to Business
Business to Customer
Intraorganizational
Other
InterorganizationalSystem
Business to Business
Classification of Electronic Commerce
Classification of EC by the Nature of the Transactions
© Prentice Hall, 2000
© Prentice Hall, 2000 15
MarketingComputer sciencesConsumer behavior
and psychologyFinanceEconomicProduction/Logistic
Management information systems
Accounting and auditing
ManagementBusiness law and
ethics
Electronic Commerce is Interdisciplinary
© Prentice Hall, 2000 16
The Benefits ofElectronic Commerce
Expands the marketplace to national and international markets
Decreases the cost of creating, processing, distributing, storing and retrieving paper-based information
Allows reduced inventories and overhead by facilitating “pull” type supply chain management
The pull type processing allows for customization of products and services which provides competitive advantage to its implementers
Benefits to Organizations
© Prentice Hall, 2000 17
Benefits to Organizations (cont.)
Reduces the time between the outlay of capital and the receipt of products and services
Supports business processes reengineering (BPR) efforts
Lowers telecommunications cost - the Internet is much cheaper than value added networks (VANs)
© Prentice Hall, 2000 18
Benefits to Customers
Enables customers to shop or do other transactions 24 hours a day, all year round from almost any location
Provides customers with more choices Provides customers with less expensive products
and services by allowing them to shop in many places and conduct quick comparisons
Allows quick delivery of products and services in some cases, especially with digitized products
© Prentice Hall, 2000 19
Benefits to Customers (cont.)
Customers can receive relevant and detailed information in seconds, rather than in days or weeks
Makes it possible to participate in virtual auctions Allows customers to interact with other
customers in electronic communities and exchange ideas as well as compare experiences
Electronic commerce facilitates competition, which results in substantial discounts.
© Prentice Hall, 2000 20
Benefits to Society
Enables more individuals to work at home, and to do less traveling for shopping, resulting in less traffic on the roads, and lower air pollution
Allows some merchandise to be sold at lower prices benefiting the poor ones
Enables people in Third World countries and rural areas to enjoy products and services which otherwise are not available to them
Facilitates delivery of public services at a reduced cost,increases effectiveness, and/or improves quality
© Prentice Hall, 2000 21
The Limitations ofElectronic Commerce
Lack of sufficient system’s security, reliability, standards, and communication protocols
Insufficient telecommunication bandwidth The software development tools are still evolving
and changing rapidly Difficulties in integrating the Internet and electronic
commerce software with some existing applications and databases
Technical Limitations of Electronic Commerce
© Prentice Hall, 2000 22
Technical Limitations of Electronic Commerce (cont.)
The need for special Web servers and other infrastructures, in addition to the network servers (additional cost)
Possible problems of interoperability, meaning that some EC software does not fit with some hardware, or is incompatible with some operating systems or other components
© Prentice Hall, 2000 23
Non-Technical Limitations
Cost and justification (35% of the respondents)The cost of developing an EC in house can be very
high, and mistakes due to lack of experience, may result in delays. There are many opportunities for outsourcing, but where and how to do it is not a simple issue. Furthermore, to justify the system one needs to deal with some intangible benefits which are difficult to quantify.
© Prentice Hall, 2000 24
Security and Privacy (17% of the respondents)These issues are especially important in the B2C area,
and security concerns are not truly so serious from a technical standpoint. Privacy measures are constantly improving too. Yet, the customers perceive these issues as very important and therefore the EC industry has a very long and difficult task of convincing customers that online transactions and privacy are, in fact, fairly secure.
Lack of trust and user resistance (4%)Customers do not trust an unknown faceless seller,
paperless transactions, and electronic money. So switching from a physical to a virtual store may be difficult.
Non-Technical Limitations (cont.)
© Prentice Hall, 2000 25
Other limiting factors are:Lack of touch and feel onlineMany unresolved legal issuesRapidly evolving and changing ECLack of support servicesInsufficiently large enough number of sellers and
buyersBreakdown of human relationshipsExpensive and/or inconvenient accessibility to the
Internet
Non-Technical Limitations (cont.)
© Prentice Hall, 2000 26
The Driving Forces of Electronic Commerce
Business pressures Organizational responses The role of Information
Technology (including electronic commerce)
The New World of Business
© Prentice Hall, 2000 27
Major Business Pressures
Market and
economic pressures
Strong competition
Global economy
Regional trade agreements (e.g. NAFTA)
Extremely low labor cost in some countries
Frequent and significant changes in markets
Increased power of consumers
Societal and
environmental pressures
Changing nature of workforce
Government deregulation of banking and other services
Shrinking government budgets subsides
Increased importance of ethical and legal issues
Increased social responsibility of organizations
Rapid political changes
Technological pressures Rapid technological obsolescence
Increase innovations and new technologies
Information overload
Rapid decline in technology cost Vs. performance ratio
© Prentice Hall, 2000 28
Organizational Responses
Framework for Organizational and Societal Impacts of Information Technology
Management
and
Business Process
Organization
Structure and the
Corporate Culture
Individual
and Roles
Information
Technology
The Organization’s
Strategy
External Environment, Social, Economic, Political, etc
© Prentice Hall, 2000 29
Reducing cycle time and time to market Empowerment of employees and collaborative
work Knowledge management Customer-focused approach Business alliances — virtual corporation
Business Process Reengineering
© Prentice Hall, 2000 30
Everything Will Be Changed
Product promotion
New sales channels
Direct savings
Time-to-market (reduced cycle time)
Customer service
Brand or corporate image
Improving Direct Marketing
© Prentice Hall, 2000 31
Transforming Organizations Work will change
Technology learningOrganizational learning
Redefining Organization New product capabilities New business models
Other Changes in the Workplace
© Prentice Hall, 2000 32
Impacts on Manufacturing Pull processing, mass customization, shorter cycle
time, integration (ERP), electronic bidding and procurement
Impacts on Finance and Accounting Electronic payment systems, electronic cash,
automating back office, home banking, electronic stock trading
Human Resource Management Electronic recruiting, training, distance learning
Other Changes in the Workplace (cont.)
© Prentice Hall, 2000 33
Plan of the Book
Ch1 IntroductionPart I
Support and Implementation
Ch8 Payments
Ch9 Corporate Strategy
Ch10 Public Policy
Part III
Technological Support
Ch11 Infrastructure
Appendix A
Appendix B
Appendix C
Part IV
Ch12 Economics, Global, Research in ECPart V
Part IICh2 Retailing
Ch3 Consumer Behavior and Market Research
Ch4 Advertisement
Ch5 Service Industries Applications
Ch6 Business-to-Businesses
Ch7 Intranet and Extranet Applications
EC Application
© Prentice Hall, 2000 34
Is it real? How to evaluate the magnitude of the
business pressures? What should be my company’s strategy
towards EC? What is the best way to learn about EC?
Management Issues