COURSE OUTLINE

E-COMMERCE

Purpose of the course

To introduce the learner to the concepts and terminologies of e- commerce and to provide
thelearner with sufficient knowledge and skills for effective participation in e- business.

ELECTRONIC-COMMERCE - TOPICS - DETAILS

I. Introduction to electronic commerce(EC) basics

A. Definition of terms
B. History of EC
C. Classification of E-Business Transactions
D. Revenue Models
E. Benefits and Limitations of EC
F. Factors affecting e- commerce in Kenya

II. Enabling Technologies and infrastructure

A. The internet and the World wide web
B. Client server computing
C. Intranet and extranets
D. Connecting technologies for networks such as broadband

III. The E-Marketplaces structures and mechanisms

A. Introduction to Electronic markets
B. Electronic markets components participants
C. E-Market places; storefronts and electronic malls
D. Information portal
E. Transactions, intermediation, and processes in E-commerce

IV. Internet Consumer Retailing

A. Introduction and definition of terms
B. E-Tailing business models
C. Travel and tourism services online
D. Internet job market
E. Real estate, insurance, and stock trading online

V. Consumer behavior Market research and advertisement.

A. The consumer decision making process
B. Personalization, loyalty, satisfaction and trust in EC
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 C. Methods of conduction market research online

VI. Internet marketing

A. The marketing and Advertising processes in B2B
B. Web advertising
C. Online advertising methods

VII. E-Commerce security

A. Challenges of Stopping E-commerce crimes
B. Confidentiality, integrity and availability
C. Security tools; hardware and software
D. Threats and Attacks; Technical and Non-technical
E. Securing E-commerce communications

VIII. Electronic payment systems

A. The payment revolution
B. Payment cards
C. Other forms of payment

IX. Legal and ethical issues in e- business

Main course text

Turban E. D., Electronic Commerce, 2008 Managerial Perspective (Pearson International

Edition)

Reference Books

i. Ward Hanson, (2007), Principles of Internet Marketing, South-Western College Publishers).

ii. Capron H.L., Computers: Tools for information age (5th Edition).

Assessment: Examination - 50%: Coursework - 50%

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 CHAPTER ONE

INTRODUCTION TO E-COMMERCE

Learning Objectives

By the end of this chapter the learner shall be able to;

i. Explain the evolution of E-Commerce and the technological advancements to current

ii. Explain the different Classifications of E-Business Transactions
iii. Explain the different revenue models
iv. Explain the Benefits and Limitations of EC and the Factors affecting e- commerce in
Kenya

1.1 Definition of terms

Electronic Commerce - Electronic commerce, commonly known as e-commerce,

eCommerce or e-comm, consists of the buying and selling of products or services over
electronic systems such as the Internet and other computer networks.

E-Business - Electronic business, commonly referred to as "eBusiness" or "e- business", or

an internet business, may be defined as the application of informationand communication
technologies (ICT) in support of all the activities of business.
Commerce constitutes the exchange of products and services between businesses,groups
and individuals and can be seen as one of the essential activities of any business.
Electronic commerce focuses on the use of ICT to enable the external activities and
relationships of the business with individuals, groups and other businesses.

brick and mortar businesses are companies that have a physical presence — a physical store
— and offer face-to-face consumer experiences. This term is usually usedto contrast with a
transitory business or an internet-only presence, such as an online shop.

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pure play is an organization that originated and does business purely through the Internet;
they have no physical store (brick and mortar) where customers can shop.Examples of large
pure play companies include Amazon.com.

Click And Mortar - A type of business model that includes both online and offline operations,
which typically include a website and a physical store. A click-and-mortar company can offer
customers the benefits of fast, online transactions or traditional, faceto face service.

Internet - The Internet is a global system of interconnected computer networks that use the
standard Internet Protocol Suite (TCP/IP) to serve billions of users worldwide. Itis a network of
networks that consists of millions of private, public, academic, business, and government
networks, of local to global scope, that are linked by a broad array of electronic, wireless and
optical networking technologies. The Internet carries a vast range of information resources and
services, such as the inter-linked hypertext documents of the World Wide Web (WWW) and the
infrastructure to support electronic mail.

Intranet - An intranet is a private computer network that uses Internet Protocol technology to
securely share any part of an organization's information or network operating system within that
organization. The term is used in contrast to internet, a network between organizations, and
instead refers to a network within an organization.Sometimes the term refers only to the
organization's internal website, but may be a more extensive part of the organization's
information technology infrastructure.
Extranet - An extranet is a computer network that allows controlled access from theoutside, for
specific business or educational purposes. An extranet can be viewed as anextension of a
company's intranet that is extended to users outside the company, usually partners, vendors, and
suppliers. It has also been described as a "state of mind"in which the Internet is perceived as a
way to do business with a selected set of other companies (business-to-business, B2B), in
isolation from all other Internet users.

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1.2 History of EC

EC applications were first developed in the early 1970s with innovations such as Electronic
funds Transfer (EFT), whereby funds could be routed electronically from one organization to
another. However, the use of these applications was limited to corporations, financial
institutions, and a few other daring businesses. Then came electronic data interchange (EDI), a
technology used to electronically transfer routine documents, which expanded electronic
transfers from financial transactions to other types of transaction processing. EDI enlarged the
pool of participating companies from financial institutions to manufacturers, retailers, services,
and many types of businesses. Such systems were called interorganisational system (IOS)
applications andtheir strategic value to businesses has been widely recognized. More new EC
applications followed, ranging from travel reservation systems to stock trading.
The Internet began life as an experiment by the US. government in 1969, and its initial users
were a largely technical audience of government agencies and academic researchers and
scientists. When the Internet became commercialized and users beganflocking to participate in
the World Wide Web in the early 1990s, the term electronic commerce was coined applications
rapidly expanded. A large number of so-called dot- coms, or Internet start-ups, also appeared.
One reason for this rapid expansion was thedevelopment of new networks, protocols, and EC
software. The other reason was the increase in competition and other business pressures.
Since 1995, Internet users have witnessed the development of many innovative applications,
ranging from online direct sales to e-learning experiences. Almost every medium- and large-
sized organization in the world now has a Web site, and most large
U.S. corporations have comprehensive portals through which employees. Employees and
business partners, and the public can access corporate information. Many of these sites contain
tens of thousand of pages and links. In 1999, the emphasis of EC shifted from B2B, and in 2001
from B2B to B2E, c-commerce, e-government, e-learning and m-commerce.

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1.3 Classification of E-Business Transactions
Business-to-business (B2B) describes commerce transactions between businesses,such as
between a manufacturer and a wholesaler, or between a wholesaler and a retailer.

Business-to-consumer (B2C, sometimes also called Business-to-Customer) describes activities

of businesses serving end consumers with products and/or services.

An example of a B2C transaction would be a person buying a pair of shoes from a retailer. The
transactions that led to the shoes being available for purchase, that is thepurchase of the leather,
laces, rubber, etc.

Business-to-business to consumer (B2B2C)

E-Commerce model in which a business provides some product or service to a clientbusiness that
maintains its own customers.
Consumer-to-business (C2B)
E-commerce model in which individuals use the internet to sell products or services to
organizations or individuals who seek sellers to bid on products or services they need.
Consumer-to-consumer (C2)
E-commerce model in which consumers sell directly to other consumers.
Mobile-commerce (M-Commerce)
E-Commerce transactions and activities conducted in a wireless environment

1.4 Revenue Models

A revenue model outlines how the organization or the EC project will generaterevenue. The
major revenue models are:
Sales. Companies generate revenue from selling merchandise or services over their
Web sites. A11 example is when Wal-Mart, Amazon.com, or Godiva sells aproduct
online.
Transaction fees. A company receives 21 commission based on the volume of
transactions made. For example, when a homeowner sells a house, he typically

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 pays a transaction fee to the broker. The higher the value of the sale, the higherthe total
transaction fee. Alternatively; transaction fees can be levied per transaction. With online
stock trades, for example, there is usually at fixed fee per trade, regardless of the
volume.
Subscription fees. Customers pay a fixed amount, usually monthly, to get sometype of
service. An example would be the access fee for AOL. Thus, ACES primary revenue
model is subscription (fixed monthly payments).
Advertising fees. Companies charge others for allowing them to place a banneron their
sites. This is how Google has made its fortune.
Affiliate fees. Companies receive commissions for referring customers to othersWeb
sites.
Other revenue sources. Some companies allow people to play games for a fee orto watch
a sports competition in real time for a fee. Another revenue source is licensing fees (eg.,
datadirect-technologies.com). Licensing fees can be assessedas an annual fee or a per
usage fee. Microsoft takes fees from each workstation that uses Windows NT; for
example.

1.5 Benefits and Limitations of E-commerce

The Benefits of EC
Few innovations in human history encompass as many potential benefits as EC does. The global
nature of the technology, low cost, opportunity to reach hundreds of millionsof people (projected
within 10 years), interactive nature, variety of possibilities, and resourcefulness and rapid growth
of the supporting infrastructures (especially the Web)result in many potential benefits to
organizations, individuals, and society. These benefits are just starting to materialize, but they
will increase significantly as EC expands.

Benefits to Organizations

The benefits to organizations are as follows:

Electronic commerce expands the marketplace to national and international markets. With
minimal capital outlay, a company can easily and quickly locatemore customers, the best
suppliers, and the most suitable business partners worldwide. For example, in 1997,
Boeing Corporation reported a savings of 20

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 percent after a request for a proposal to manufacture a subsystem was posted on the
Internet. A small vendor in Hungary answered the request and won the electronic bid.
Not only was the subsystem cheaper, but it was delivered quickly.
Electronic commerce decreases the cost of creating, processing, distributing, storing, and
retrieving paper-based information. For example, by introducing an electronic
procurement system, companies can cut the purchasing administrativecosts by as much
as 85 percent. Another example is benefit payments. For the
U.S. federal government, the cost of issuing a paper check is 430. The cost of
electronic payment is 20.
Ability for creating highly specialized businesses. For example, dog toys whichcan be
purchased only in pet shops or department and discounte stores in thephysical world,
are sold now in a specialized www.dogtoys.com (also see www.cattoys.com).
Electronic commerce allows reduced inventories and overhead by facilitating
―pull‖-type supply chain management. In a pull-type system the process startsfrom
customer orders and uses just-in-time manufacturing.
The pull-type processing enables expensive customization of products and services,
which provides competitive advantage to its implementers. A classicexample is Dell
Computer Corp., whose case will be described later.
Electronic commerce reduces the time between the outlay of capital and the receipt of
products and services. Electronic commerce initiates business processes reengineering
projects. By changing processes, productivity of salespeople, knowledge workers, and
administrators can increase by 100 percentor more.
Electronic commerce lowers telecommunications cost-the Internet is muchcheaper than
VANs.
Other benefits include improved image, improved customer service, newfoundbusiness
partners, simplified processes, compressed cycle and delivery time, increased
productivity, eliminating paper, expediting access to information, reduced transportation
costs, and increased flexibility.

Benefits to Consumers
The benefits of EC to consumers are as follows:
Electronic commerce enables customers to shop or do other transactions 24hours a
day, all year round, from almost any location.
Electronic commerce provides customers with more choices; they can select
Electronic commerce frequently provides customers with less expensive productsand
services by allowing them to shop in many places and conduct quick comparisons.
In some cases, especially with digitized products, EC allows quick delivery.
Customers can receive relevant and detailed information in seconds, rather thandays or
weeks.
Electronic commerce makes it possible to participate in virtual auctions.

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 Electronic commerce 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 substantialdiscounts.

Benefits to Society
The benefits of EC to society are as follows:
Electronic commerce 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.
Electronic commerce allows some merchandise to be sold at lower prices, so lessaffluent
people can buy more and increase their standard of living.
Electronic commerce enables people in Third World countries and rural areas toenjoy
products and services that otherwise are not available to them.
This includes opportunities to learn professions and earn college degrees.
Electronic commerce facilitates delivery of public services, such as health care,
education, and distribution of government social services at a reduced cost and/or
improved quality. Health-care services, for example, can reach patients inrural areas.

1.6 The Limitations of EC and Factors Affecting Adoption in Kenya

The limitations of EC can be grouped into technical and nontechnical categories.

Technical Limitations of EC
The technical limitations of EC are as follows:
There is a lack of system security, reliability, standards, and some communication
protocols.
There is insufficient telecommunication bandwidth.
The software development tools are still evolving and changing rapidly.
It is difficult to integrate the Internet and EC software with some existingapplications and
databases.
Vendors may need special Web servers and other infrastructures, in addition tothe
network servers.
Some EC software might not fit with some hardware, or may be incompatible with
some operating systems or other components.

As time passes, these limitations will lessen or be overcome; appropriate planning can
minimize their impact.

NonTechnical Limitations
Of the many nontechnical limitations that slow the spread of EC, the following are themajor
ones.

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Cost and justification The cost of developing EC in-house can be very high, andmistakes 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 must
deal with some intangible benefits(such as improved customer service and the value of
advertisement), which aredifficult to quantify.
Security and privacy These issues are especially important in the B2C area, especially
security issues which are perceived to be more serious than they reallyare when appropriate
encryption is used. Privacy measures are constantly improved. Yet, the customers perceive
these issues as very important, and, the EC industry has a very long and difficult task of
convincing customers that onlinetransactions and privacy are, in fact, very secure.
Lack of trust and user resistance Customers do not trust an unknown faceless seller
(sometimes they do not trust even known ones), paperless transactions,and electronic
money. So switching from physical to virtual stores may be difficult.
Other limiting factors. Lack of touch and feel online. Some customers like totouch items
such as clothes and like to know exactly what they are buying.
Many legal issues are as yet unresolved, and government regulations andstandards are not
refined enough for many circumstances.
Electronic commerce, as a discipline, is still evolving and changing rapidly. Manypeople are
looking for a stable area before they enter into it.
There are not enough support services. For example, copyright clearance centers for EC
transactions do not exist, and high-quality evaluators, or qualified EC tax experts, are rare.
In most applications there are not yet enough sellers and buyers for profitableEC
operations.
Electronic commerce could result in a breakdown of human relationships. Accessibility to
the Internet is still expensive and/or inconvenient for many potential customers. (With Web
TV, cell telephone access, kiosks, and constant media attention, the critical mass will
eventually develop.)
Despite these limitations, rapid progress in EC is taking place. For example, the number of
people in the United States who buy and sell stocks electronically increased from300,000 at
the beginning of 1996 to about 10 million in fall 1999. As experience accumulates and
technology improves, the ratio of EC benefits to costs will increase, resulting in a greater
rate of EC adoption. The potential benefits may not be convincing enough reasons to start
EC activities

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 E•Business Introduction

E•Business vs. E•commerce

While some use e‐commerce and e‐business interchangeably, they are distinct concepts. Electronic
business, commonly referred to as "e‐Business" or "e‐business", may be defined as the application of
information and communication technologies (ICT) in support of all the activities of business. Commerce
constitutes the exchange of products and services between businesses, groups and individuals and can be
seen as one of the essential activities of any business. Electronic commerce focuses on the use of ICT to
enable the external activities and relationships of the business with individuals, groups and other businesses.

E‐Commerce Is a particular form of e‐Business. Electronic business methods enable companies to link their
internal and external data processing systems more efficiently and flexibly, to work more closely with
suppliers and partners, and to better satisfy the needs and expectations of their customers. Compared to
e‐Commerce, e‐Business is a more generic term because it refers not only to information exchanges related
to buying and selling but also servicing customers and collaborating with business partners, distributors and
suppliers.

E‐Business encompasses sophisticated business‐to‐business interactions and collaboration activities at a

level of enterprise applications and business processes, enabling business partners to share in‐depth business
intelligence, which leads, in turn, to the management and optimization of inter‐enterprise processes such as
supply chain management. More specifically, e‐Business enables companies to link their internal and
external processes more efficiently and flexibly, work more closely with suppliers and better satisfy the
needs and expectations of their customers.

In practice, e‐business is more than just e‐commerce. While e‐business refers to more strategic focus with an
emphasis on the functions that occur when using electronic capabilities, e‐commerce is a subset of an overall
e‐ business strategy. E‐commerce seeks to add revenue streams using the World Wide Web or the Internet to
build and enhance relationships with clients and partners and to improve efficiency using the Empty Vessel
strategy. Often, e‐ commerce involves the application of knowledge management systems.

E‐business involves business processes spanning the entire value chain: electronic purchasing and supply
chain management, processing orders electronically, handling customer service, and cooperating with
business partners. Special technical standards for e‐business facilitate the exchange of data between
companies. E‐business software solutions allow the integration of intra and inter firm business processes.
E‐business can be conducted using the Web, the Internet, intranets, extranets, or some combination of
these.

Basically, electronic commerce (EC) is the process of buying, transferring, or exchanging products, services,
and/or information via computer networks, including the internet. EC can also be benefited from many
perspective including business process, service, learning, collaborative, community. EC is often confused
with e‐business.

In e‐commerce, information and communications technology (ICT) is used in inter‐business or

inter‐organizational transactions (transactions between and among firms/organizations) and in
business‐to‐consumer transactions (transactions between firms/organizations and individuals).
In e‐business, on the other hand, ICT is used to enhance one’s business. It includes any process that a

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business organization (either a for‐profit, governmental or non‐profit entity) conducts over a
computer‐mediated network.
A more comprehensive definition of e‐business is: “The transformation of an organization’s processes to
deliver additional customer value through the application of technologies, philosophies and computing
paradigm of the new economy.”

Three primary processes are enhanced in e‐business:

Production processes, which include procurement, ordering and replenishment of stocks;

processing of payments; electronic links with suppliers; and production control processes,
amongothers;
Customer‐focused processes, which include promotional and marketing efforts, selling over the
Internet, processing of customers’ purchase orders and payments, and customer support, among
others
Internal management processes, which include employee services, training, internal
information‐sharing, video‐conferencing, and recruiting. Electronic applications enhance information
flow between production and sales forces to improve sales force productivity. Workgroup
communications and electronic publishing of internal business information are likewise made more
efficient.

E‐Business goes far beyond e‐commerce or buying and selling over the Internet, and deep into the processes
and cultures of an enterprise. It is the powerful business environment that is created when you connect
critical business systems directly to customers, employees, vendors, and business partners, using Intranets,
Extranets, ecommerce technologies, collaborative applications, and the Web.

E‐business is a more strategic focus with an emphasis on the functions that occur when using electronic
capabilities while E‐commerce is a subset of an overall e‐business strategy. E‐commerce seeks to add
revenue streams using the World Wide Web or the Internet to build and enhance relationships with clients
and partners and to improve efficiency while Electronic business methods enable companies to link their
internal and external data processing systems more efficiently and flexibly, to work more closely with
suppliers and partners, and to better satisfy the needs and expectations of their customers.

E‐Business is at the enterprise application level and encompasses sophisticated b2b interaction and
collaboration activities. Enterprise Application Systems such as ERP, CRM, SCM form an integral part of
e‐Business strategy and focus.

Critical Factors with respect of e•Business

E‐Business supports business processes along the entire value chain: Electronic purchasing (E‐Procurement),
SCM (Supply Chain Management), Processing orders electronically, Customer Service & Co‐operation with
business partners.

One of the objectives of e‐Business is to provide seamless connectivity and integration between business
processes and applications external to an enterprise and the enterprise’s back office applications sucha as
billing, orger processing, accounting, inventory and receivables, and services focused to total supply chain
management and partnership including product development, fulfillment, and distribution. In this respect,
e‐Business is much more than e‐Commerce.

To succeed in e‐Business it is crucial to combine technological developments with corporate strategy that
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redifines a company’s role in the digital economy while taking into account its various stakeholders. It is
imperative to understand the issues, evaluate the options, and develop technology orientation plans. An
e‐Business strategy helps organizations identify their e‐Business concerns, assess their information needs,
analyze to what degree existing systems serve these objectives, pinpoint specific improvements, determine
the development stages of e‐Business solutions and attain concrete and measurable results. Thus, it is clear
that e‐Business solutions are not only about technology.

A classic example is SAP systems integrations for any organization. This itself is taken up as a project and
executed with great attention to detail. A minute logical error in interpretation of the firm’s objectives could
result in the entire system being re‐worked from scratch.

E‐Business allows for redefinition of value, competitiveness and the very nature of transactions and it
affects all areas of an organization. It is crucial to combine technology and business strategy while taking
into account various stakeholders

An E‐business Strategy helps to

Identify e‐business
concerns Assess info
needs
Analyze existing systems
Improvements required in existing systems
Determine the stages of development of
solutions Attain concrete and measurable
results.

Characteristics of e•Business
To emphasize, e‐Business is not simply buying and selling but encompasses the exchange of many kinds of
information, include online commercial transactions. E‐Business is about integrating external company
processes with an organization’s internal business processes; as such, a variety of core business processes
could exploit an e‐ Business infrastructure.

These include among others: ‐

Collaborative Product Development

Collaborative Planning, Forecasting and Replenishment
Procurement and Order management
Operations and Logistics

Collaborative Product Development

This is one of the fastest growing technologies in engineering with some form of solutions being
implemented in a range of industries such as automotive, aerospace, agricultural machinery etc. It
contributes towards making products in a short time span while maintaining quality and reducing cost.

It also aids in maximizing time‐to‐market benefits while maintaining control over product development
information. By integrating design and testing cycles of products with those of suppliers, a firm can shorten
the complete cycle of its products. This clearly, reduces the total cost of the product cycle, & even more
importantly, it reduces the time that is needed to bring products to the marketplace. Collaborative product

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development solutions offer ERP integration and SCM.

Collaborative Planning, Forecasting and Replenishment

This is a process in which Manufacturers, Distributors and Retailers work together to plan, forecast and
replenish products. In e‐Business relationships collaboration takes the form of sharing information that
impacts inventory levels and merchandise flow.

Collaboration points: sales forecasts, inventory requirements, manufacturing and logistic lead times,
seasonal set schedules, new/remodel storage plans, promotional plans etc

Goal: To get the partners to work together to improve lower supply cycle times, improve customer service,
lower inventory costs, improve inventory levels and achieve better control of planning activities

Procurement and Order management

Electronic procurement or E‐Procurement can achieve significant savings and other benefits that impact the
customer. To support procurement and order management processes, companies use an integrated electronic
ordering process and other online resources to increase efficiency in purchasing operations.

Benefits: cost savings, better customer service by controlling the supply base, negotiating effective buying
preferences, and streamlining the overall procurement process.

Operations & Logistics

Logistics is that part of the supply chain process that plans, implements and controls the efficient, effective
flow and storage of goods, services and related information from the point of origin to point of consumption
in order to meet customer requirements. To make this happen, transportation, distribution, warehousing,
purchasing & order management functions must work together. Logistics in the e‐Business era is all about
Collaboration ‐ the sharing of critical and timely data on the movement of goods as they flow from raw
material, all the way to the end‐user.

Operations and Logistics processes are based on open communication between networks of trading partners
where integrated processes and technology are essential for high performance logistics operations. These
solutions help manage the logistics process between buyers and suppliers, while eliminating costly
discrepancies between purchase order, sales order and shipping information. By eradications these
variances and inconsistencies improvements in the supply chain may result from the elimination of mixed
shipments and shipment discrepancies, and the reduction of inventory carrying costs for the customer. At the
same time this increases customer satisfaction through improved delivery reliability and improved
efficiencies in receivingoperations.

Furthermore, there are critical elements to e‐business models as well. They are as follows:

A shared digital business infrastructure, including digital production and distribution technologies
(broadband/wireless networks, content creation technologies and information management systems),
which will allow business participants to create and utilize network economies of scale and scope.
A sophisticated model for operations, including integrated value chains‐both supply chains and buy
chains.
An e‐business management model, consisting of business teams and/or partnerships;
Policy, regulatory and social systems ‐ i.e., business policies consistent with e‐commerce laws,
tele‐ working/virtual work, distances learning, incentive schemes, amongothers.
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 Ease of Automated Processing ‐ A payer can now cheaply and easily automate the generation and
processing of multiple payments with minimal effort. Previously, the dependency upon banks to
handle most payments and the lack of a cheap, ubiquitous communications technology made
automation of payment processes expensive and difficult to establish.
Immediacy of result ‐ Payment immediacy occurs because automation and the ability for the
intermediate systems and providers to process payments in real‐time. With the more manual,
paper‐based systems there was always a time delay due to the requirement for human intervention
inthe process.
Openness and accessibility ‐ The availability of cheap computing and communications technology
and the appropriate software enables small enterprises and individuals to access or provide a range of
payment services that were previously only available to large organizations via dedicated networks
or the transactional processing units of banks.
Loss of collateral information ‐ The new technology dispenses with, or alters, collateral
information accompanying transactions. This information has traditionally been part of the
transaction, and has been relied upon by the transacting parties to validate individual payments.
Collateral information can be defined as information:
Which is not essential to the meaning and intent of a transaction;
Which is typically incidental to the nature of the communications channel over which the transaction
is conducted; but nevertheless provides useful contextual information for one or more of the parties
to the transaction?
Collateral information can include many things ranging from tone of voice in a telephone call to the
business cards and letterheads and apparent authority of the person with whom you are dealing.

Globalization ‐ Globalization, or the minimization of geographical factors in making payments,

has been an obvious aspect of the new payments systems. Its affect is upon areas such as size of the
payments marketplace, uncertainty as to legal jurisdiction in the event of disputes, location and
availability of
transaction trails, and the ability of a payment scheme to rapidly adapt to regulatory regimes
imposed by one country by moving to another.
New business models ‐ New business models are being developed to exploit the new payment
technologies, in particular to address or take advantage of the disintermediation of customers from
traditional payment providers such as banks. In this context, disintermediation is where the
technology enables a third party to intervene between the customer and the banking system,
effectively transferring the customer’s trusted relationship with the bank to the new party.

Elements of an e•Business solution

The vision of e‐Business is that enterprises will have access to broad range of trading partners to interact and
collaborate with and not only buy and sell more efficiently. Also, it is expected that e‐Business will
contribute towards the agility of business organizations and with that to reaching higher levels of
customization. In this way, an organization can maximize supply chain efficiency, improve customer service
and increase profit margins. Hence, the need to make mission critical processes:

Inventory, Accounting, Manufacturing and Customer Support: These, must be able to interact with each
other by becoming web‐enabled. This is achieved by ERP, CRM and other systems by making use of
distributed applications that extract data and launch business processes across many or all of the above
processes.

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The key elements of an e‐Business solution are:

1. Customer Resource management(CRM)

2. Enterprise resource planning (ERP)
3. Supply Chain Management (SCM)
4. Knowledge Management
5. e‐Markets

Customer relationship management (CRM )

CRM systems are “front‐office” systems which help the enterprise deal directly with its customers. CRM
(definition) is the process of creating relationships with customers through reliable service automated
processes, personal information gathering, processing and self‐service through the enterprise in order to
create value for customers.

There are 3 categories of user applications under CRMs:

Customer‐facing
applications: Applications which
enable customers to order products
and services
Sales‐force facing applications:
Applications that automate some
of the sales and sales‐force
management functions, and
support dispatch and logistic
functions.
Management‐facing
applications: Applications which
gather data from previous apps
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 and provide management reports
and compute Return on
relationships(RoR) as per
company’s business model

Enterprise Resource Planning (ERP)

ERPs are often called “back‐office” systems. ERP systems are management information systems that
integrate and automate many of the business practices associated with operations or production aspects of a
company. ERP software can aid in control of many business activities such as sales, delivery, production,
billing, production, inventory, shipping, invoicing and accounting.

A typical ERP system is designed around

these 4 primary business procedures: ‐

Production: manufacturing, resource

planning and execution process
Buying a product: procurement process
Sales of a product and services: customer
order management process
Costing, paying bills, and collecting:
financial/management accounting and
reporting process.

Supply Chain Management (SCM)

Supply chain (definition) is a network of facilities and distribution options that perform the functions of
procurement of materials, transformation of these materials into intermediate and finished products, and
distribution of these finished products to customers. SCM deals with the planning and execution issues
involved in managing a supply chain.
Supply chain has 3 main parts

Supply side: concentrates on

how, where from, and when
raw materials are procured and
supplied tomanufacturing.
Manufacturing side: converts
raw materials to finished
products.
Distribution side: ensures that
finished products reach the final
customers through a network of
distributors, warehouses and
retailers.

Knowledge Management
This relates to the identification and analysis of available and required knowledge assets and related
processes. Knowledge assets encompass two things Information and Experience. Knowledge assets comprise

17
of all knowledge that a business has or needs to have in order to generate profits and add value.

Knowledge management includes the subsequent planning and control of actions to develop both the
knowledge assets and the processes to fulfill organizational objectives. Knowledge is a strong denominator
of a business model and determines business competencies especially when unique to the business and so
must be kept in‐house.

E•Markets
E‐Market is an electronic meeting place for multiple buyers and sellers providing many participants with a
unified view of sets of goods and services, enabling them to transact using many different mechanisms. An
e‐Market uses Internet technology to connect multiple buyers and suppliers.

E•Business Roles and their challenges

There are two main roles in the E‐business scenario:
o The Buyer: Buyers are organizations that purchase goods and services directly fromSuppliers.
o The Supplier: Suppliers are organizations that market and sell goods or services directly to
buyers or indirectly through diverse sales channels including Web‐based procurement
systems and electronic marketplaces.
Suppliers typically provide buyers with web‐based services necessary for completing e‐Business
transactions.
Buyers (customers) can thus review product information, receive customer service, ordering
services and customization support facilities an can submit or modify orders.
An additional role is that of Market Makers that are third party organizations that
rune‐markets. Each role has distinct business and technical challenges, but they all coalesce
around a commonpoint.
For buyers as well as for suppliers, the primary challenge is the ability to reach a critical mass
of trading partners and transaction volume to sustain theirbusiness.
For suppliers especially, the following challenges exist:
o Managing multiple selling channels, based on various technologies, protocols, data
formats, and standard business processes.
o Having the ability to take multiple types of orders once the customer has decided to
conduct e‐ Business –enabled order management through the various selling channels.
o Having the ability to differentiate and customize products and services from other
suppliers, and offering them through the various selling channels.
o Having the ability to adapt and grow the e‐Business without incurring drastic technology
changes, organizational restructuring.
o And sweeping changes in the business process, or radical new investments.
To meet the needs of buyers and suppliers, e‐Business strategy and solutions must be built on the
following basic principles:
o Empowering suppliers & buyers:
▪ Different channels.
o Enabling suppliers of all sizes:

E•Business Requirements
Identify/measure quantifiable business objectives: companies must accurately measure the impact
an e‐ Business initiative has on their business processes and decide whether this initiative is worth
pursuing and has sustainable long‐term effects
Ensure organizational/operational flexibility: Enterprises must reposition themselves in their
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 mission, structure and execution to prosper in a substantially more dynamic environment.
Rethink entire company supply chains: companies must rethink their entire supply chains in order
to optimize performance and value as they seek to better integrate with suppliers and customers,
share information, inter‐link processes, and outsource manufacturing logistics systems and
maintenance activities.
Transform the company to a process‐centric form: Companies must be conceptualized as a set of
business processes with more emphasis on maximizing the efficiency of processes rather than
departmental or functional units.
Define Business processes: companies must create models of existing processes and interactions
determining the relevant events, time frames, resources and costs associated with business
processes, hence making them well‐defined and measurable
Understand Security requirements: the breadth of access and interaction requirements of a
e‐Business solution requires the ability to provide controlled and focused access by all the users.
Align business organizations with a flexible IT architecture: in response to demands for end to
end e‐ Business solutions, companies are expanding their applications to include enhanced
integration capabilities. This includes integration of business processes at varied levels from
applications and data across(and within) organizations.
Establish ubiquity within standards: None of the many integration technologies available from
various IT vendors has achieved complete coverage. These do work within organizations but not
across global enterprises and between separate enterprises. Attempts are made to establish open
standards for interoperability.
A number of business and tech. driven requirements are compelling forces that enable successful
development & deployment of integrated end‐to‐end e‐Business applications. Some of these are:
o Efficient business process management technology
o Efficient b2b communication
o Efficient enterprise application integration technology
o

Other categorizations view the problem differently.

A more basic approach to viewing e‐Business requirements is as follows: ‐

Trust ‐ The biggest requirement for running a successful e‐business is trust. In this age of Facebook
and MySpace, online merchants may think that privacy of a customer's information isn't important,
but the opposite is true.
o Thus, businesses must be trustworthy to operate online. Consumers will not simply give their
financial information to just anyone, so a site will lose business if consumers do not feel
comfortable that it is a reliable, upstanding company.
o Companies must have comprehensive privacy policies and stick with them. Another good
idea is to get digital certificates and TRUSTe seals, which are awarded by third‐party
organizations after they research the legitimacy of an online website.
o Such awards put consumers' minds at ease. Finally, even if an e‐business does all this, it must
also be trustworthy in the sense of fulfilling its promises: be up front with consumers about
pricing and delivery times.
Privacy policy ‐ In addition to the way privacy laws apply in the "real" world, there are some special
things to think about when dealing with the Internet and e‐business.
▪ You should fully understand how your website fits into privacy law requirements.
▪ If your website collects personal information, you should develop a proper and legally
19
 compliant privacy policy and post it in a readily visible location on yourwebsite.
▪ If you use cookies or similar means to track visitors, depending on how you do that,
you may still need to develop and post a policy.
▪ Online profiling may require the consent of the individual depending on the
circumstances.
▪ Keep in mind that people do look for privacy policies so, without a policy, you may
lose prospective customers.
▪ A properly drafted privacy policy or statement will not only minimize your legal
exposure, it can serve a marketing function as well, allowing you to attract and retain
customers who otherwise might not be as inclined to deal withyou.
▪ Do not create a policy and then fail to follow it precisely. This is an invitation for
disaster, including not only possible legal problems, but also injury to your reputation
andgoodwill.
o It is important to not just let the policy sit once it has been posted. It should be revisited
regularly to determine whether or not it is still accurate and to evaluate whether or not it
should be revised to assist you in your business goals and objectives.
Strategy ‐ E‐commerce merchants must also have a strategy to succeed in the online marketplace.
Many people start websites because they think it is a quick and easy way to make cash, but in fact it
takes a much greater investment than most peopleexpect.
Therefore, before launching a site, businesses must have strategies to handle issues large andsmall:
o How consumers will place orders,
o How deliveries will be made,
o How customer service issues will be handled?
o More broadly, how much do owners expect to earn over a certain period, how will
consumers find the site, and how will success be judged.
o Online merchants without strategies will soon be overwhelmed by such issues.

Suitability ‐ Finally, merchants must decide if their products are suitable for the web.
Requirements for successful e‐businesses concern the goods and services themselves:
o Can they be delivered quickly and cheaply?
o Do they appeal to people outside a small geographic area?
o Will going online save money?
o Will the benefits outweigh the costs?

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Technological Requirements:
o Achieving Real ‐ Time Flexibility: In theory, digital things are easier to change than
physical things. It is faster to edit a memo using a word processor than a typewriter (and you
don’t get ink on your fingers).
o But when programming is required to change content or access policies, maintaining a
complex Web site can range from onerous to impossible. Market factors change in real time,
and so must the logic and content of an e‐Business site.
o To achieve this vision, the next generation of e‐Business systems must provide a framework
for automated information exchange between all the stakeholders in a business.
o These new frameworks are designed for flexibility so companies can change content and
business logic in real‐time to meet changing business needs and market conditions.
o This adaptability comes from a set of core services, common to all applications, which enable
rapid deployment of new applications and new information and which work together to create
a compelling, unified e‐Business environment.
o An e‐Business framework must include packaged, ready‐to‐deploy services for:
o An Architecture For e‐Business ‐ As e‐Business moves beyond simple transactions to
encompass all the complex processes through which a company provides value, information
systems must orchestrate the function of enterprise applications and information resources for
total information flow. And they must empower business people with the tools to manage
content publishing, delivery, and access, so that business results don’t depend on the IT
department’s programming backlog.
o Three ‐ Tier Object ‐ Centered Design ‐ To achieve true, real‐time e‐Commerce,
next‐generation e‐ Business systems must be built around a 3‐tier application paradigm
with a clear abstraction and true separation of user interface presentation, business logic, and
content. Separation and abstraction of these layers is achieved through the use of business
objects, particularly in the middle layer.
o When separating presentation, application, and Data Logic three things must be considered:

• User Interface ‐ The user interface must support a variety of interface mechanisms,
including Web browsers for users, business managers, designers and desktop
applications for developers.
• Business Logic ‐ The middle tier must not only implement and execute business
logic, it must also provide the framework of services that enable e‐Business, including

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 security services,transaction services, and caching, pooling, and other load balancing
services to improve overall system performance.
• Content ‐ The content layer includes corporate databases, document stores and
other knowledge repositories

o All Objects Are Not Created Equal ‐ The overall architecture of an e‐Business system is
important, but proper abstractions achieved through object technology are the foundation of a
flexible e‐Business system. Correct separation of presentation, business logic, security functions,
and content determines the flexibility of the system and the pace and effectiveness of e‐Business
processes. To deliver truly dynamic, real‐time communication, these relationships must be
established on a per‐transaction basis, as each page is assembled for delivery to a user e‐Business
processes lend themselves to this kind of abstraction.
o Bringing Order To Content Management ‐ As companies move more of their business
processes onto the Web in search of greater sales or efficiency, Web sites are growing in size and
complexity. Static Web sites often consist of hundreds or even thousands of Web pages, and tens
of thousands of lines of code. Multi‐media sites are becoming the standard, with everything from
sophisticated graphics and animation to audio and video. Enterprise Web sites must integrate
multiple applications from the back‐ office to the supply and sales chain, while maintaining
security and the integrity of business information. As sites become larger and more complex,
traditional Web publishing systems, with their hard‐coded Web page content, become
unmanageable. Content creators swamp programmers with requests for new Web pages, the
approval process bogs down, and users no longer have access to current content.

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o Dynamic Web Environment ‐ The graphical layouts used in
next‐generation e‐Business systems are more “intelligent” and manageable
than the templates used in traditional Web publishing. While both control
placement of graphic elements, style, etc., templates access content through
business logic hard‐coded into the body of the page. Pages with different
content, however similar, require different source files. Layouts, on the
other hand, are a next‐generation approach that does not embed business
logic in the presentation objects. A layout controls only style and
placement of elements on the page. The logic that determines content is
separate from the layout, and can be changed and maintained
independently.
o Content Management Tools ‐ Content Management tools must enable
content to grow and change at Web speed.
o Team Content Development ‐ Publishing content to the Web and
extending the functionality of a site takes a whole team: developers to build
site structure and implement business rules, designers to create page
layouts and define a consistent look and feel, and business managers to
define business rules and contribute content.
o Collaboration Across The Extended Enterprise ‐ Publishing and
managing Web content typically involves an approval process and some
administrative work.
o Centralized Rules ‐ Based Content Management: Anyone should be
able to manage site content simply by defining a few document
characteristics when a document is published. With characteristics such as
a document’s type (for example, “data sheet”), format, and
activation/expiration dates in place, links to the document can be
automatically populated throughout the site, and document visibility and
“document migration” can be automated.
o Customized Content Delivery
o Pervasive Personalization
o Knowledge‐Based Personalization ‐ Effective personalization depends on
the ability to customize a user’s experience based on a rich, centrally
stored user profile: in essence, a knowledge base that consists of user
information and expertise on how to apply that information. This kind of
knowledge base cannot be bolted onto a brochure ware Web site. The
ability to gather and apply user‐related knowledge must be integrated into
the e‐Business system from day one, so that information can be
contributed, shared, and leveraged by all the applications in the system.
o User profiles are the crown jewels of an e‐Business strategy. The quality
of profiles determines the degree to which the user experience can be
personalized. Profiles can and should be built through both explicit and
implicit mechanisms.
o Inclusive Security
o Scalability To Compete ‐ As more and more processes are adapted to

23
 e‐Business, a Web site may grow to support thousands of users, millions of
documents and millions of transactions each day. An e‐ Business system
must have the power to perform fast and reliably, as a business grows,
while delivering the dynamic, personalized content necessary to achieve
business goals.
o Enterprise Integration and Transaction Monitors ‐ Any business
process can be “Web‐ified” with a CGI interface or a few server pages.
But isolated, e‐Business is about providing new value by doing business in
a fundamentally new way. Integration is the goal and the heart of
e‐Business: integrating and exposing applications and content in a
personalized way to speed, scale and improve business processes and to
engage, involve, and build lasting relationships with customers and
business partners.
o Transaction management guarantees that users have a consistent view of
business information. For example, the e‐Business system should prevent
the customer from completing an order based on one price, then being
charged based on the new price. Transaction management also prevents
inaccurate results based on system failures (e.g., the system goes down and
loses an order but continues to process the billing using already‐transmitted
credit card information). Robust system logs can help coordinate updates
across multiple data sources from multiple vendors or roll back
changes in case of system failure.

Delegated System Management ‐ e‐Business systems are distributed by their

very nature, coordinating information sharing among applications, business
functions and departments, and partners up and down the supply chain. Bringing
business processes to the Web increases the complexity of the e‐Business site, and
growing and changing numbers of users and applications increase the complexity
of managing a site. No centralized IT department could effectively maintain
current accounts or access privileges for all users, inside and outside the company.
Most Web sites today are not sophisticated enough to reach this roadblock, but as
businesses open and extend their processes via the Web, system manageability
will become an increasingly serious issue.
o Time to Market –Time to market must be minimal as delays may result in
losing the benefit of e‐ Business integration.

Impacts of e•Business
Improved operational efficiency and productivity: by eliminating
operational waste and automation of inefficient business practices,
organizations can realize productivity gains
Reduction in operating costs and costs of goods and services: by
connecting directly with suppliers and distributors, organizations can realize
more efficient processes that result in reduced units of cost for products or
services and lower prices to customers while achieving economies of scale.
Improved competitive position: global reach, rapid growth, efficient
reduction of product time to market and optimization of product distribution

24
 channels all contribute to superior competitive position.
Penetration into new markets through new channels: with e‐Business
location is of no consequence when it comes to reaching customers.
Improved communication, information and knowledge sharing: alignment
of key supply chain partners with an organization’s internal strategies helps
exploit their expertise and knowledge, hence creating opportunity to secure
long‐term business by embedding their process and procedures in those of their
customers’ supply chains.
Harmonization and
standardization of
process Improved
internal information
access
Improved relationships with suppliers and improved customer service

Inhibitors of e‐Business

Management/Strategy issues
o e‐business strategy
o Organizational changes required by e‐business
o Management attitudes and organizational inflexibility
Cost/financing issues
o Costs of implementation
o Calculating the Return on Investment (ROI)
S
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25
 s
L
e
g
a
l
I
s
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u
e
s
oFew companies are familiar with the rules and regulations that apply to an
online environment.
▪ This leads to Uncertainty.
o Different strokes for different folks!
Technological Concerns
o Integration Issues
Arguments against Investment
o Uncertainty & Fear

E•Business Strategies

What is an E•Business Strategy?

E‐Business has triggered new business models, strategies and tactics that are
made possible by the internet and other related technologies.
In order to compete in the marketplace, it is essential for organizations
to establish strategies for the development of an e‐business.
E‐Business strategy can be viewed via two different viewpoints, which are
explainedbelow.
One view defines strategy as plans and objectives adopted to achieve higher‐level
goals.
In that sense, a strategy is developed to achieve a goal like implementing
organizational change, or a large software package such as an ERP‐system.
Strategy may also relate to plans concerning the long‐term position of the
firm in its business environment to achieve its organizational goals.
Based on the above, we arrive at a common definition for an e‐BusinessStrategy.
An e‐Business strategy is the set of plans and objectives by which
applications of internal and external electronically mediated
communication contribute to the corporate strategy.
Strategic planning comprises a distinct class of decisions (a plan is a set of
decisions made for the future) and objectives, and has to be positioned next to
tactical planning (structuring the resources of the firm) and operational
planning (maximizing the profitability of the currentoperations).
Strategy is concerned with changes in the competitive environment that

26
may trigger strategic changes for the individual firm and so affect its roles
and functions in themarket.
Reassessment of strategy may occur due to:
o New Products
o Changing customer preferences
▪ Flowers: Roses / Carnations ‐> Orchids
▪ A few years back when people went to the florist, they
generally picked up Roses or Carnations etc. Now, they prefer
Orchids. This is an example of changing customer preferences.
A global notion is that a customer does not realize the utility
of feel the need for a product until it is offered to him / her.
o Changing demand patterns
o New competitors
The frequency, dynamics and predictability of the above changes
dictate the intensity of the strategic planning activity of the firm.
So, e‐Business strategy (revised) is:
o The set of plans and objectives by which applications of internal and
external electronically mediated communication contribute to the
corporate strategy.
E‐Business strategy may be implemented for:
o Tactical purposes: Mail ‐> EDI ‐>XML‐FDI
o Achieving corporate strategy objectives
E‐Business is strategic in nature.
o The idea is to create a preferably sustainable & competitive position for
thecompany.
▪ This is achieved by integration of the Internet and related
technologies in its primary processes.
E‐Business must not only support corporate strategy objectives but
also functional strategies (SCM, Marketing)
Supply Chain Management Strategy

Based on value chain analysis for decomposing an organization into its

individual activities and determining value added at each stage.
o Gauge efficiency in use of resources at each stage.
Marketing Strategy
o Is a concerned pattern of actions taken in the market environment to
create value for the firm by improving its economicperformance.
o Focused on capturing market share or improving profitability via
brand‐building etc.
o Operates on CURRENT AS WELL AS FUTURE projections of
customerdemand.
Information Systems Strategy
o How to leverage information systems in an organization to support the
objectives of an organization in the long run.
E‐Business strategy is based on corporate objectives.

27
 Strategic Positioning
Strategic positioning means that a firm is doing things differently from its competitors
in a way that delivers a unique value to its customers. There are 6 fundamental
principles a firm must follow to establish and maintain a distinctive strategic position:

1. Start with the right goal: superior long term ROI.

2. Strategy must enable it to deliver a value proposition different from competitors.
3. Strategy must be reflected in a distinctive value chain.
4. Accept tradeoffs for a robust strategy.
5. Strategy must define how all elements of what a firm does fit together.
6. Strategy must involve continuity of direction.

Levels of e•Business Strategies

Strategies will exist at different levels of an organization. Strategic levels of
management are concerned with integrating and coordinating the activities of an
organization so that the behavior is optimized and its overall direction is consistent
with its mission. Ultimately e‐Business is about communication, within business units
and between units of the enterprise as well as organizations.

1) Supply Chain or Industry Value Chain level

• E‐Business requires a view of the role, added value, and position of the
firm in the supply chain.
• Important issues that need to be addressed at this level are:
i. Who are the firm’s direct customers?
ii. What is the firm’s value proposal to the customers?
iii. Who are the suppliers?
iv. How does the firm add value to the suppliers?
v. What is the current performance of the Supply Chain in terms
of revenue and profitability, inventory levels etc?
vi. More importantly, what are the required performance levels?
vii. What are the current problems in the chain?
• This sort of analysis give insight into in upstream (supplier side)
and downstream (customer side) data and information flows.
2) The Line of Business or (Strategic) Business Unit level
• Understanding the position in the value chain is a starting point for
further analysis of how Internet‐ related technologies could contribute
to the competitive strategy of a business.
• This is the level where competitive strategy in a particular
market for a particular product is developed (Strategic
Positioning).

• There are four generic strategies for achieving a profitable business:

i. Differentiation: This strategy refers to all the ways producers
can make their product unique and distinguish them from those

28
 of their competitors.
ii. Cost: Adopting a strategy for cost competition means that the
company primarily competes with low cost; customers are
interested in buying a product as inexpensively as possible.
Success in such a market implies that the company has
discovered a unique business model which makes it possible to
deliver the product or service at the lowest possible cost.
iii. Scope: A scope strategy is a strategy to compete in markets
worldwide, rather than merely in local or regional markets.
iv. Focus: A focus strategy is a strategy to compete within a
narrow market segment or product segment.
3) The Corporate or Enterprise level
• This level comprises a collection of (strategic) business units.
• This level addresses the problem of synergy through a firm‐wide, available
ITinfrastructure.
• Common e‐Business applications throughout the organization are needed
for two basic reasons.
• From efficiency point of view, having different applications for the
same functionality in different areas of business is needlessly costly.
• From an effectiveness point of view, there is the need for cross Line of
Business communication and share‐ability of data.
• The emphasis in the business plans is on the customer, not thefinal product.
• These all become subjects of an enterprise‐wide e‐Businesspolicy.

The changing competitive Agenda: Business & Technology Drivers

Business Drivers:

Shift in economies from supply driven to demand driven

o Causes a shift in intent of service and quality programs, the impetus
for product development & the structure of the organization itself
o One to One marketing
o Mass Customization

Technological Drivers:

Internet
o Pervasiveness
o Interactive Nature
o Virtual Nature

Strategic Planning Process

The strategic planning process has the following steps:
The strategic planning process starts with the establishment of the organization’s
mission statement.
o The mission statement is a basic description of detailing the
fundamental purpose of the organizations existence and encompasses

29
 strategy development, including determination of the organization’s
vision and objectives.
o It is developed at the highest level of the organizations management,
and provides a general sense of direction for all decision making
within the firm.
Strategic Analysis
o This involves situation analysis, internal resource assessment,
and evaluation of stakeholder’s expectation.

o It will include
▪ Environmental Scanning
▪ Industry or market research
▪ Competitor Analysis
▪ Analysis of Marketplace Structure
▪ Relationships with trading partners and suppliers
▪ Customer Marketing Research
o Information is derived from the analysis of both internal and external
factors.
o Internal Factors:
▪ Human resources
▪ Material resources
▪ Informational resources
▪ Financial resources
▪ Structure
▪ Operational Style
▪ Culture
o External Factors:
▪ Socio‐cultural forces
▪ Technological forces
▪ Legal and regulatory forces
▪ Political forces
▪ Economic forces
▪ Competitive forces
o Any realistic new plan will have to reflect the reality of both the
external world and the internal dynamics of the corporation.
Strategic Choice
o It is based on the strategic analysis and consists of four parts:
▪ Generation of strategic options
▪ Highlighting possible courses of action
▪ Evaluation of strategic options on their relative merits
▪ Selection of strategy
o Strategic choice results in Strategic Planning, which is concerned with
the organizing and detailing of all the strategies that will be undertaken
throughout theorganization.

30
 o Planning includes strategy specification and resource allocation.
o It commences with corporate‐level planning that determines
the overall direction for the organization.
o This drives Division (or Strategic Business Unit) level planning
which deals with groups of related products offered by the
organization.
o These plans in turn become the starting point for operating (or
functional) level planning, which involves more local plans within
specific departments of the organization.
Implementation
o This relates to the actual tasks that must be executed in order to
realize a plan and translates strategy into action.
o It includes monitoring, adjustment, control as well as feedback.

Strategic Alignment
In the 1980s the concept of alignment between business and IT was developed.
According to this concept it is not only feasible to design and build a
technically sophisticated infrastructure for e‐Business, but also to formulate
business strategies that complement and support thisinfrastructure.
One of the major issues regarding an enterprises investment in IT is
whether this is in harmony with its strategic objectives.
This state of harmony is referred to as alignment.
Alignment is complex, multifaceted and almost never completely achieved. It
is about continuing to move in the right direction and better aligned than the
competitors.
Any e‐Business strategy should articulate an enterprise’s intention to use
information technology based on business requirements.
When formulating the IT strategy, the enterprise must consider:
o Business objectives and the competitiveenvironment
o Current and future technologies and the costs, risks, and benefits they can
bring to the business.
o The capability of the IT organization and technology to deliver current
and future levels of service to the business.
o Cost of current IT, and whether this provides sufficient value to the
business.
o Lessons learned from past failures and successes.

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Consequences of e•Business
As e‐Business is an information technology‐enabled organizational
phenomenon with economic consequences, economic theories appear
to be particularly useful for analyzing the businesseffects.
Strategy is about finding the right (external) fit between organization and
environment. Different schools of thought have approached this problem from
different angles.
When analyzing the business effects of an e‐Business, we will consider the
following approaches:
o The Theory of Competitive Strategy
o The resource‐base view
o The theory of transaction costs

Theory of Competitive Strategy

o The structural attractiveness of a firm is determined by five underlying
forces of competition:
▪ The bargaining power of the customers
▪ The bargaining power of the suppliers
▪ The barriers to entry for new competitors
▪ The threat of new substitute products or services
▪ The competition among existing firms in the industry

o In combination, these forces determine how the economic value created

by any product, service technology or way of competing is divided
between companies in an industry.
o The bargaining power of customers for a firm could, for instance,
depend on the degree of product differentiation, and the size of demand
and supply. Switching costs are also very important: they answer the
question of how much will it cost the customer to change to another
supplier.
o The bargaining power of suppliers is dependent on a variety of factors,
such as relative size, number of suppliers, that can deliver a critical
resource, and so on. The Internet causes another specific threat from
the perspective of IT suppliers; they may bypass their customers and
directly approach the end‐user.
o The barriers to entry for new competitors depend on how difficult it is
to join the industry. Economic and technological thresholds may
prevent outside potential competitors to come in . Economies of scale,
necessary capital, and specialized expertise are important factors in
thisrespect.
o The threat of substitute products depends on the question of whether
other products can deliver added value for consumers instead of current
products in the absence of switching costs. e.g. – The Internet is a

32
 serious threat to the Post Office.
o The level of competition among existing firms in the industry will
depend on various factors like type of market, existing competitive
behavior, and so on.
The Resource‐Based View
o According to this theory of economic development, innovation is the
source of value creation.
o Several sources of innovation (hence, value creation) are identified:
▪ The introduction of new goods or new production methods,
▪ The creation of new markets,
▪ The discovery of new supply sources,
▪ And the reorganization of industries.
o The resource‐based view (RBV), which builds on the theory of
economic development’s perspective on value creation, regards a firm
as a collection of resources and capabilities.
o The RBV looks at available resources first to see how a position in the
business environment can be acquired with them.
o According to this view, a firm can build a strategic position by picking
the right resources and building competencies that are unique and
difficult to imitate.
o Resources are considered the raw material for building competencies.
o The RBV states that marshalling and uniquely combing a set of
complementary and specialized resources and capabilities may lead to
value creation.
o A firm’s resources and competencies are valuable if, and only if,
they reduce a firm’s costs or improve its revenues.
o Core competencies of an organization encompass knowledge bases,
skill sets, and service activities that can create a continuing competitive
advantage.

Transaction Cost Economics

Transaction Cost Economics attempt to explain firms’ choices between
internalizing and buying goods and services from the market.
o According to transaction cost theory, exchanges with external firms
entail a variety of co‐ordination costs associated with various aspects of
inter‐firm transactions.
o The central question addressed by transaction cost economics is why
firms internalize transactions that might otherwise be conducted in
markets. Thus, two key issues concerning firms are:
▪ Which activities should a firm manage within its boundaries,
and which activities should it outsource?
▪ In which way should a firm manage its relationship with its
customers, suppliers and other business partners?

o According to transaction cost economics, a firm has two options for

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 organizing its economic activities: an internal hierarchical structure
where it integrates the activity into its management structure, or a
market‐like relationship with external firms.
o Critical dimensions of transactions influencing the choice of the most
effective governance form are:
▪ Uncertainty
▪ Exchange Frequency
▪ Specificity of Assets enabling the exchange
o Transaction costs include the costs of planning, adapting, executing and
monitoring task completion.
o Transaction cost Theory assumes that markets are not perfect, so
lead to costs, like search and monitoring costs.
o As internet technology is expected to significantly reduce transaction
costs, this theory provides a basis for assessing the effects of the
Internet on new and existing business models.

Success factors for Implementation of e•Business Strategies

Transforming an enterprise from a traditional organization to an e‐business
based organization’s a complex endeavor.
It is essential that senior management develops and endorses a broad strategic
vision.
Once the strategy has been determined and approved the
implementation strategy has to bechosen. Two approaches prevail:
o The top‐down approach: According to this, business transformation is a
business—wide phenomenon that can only be implemented business
wide.
o The bottom‐up approach: In this approach, business re‐engineering
starts as an experiment in an inconspicuous part of an organization.
Lessons are learnt from this experiment, and the knowledge is
transferred to other parts of the organization.
Although the bottom‐up approach has strong support , especially in the
case of innovation, central co‐ ordination of the transformation activity is
mandatory.
To provide for the central coordination, program management has to be
instituted. A core part of program management is multi‐project management ,
the main objectives of which are:
o Recognize dependencies between projects
o Share scarce resources in an overall efficient way
o Systematically utilize
experiences from single projects
Program management is characterized
by:
o Program organization,
o Policies,
o Plans,

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 o Communication,
o Alignment.
Leading a change project or business‐wide initiative requires persons
that plan the change and build business‐wide support; these are called
‘change agents’.
Change Agents are part of the program management organization.
In principle, everyone involved in a change project can assume
the role of a change agent. Three types of change agent roles
have beenidentified:
o Traditional: In the traditional model, the Information System (IS)
specialists focus on the delivery of the implementation of the
technology, without considering the organizational aspects.
Consequently they become technicians with a narrow area ofexpertise.
o Facilitator: In the facilitator model, the central model is that people,
not technologies create change. The change agent brings together all the
conditions necessary for the change. In this model, the change agent
remains ‘neutral’, the organization is responsible for the change.

Advocate: In this role, change agents focus on inspiring people to adopt the
change. Unlike the facilitator, he does not remain neutral, but uses any tactic
(persuasion, manipulation, power etc) to make the changes accepted.
Especially in the case of e‐Business transformation, where organizational and
IT changes relate to infrastructure and issues of commonality and
interoperability, the advocate model seems to be appropriate.

Pressures Forcing Business Changes

Competition
o Fiercer & More Global
Customers have become increasingly demanding
Integrated Demand (Travel, Car‐Rental etc.)
Firms ask themselves “which of my competences are unique and of core
importance?”
o E.g. ‐> Bajaj exits the scooter market.
Company configuration changes due to outsourcing and in‐sourcing.

Business Models
There are various definitions for Business Models. The definitions change based
on the paradigm and the context being applied. Let’s look at each definition: ‐

Participants in a joint business venture:

o Specify the relationships between different participants in a
commercial venture, the benefits & costs to each and the flows of
revenues. It addresses a simple equation (profit= revenue‐cost)
irrespective of the model.

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 o Describes how the enterprise produces, delivers and sells its products
or services, thus showing how it delivers value to the customer and
how it createdwealth.
Process & structure of a business organization:
o Refers to the structures & processes in place to operationalize the strategy
ofbusiness:
o Can be described as:
▪ An architecture for the product, service & information flows;
▪ A description of the various business actors & theirroles;
▪ A description of the potential business benefits for the various
actors;
▪ A description of the sources of revenues.
Perspective of a marketplace.
o Definition can be analyzed from various perspectives:
▪ B2B, B2C activities or both?
▪ Position in the value chain?
▪ Value proposition & target customers?
▪ Specific revenue models for generation of it s income streams?
▪ Representation? Physical or Virtual or combination?
Perspective of e‐Business
o A descriptive representation of the planned activities of an
enterprise that involves 3 integral components which specify: ‐
▪ Internal aspects of a business venture
▪ Type of relationships of the enterprise with its external
business environment and its effective knowledge
regarding these relationships
▪ How the information assets are embedded in the business venture.
A business model can be viewed as an externalization of a firms internal
business processes
o Does not involve internal business process complexity.
When taking the internal aspects of a business into account the following
elements need to be defined:

o Products or Services
o Sources of revenue
o Activities
o Organization of the firm

E•Business Models
E‐Business models are classified as follows:

Internet Enabled
o Categorized based on increasing functionality, innovation, integration
andvalue.
Value Web

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 o Assuredly not a recipe for success but preliminary conceptions of
an emerging form of a fluid and flexible organization.
o Move from we‐do‐everything‐ourselves unless (value generated by
single organization) to we‐do‐ nothing‐ourselves‐unless (value
generated by the network).

E‐Business Enabled
o Especially valid for B2B contexts
o 5 Representative Business models
o Tele‐working Model:
▪ Collaboration using communication technologies
▪ Classic example is Electronic Manufacturing Services (Solectron)
o Virtual Organization Model:
▪ Collection of geographically dispersed individuals, groups and
organizational units.
▪ Example: GeneraL ife (Insurance)
o Process Outsourcing Model:
▪ Example: BPOs, IBM
o Collaborative Product Development Model
▪ Example: Automobile Manufacture ‐> FORD
o Value Chain Integration Model:
▪ Used to improve communication & collaboration between all
supply chain parties.
Market Participants
o More generic classification of Internet Based Business Models
Cyber‐mediaries
o In disagreement with the widely accepted idea that e‐Business will
cause industry value chains to be restructured to such an extent that
intermediation will no longer be a prominentfeature.
o The real trend might just be towards an increase in intermediation by
cyber‐mediaries.
▪ Organizations which operate in electronic markets to
facilitate exchanges between producers and consumers
by meeting the needs of both.
▪ Directories of Directory Services Intermediaries
▪ Virtual Malls
▪ Website Evaluators
▪ Auditors
▪ Spot Market Makers
▪ Financial Intermediaries (ESCROW Service for Online purchases).

Note: For details on all e‐Business models, Refer Michael Papazoglou,

“e‐Business – Organizational & Technical Foundations”

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