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Even today, some considerable time after the so called ‘dot com/Lenten revolution’, electronic commerce (e-commerce) remains a relatively new, emerging and instantly changing area of business management and Information technology. There has been and continues to be much publicity and discussion about e- commerce. Library catalogues and shelves are filled with books and articles on the subject. However, there remains a sense of confusion, suspicion and misunderstanding surrounding the area, which has been exacerbated by the different contexts in which electronic commerce is used, coupled with the myriad related buzzwords and acronyms.
This book aims to consolidate the major themes that have arisen from the new area of electronic commerce and to provide an understanding of its application and importance to management. In order to understand electronic commerce it is important to identify the different terms that are used, and to assess their origin and usage. Laundromat 4 According to the editor-in-chief of International Journal of Electronic Commerce, business relationships and conducting business transactions by means of telecommunications networks’. He maintains that in its purest form, electronic commerce has existed for over 40 years, originating from the electronic transmission of messages during the Berlin airlift in 1948. 2 From this, electronic data interchange DE’) was the next stage of e-commerce development. In the sass a cooperative effort between industry groups produced a first attempt at common electronic data formats. The formats, however, were only for purchasing, transportation and finance data, and were used primarily for intra-industry transactions.
It was not until the late sass that work began for national Electronic Data Interchange (DE’) standards, which developed well into the early sass. EDI is the electronic transfer of a standardized business transaction between a sender and receiver computer, over some kind of private network or value added outwork (VAN). Both sides would have to have the same application software and the data would be exchanged in an extremely rigorous format.
In sectors such as retail, automotive, defense and heavy manufacturing, EDI was developed to integrate information across larger parts of an organization’s value chain from design to maintenance so that manufacturers could share information with designers, maintenance and other partners and stakeholders. Before the widespread uptake and commercial use of the Internet, the EDI system was very expensive to run mainly because of the high cost of the private networks.
Thus, uptake was limited largely to cash-rich multinational corporations using their financial strength to pressure and persuade (with subsidies) smaller suppliers to implement EDI systems, often at a very high cost. By 1996 no more than 50,000 companies in Europe and 44,000 in the USA were using DE’, representing less than 1 per cent of the total number of companies in each of the respective continents. According to Swags, electronic commerce has been re-defined by the dynamics of the Internet and traditional e-commerce is rapidly moving to the Internet.
With the advent of the Internet, the term e-commerce began to include: Electronic trading of physical goods and of intangibles such as information. All the steps involved in trade, such as on-line marketing, ordering payment and support for delivery. The electronic provision of services such as after sales support or on-line legal advice. 05 Electronic support for collaboration between companies such as collaborative on-line design and engineering or virtual business consultancy teams. Media are: Electronic Commerce (CE) 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. 4 Electronic commerce is about doing business electronically. 5 E-commerce, commerce, or electronic commerce is defined as the conduct of a financial transaction by electronic means. 6 The wide range of business activities related to e-commerce brought about a range of other new terms and phrases to describe the Internet phenomenon in other business sectors. Some of these focus on purchasing from on-line stores on the Internet.
Since transactions go through the Internet and the Web, the terms l- commerce (Internet commerce), commerce and even Web-commerce have been suggested but are now very rarely used. Other terms that are used for on-line retail selling include e-tailing, virtual-stores or cyber stores. A collection of these virtual stores is sometimes gathered into a Virtual mall’ or ‘cybercafé’. O WHAT ABOUT E-BUSINESS? As with e-commerce, e-business (electronic business) also has a number of different definitions and is used in a number of different contexts.
One of the first to use the term was MOM, in October 1997, when it launched a campaign built around e- business. Today, major corporations are rethinking their businesses in terms of the Internet and its new culture and capabilities and this is what some see as e- business. E-business is the conduct of business on the Internet, not only buying and selling but also servicing customers and collaborating with business partners. E- business includes customer service (e-service) and intra-business tasks. E-business is the transformation of key business processes through the use of Internet technologies.
An e-business is a company that can adapt to constant and continual change. 7 Illumination 6 The development of intranet and extranet is part of e-business. E-business is everything to do with back-end systems in an organization. In practice, e-commerce and e-business are often used interchangeably. O E-COMMERCE, E-BUSINESS, WHO E-CARES? 8 Some analysts and on-line business people have decided that e-business is infinitely business goals at hand. The effort to separate the E-commerce and E-business concepts appears to have been driven by marketing motives and is dreadfully thin in substance.
Here’s the important thing: E-commerce, E-business or whatever else you may want to call it is a means to an end. 9 The different names, definitions and words referred to in the previous sections are rely a sample of the glossary that has originated from marketing departments to sell a concept, the media to describe a sensational ‘new’ phenomenon, consultants to justify their fees and recommendations, and business to validate and implement the new technology. In fact there is no one definitive meaning of e-commerce or e- business that is universally established.
The different terms are used to illustrate different perspectives and emphases of different people in different organizations and business sectors. Some argue that it makes little sense to have a restrictive benefiting for the term e-commerce since it is unlikely that there will be agreement on a single unique definition. ‘Attempting to define E-commerce or E-business is guaranteed to generate Byzantine debates with meaningless origins. It reminds me of trying to answer the following question: “If one synchronized swimmer drowns, would the others follow? ’10 Because of this trend, it is necessary when undertaking any electronic commerce, electronic business or any other e-related project or assignment, to clearly define any term in the context and environment in which it is being used. O AN E-DISTINCTION For the purpose of clarity, the distinction between e-commerce and business in this book is based on the respective terms commerce and business. Commerce is defined as embracing the concept of trade, ‘exchange of merchandise on a large scale between different countries’. Al By association, e-commerce can be seen to include the electronic medium 07 for this exchange.
Thus electronic commerce can be broadly defined as the exchange of merchandise (whether tangible or intangible) on a large scale between different countries using an electronic medium – namely the Internet. The implications of this re that e-commerce incorporates a whole socio-economic, telecommunications technology and commercial infrastructure at the macro-environmental level. All these elements interact together to provide the fundamentals of e-commerce. Business, on the other hand, is defined as ‘a commercial enterprise as a going concern’. 2 E-business can broadly be defined as the processes or areas involved in the running and operation of an organization that are electronic or digital in nature. These include direct business activities such as marketing, sales and human engineering and change management, which impact on the improvement in efficiency and integration of business processes and activities. Figure 1. 1 illustrates the major differences in e-commerce and e-business, where e-commerce has a broader definition referring more to the macro-environment, e-business relates more to the micro-level of the firm. Figure 1. Electronic commerce and electronic business Although different, both e-commerce and e-business are also highly integrated and reliant upon each other. O WHAT ARE THE KEY DRIVERS? It is important to identify the key drivers of e-commerce to allow a comparison between different countries. It is often claimed that e-commerce is more advanced in the USA than in Europe. These key drivers can be measured by a number of criteria that can highlight the stages of advancement of e-commerce in each of the respective countries. The criteria that can determine the level of advancement of e- commerce are summarized in Table 1. And can be categorized as: Technological factors – The degree of advancement of the telecommunications infrastructure which provides access to the new technology for business and consumers. 2 Political factors – including the role of government in creating government isolation, initiatives and funding to support the use and development of e- commerce and information technology. 3 Social factors – incorporating the level and advancement in IT education and training which will enable both potential buyers and the workforce to understand and use the new technology. Economic factors – including the general wealth and commercial health of the nation and the elements that contribute to it. Since a distinction has been made in this book between e-commerce and e-business for consistency, the key drivers of e-business are also identified. These are mainly at he level of the firm and are influenced by the macro-environment and e-commerce, which include: Organizational culture – attitudes to research and development (R); its willingness to innovate and use technology to achieve objectives.
Commercial benefits – in performance of the firm. Skilled and committed workforce – that understands, is willing and able to implement new technologies and processes. Requirements of customers and suppliers – in terms of product and service demand and supply. Competition – ensuring the organization stays ahead of or at least keeps up with competitors and industry leaders. These key drivers for the implementation of e-business can be put into the context of the classic economic equation of supply and demand illustrated in Figure 1. . 09 TABLE 1. 1 Key drivers of E-commerce Key drivers Measurement criteria Technological factors Telecommunications infrastructure Backbone infrastructure and architecture Industry players and competition Pricing Internet service providers Range of services available (e. G. ADDS, KIDS) Ownership (private or public sector) Access to new technology developments Bandwidth Speed of development and implementation of new technology by industry sector
Political Number and type of government incentives and programmer to support the use and development of new technology Legislation – number and type of supportive or restrictive laws and policies that govern electronic data, contacts and financial transactions. For example, laws that recognize and enforce the validity of electronic documentation, contracts and transactions in a court of law; the validation of digital signatures; the legal usage of Public policies – whether government supports the growth of electronic transactions and processes.
For example, filing tax returns to the Inland Revenue electronically, the national education curriculum and training Social Economic Skills of workforce Number of users on-line Penetration rate of PC’s Level of education; computer literacy and IT skills Culture of technophobia – a willingness and ability to adopt new technology and the speed at which technology achieves critical mass as in Japan Economic growth – GAP Average income Cost of technology (hardware and software) Cost of access to telecommunications infrastructure – pricing structures and rates Commercial infrastructure – advancement of banking sector; payment systems Innovative business models Thus, e-commerce provides the infrastructure and environment that enables and facilitates e-business. Within this, the implementation of e-business is solely dependent on whether there is a demand by the organization and whether it can be supplied within the organization. Demand is created largely by the need to cut costs, improve efficiency, maintain 10 Key drivers of e-business competitive advantage and meet stakeholder requirements.
These business objectives can be met through the supply of a technological infrastructure to improve organizational processes, a willingness, ability and commitment to integrate new genealogy and improve working practice within the organization, and crucial to all this is the allocation of resources. O WHAT IS THE IMPACT OF ELECTRONIC COMMERCE? E-commerce and e-business are not solely the Internet, websites or dot com companies. It is about a new business concept that incorporates all previous business management and economic concepts. As such, e-business and e-commerce impact on many areas of business and disciplines of business management studies. For example: Marketing – issues of on-line advertising, marketing strategies and consumer behavior and cultures.
One of the areas in which it impacts particularly is direct marketing. In the past this was mainly door-outdoor, home parties (like the Departure parties) and mail order using catalogues or leaflets. This moved to telemarketing and TV selling with 011 the advances in telephone and television technology and finally developed into e- marketing spawning ‘ecru’ (customer relationship management) data mining and the like by creating new channels for direct sales and promotion. Computer sciences – development of different network and computing technologies and languages to support e-commerce and e-business, for example inking front and back office legacy systems with the Webbed’ technology.
Finance and accounting – on-line banking; issues of transaction costs; accounting and auditing implications where ‘intangible’ assets and human capital must be tangibly valued in an increasingly knowledge based economy. Economics – the impact of e-commerce on local and global economies; understanding the concepts of a digital and knowledge-based economy and how this fits into economic theory. Production and operations management – the impact of on-line processing has led to reduced cycle times. It takes seconds to deliver digitized products and services electronically; similarly the time for processing orders can be reduced by more than 90 per cent from days to minutes. Production systems are integrated with finance customers (see Intel mint-case).
Intel launched their on-line business in summer 1998 when their sales shot from zero to $1 billion per month in the first month of operation. The reason for this is that they totally re-engineered their processes to include small and medium-sized businesses. Previously only Intel’s larger customers were connected to them by expensive EDI networks, leaving the small and medium-sized companies sending axes or phoning in orders or requirements. Intel concentrated on procurement and customer support for a range of their products (including computer chips and microprocessors), developing an extranet (which is the linking of a number of intranets using Internet technology with added security creating virtually private networks).
By using the extranet, authorized small and medium-sized business partners could place orders, track the orders and look at product documentation on the site. The savings for Intel and their customers were large – they eliminated 45,000 axes in a quarter to Taiwan alone – saving on time, telephone charges and fax paper. Eleven of the larger Intel companies were connected to another system which let Intel link to customer plants across the Internet to track part consumption. Production and operations management (manufacturing) – moving from mass production to demand-driven, mass customization customer pull rather than the manufacturer push of the past.
Web-based Enterprise Resource Planning systems (ERP) can also be used to forward orders directly to designers and/or production floor within seconds, thus CASE STUDY 12 outing production cycle times by up to 50 per cent, especially when manufacturing plants, engineers and designers are located in different countries. In sub-assembler companies, where a product is assembled from a number of different components sourced from a number of manufacturers, communication, collaboration and coordination are critical – so electronic bidding can yield cheaper components and having flexible and adaptable procurement systems allows fast changes at a minimum cost so inventories can be minimized and money saved. Management information systems – analysis, design and implementation of e-business systems thin an organization; issues of integration of front-end and back-end systems.
The pull-type processing allows for products and 013 services to be customized to the customer’s requirements. In the past when Ford first started making motor cars, customers could have any color so long as it was black. Now customers can configure a car according to their specifications within minutes on-line via the www. Ford. Com website. Enables reduced inventories and overheads y facilitating ‘pull’-type supply chain management – this is based on collecting the customer order and then delivering through SIT Oust-in-time) manufacturing. This is particularly beneficial for companies in the high technology sector, where stocks of components held could quickly become obsolete within months.
For example, companies like Motorola (mobile phones), and Dell (computers) gather customer orders for a product, transmit them electronically to the manufacturing plant where they are manufactured according to the customer’s specifications (like color and features) and then sent to the customer within a few days. Lower telecommunications cost. The Internet is much cheaper than value added networks (VANS) which were based on leasing telephone lines for the sole use of the organization and its authorized partners. It is also cheaper to send a fax or e-mail via the Internet than direct dialing. Digitization of products and processes. Particularly in the case of software and music/video products, which can be downloaded or e-mailed directly to customers via the Internet in digital or electronic format. No more 24-hour-time constraints. Businesses can be contacted by or contact customers or suppliers at any time.