The Digital Firm: Electronic Business and Electronic Commerce

1. 4 Chapter The Digital Firm: Electronic Business and Electronic Commerce

2. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce OBJECTIVES • Analyze how Internet technology has changed value propositions and business models • Define electronic commerce and describe how it has changed consumer retailing and business-to-business transactions

3. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce OBJECTIVES (Continued) • Compare the principal payment systems for electronic commerce • Evaluate the role of Internet technology in facilitating management and coordination of internal and interorganizational business processes • Assess the challenges posed by electronic business and electronic commerce and management solutions

4. Challenge: trillions of product configurations, short lead times, many competitors Solution: Web extranet for order entry, customization, inventory, change orders, and shipping Demonstrates how IT and the Web coordinate the flow of information about orders, production, inventory and shipment Illustrates how systems in the digital firm connect demand, supply, and fulfillment to achieve operational excellence Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce Corrugated Supplies Case

5. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Technology and the Digital Firm • Information technology infrastructure:The Internet provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations. • Direct communication between trading partners: Disintermediation removes intermediate layers and streamlines processes.

6. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Technology and the Digital Firm (Continued) • Round the clock service: Web sites available to consumers 24 hours • Extended distribution channels: Outlets created for attracting customers who otherwise would not patronize a firm • Reduced transaction costs: Costs of searching for buyers declines

7. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM New Business Models and Value Propositions • Business Model: • Defines an enterprise • Describes how the enterprise delivers a product or service • Shows how the enterprise creates wealth

8. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM The Changing Economies of Information • Information asymmetry: One party in a transaction has more information than the other. The Internet decreases information asymmetry. • Increases richness: The Internet increases the depth, detail, and scope of information. • Increases reach: The Internet increases the number of people who can be contacted efficiently.

9. Figure 4-1 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM The Changing Economics of Information

10. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Business Models • Virtual storefront: Sells goods or services online (Amazon.com) • Information broker: Provides information on products or services (Edmunds.com) • Transaction broker:Provides online transaction facility (eTrade.com, Expedia.com) • Online marketplace: Provides a trading platform for individuals and firms (eBay.com)

11. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM Internet Business Models (Continued) • Content provider: Creates revenue by providing content (WSJ.com, TheStreet.com) • Online service provider: Provides online services, including search service. (Google.com, Xdrive.com) • Virtual community: Provides an online community to focused groups (Friendster.com, iVillage.com) • Portal: Provides initial point of entry to Web, specialized content, services (Yahoo.com, MSN.com)

12. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Categories of Electronic Commerce • Business-to-customer (B2C): Retailing of products and services directly to individual customers (Wal-Mart.com) • Business-to-business (B2B): Sales of goods and services to other businesses (Grainger.com, Ariba.com) • Consumer-to-consumer (C2C): Individuals using the Web for private sales or exchange (eBay.com )

13. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Business-To-Consumer • Advantages of E-commerce: • Customer-centered retailing: Closer and more personalized relationship with customers is possible • Web sites: Provide a corporate-centered portal for the consumer to quickly find information on products, services, prices, orders

14. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Business-To-Consumer Advantages of E-Commerce: (Continued) • Disintermediation: The elimination of organizations or business process layers responsible for certain intermediary steps in a value chain, reducing costs to the consumer • Reintermediation: The shifting of the intermediary role in a value chain to a new source, adding additional value to the consumer

15. Figure 4-2 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE The Benefits of Disintermediation to the Consumer

16. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Interactive Marketing and Personalization • Clickstream tracking tools: • Collect data on customer activities at Web sites and store them in a log

17. Figure 4-3 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Web Site Visitor Tracking

18. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Web Personalization • Create unique personalized Web pages for each customer • Increased closeness to customer increases value to the customer, while reducing costs of interacting with the customer

19. Figure 4-4 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Web Site Personalization

20. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Collaborative filtering: • Compares information gathered about a specific user’s behavior at a Web site to data about other customers with similar interests to predict what the user would like to see next. The software then makes recommendations to users based on their assumed interests.

21. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Customer self-service: • The use of Web sites to provide customers with access to information and answers to questions • Replacing human call center operators and clerks • UPS.com: Customer tracking of packages • Orbitz.com: Customer self-help for organizing and managing a trip • Dell.com: “My Order Status” facility

22. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Business-to-Business Electronic Commerce: New Efficiencies and Relationships • Electronic Data Interchange (EDI): Enables the computer-to-computer exchange between two organizations of standard transactions. Currently 80% of B2B e-commerce uses this system. • EDI is being replaced by more powerful Web-based alternatives.

23. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Net Marketplaces Four different types of Net Marketplaces: • Distributors: B2B online catalogs provide buyers with access to thousands of parts and other goods (Grainger.com) • Procurement platforms: Platforms for purchasing goods and materials and also sourcing, negotiating with suppliers, paying for goods, and making delivery arrangements (Ariba.com)

24. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Net Marketplaces Four different types of Net Marketplaces: (Continued) • Independent exchanges: Third-party Net marketplace that is primarily transaction-oriented and that connects many buyers and suppliers for spot purchasing (Freemarkets.com, GEPolymerland.com) • Industry consortia: Industry-owned Net marketplaces used primarily for long-term sourcing of direct inputs to production (ChemConnect.com)

25. Figure 4-5 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Electronic Data Interchange (EDI)

26. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE • Private Industrial Networks • The largest Web-based form of B2B commerce • Private B2B extranets that focus on continuous business process coordination between a small group of companies for collaboration and supply chain management. Wal-Mart uses its own private network to coordinate more than 15,000 suppliers to its stores.

27. Figure 4-6 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE A Private Industrial Network

28. Figure 4-7 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE A Net Marketplace

29. Credit cards The most common form of payment. $50 Limited customer liability. Digital wallets Electronic storage of I.D. and digital cash. Not widely used. Accumulated balance Used for micro payments. Similar to monthly telephone bills. Stored value Used for micro payments. Pre-payment of funds, debited on use. Smart Cards I.D. and credit information stored on a chip attached to a card. Used in Europe. Digital cash Electronic currency that can be transferred over the Web. Peer-to-Peer payment Interpersonal transfer of funds such as PayPal. Digital checking Electronic checks with digital signatures, used most often in B2B commerce. Electronic billing presentment and payment Used by consumers to pay bills online, provided by many banks. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE Electronic Commerce Payment Systems

30. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM How Intranets Support Electronic Business • Benefits • Functional applications • Good examples: CARE and Mitre Corporation

31. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Benefits of Intranets • Connectivity: Accessible from most computing platforms • Can be tied to internal corporate systems and core transaction databases • Platforms for interactive applications • Scalable to larger or smaller computing platforms

32. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Benefits of Intranets (Continued) • Easy to use, universal standard Web interface • Low start-up costs • Richer, more responsive information environment than corporate manuals • Reduced information distribution costs

33. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Functional Applications of Intranets • Finance and accounting • Human resources • Sales and marketing • Manufacturing and production

34. Figure 4-8 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Functional Applications of Intranets

35. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Finance & Accounting • General ledger reporting • Project costing • Annual reports • Budgeting

36. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Human Resources • Company: • Online publishing of corporate policy • Job postings and internal job transfers • Company telephone directories, training

37. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Human Resources (Continued) Employees: • Healthcare • Employee savings • Competency tests

38. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Sales and Marketing • Competitor analysis • Price updates • Promotional campaigns • Sales presentations • Sales contracts

39. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Manufacturing and Production • Quality measurements • Maintenance schedules • Design specifications • Machine outputs • Order tracking

40. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Business Process Integration • The Internet and collaborative commerce: • Collaborative commerce: When firms use the Internet to cooperate closely in the development, production, and distribution of products and services • GE Plastics maintains an Intranet where its customers (selected fabricators) can find information on product design and new developments.

41. Figure 4-9 Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM Collaborative Commerce

42. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS Management Opportunities: The Internet provides firms with extraordinary opportunities to develop new products and services, new distribution channels, new avenues for marketing and sales, and even entirely new business models.

43. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS Management Challenges: • Finding a successful Internet business model • Organizational change challenges • Trust, Security, and Privacy

44. Management Information Systems Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS Solution Guidelines: • Determining how Internet technology can provide value for the business • Managing business process changes • Safeguarding security and privacy