Electronic Commerce COMP3210

Electronic Commerce COMP3210 Session 6: Planning E-Commerce Initiatives Dr. Paul Walcott Department of Computer Science, Mathematics and PhysicsUniversity of the West Indies, Cave Hill CampusBarbados © 2007 Dr. Paul Walcott The Department of Computer Science Mathematics and Physics, University of the West Indies, Cave Hill Campus, Barbados

Session Objectives1,2,3 • The objectives of this session are: • To describe how to prepare a simple business plan • To describe how to develop objectives • To analyse strategies used to fulfil objectives • And to analyse methods used to manage e-commerce initiatives

Business Plans • What is a business plan? • Why should I create a business plan? • What are the sections of a business plan? http://www.paragonventures.com/business%20plan%20d8dgvd8.gif

What is a Business Plan? • A business plan is a document which highlights (for the given year): • A plan of how the company will be run • The goals of the company • The money required to meet those goals • The strategy employed to meet those goals (including marketing)

Why Should I Create a Business Plan? • A business plan forces a business to assess the market place • It forces a business to identify a clear marketing strategy • It also serves as a benchmark which the company’s performance can be measured against.

The Sections of a Business Plan • There are seven essential sections of a business plan. These are the: • Executive Summary • Business Description • Define Your Market • Identify and Analyse Your Competition • Design and Development Plan • Operations and Management Plan • Financial Statements

Executive Summary • The executive summary follows the title page of the business plan • The purpose of the executive summary is to explain to the reader what the business wants • The summary should be short and concise (maybe half a page, typically no longer than a page) • People do not have time to waste reading long documents

Executive Summary Cont’d The key elements of an executive summary are: 1. The business concept • What is the business you are proposing, its products and the advantages over the competition 2. The financial features • Highlight the forecasted sales, profits, cash flows and return on investment 3. The financial requirements • What are the start-up costs and the cost of expansion. How will this money be used?

Executive Summary Cont’d 4. Current business position • This includes any relevant information about the company, its formation date, its owners and key personnel 5. Major achievement • Are there any developments which are essential to the success of the business? These may include prototypes, patents or crucial contracts

Business Description • This section often begins with a short description of the industry, its present outlook and future possibilities • Include any products or developments that might affect your business • State whether the business is new or already in existence; and the type of operation, e.g. is it retail, food service, manufacturing or service-oriented? • State who your customers will be and how your product will be distributed and advertised

Business Description Cont’d • Describe the product or service you intend to market • Show how your business will gain the competitive edge • Explain how the business will be profitable

Define Your Market • Define the entire market for your industry • in terms of size, structure, growth prospects, trends and sales potential • Define the specific market that you will be targeting (market segmentation) • Define your niche in this market

Define Your Market Cont’d • After defining your market you must: • Estimate your market share for the period of time the business plan covers • Position your business • Price your product • Determine the distribution strategy • Create a promotion plan • Estimate your sales potential

Define Your Market Cont’d • After researching the market, the information gained should be used to: • Identify objectives • And develop strategies that will allow you to fulfil these objectives • This will be the focus of the next section

Identify and Analyse Your Competition • Determine who your competitors are • What strategies are they using to sell their products or service • What are their strengths and weaknesses

Design and Development Plan • The design and development plan allows investors to understand: • The design of your product • How it is produced • How it will be marketed • The development budget required to allow the company to meet its goals

Design and Development Plan Cont’d • The sections included in the development plan include: • Product development • Market development • Organisational development • Each of these sections should be described from a funding point of view • Finally, identify measurable goals for the overall design and development plan

Operations and Management Plan • Describes how the business functions • It explains business logistics: • The responsibilities of the management team • The task assigned to each company division • Capital and expense requirements related to the operation of the business • And the financial tables • The operating expense table • The capital requirements table • The cost of goods table

Financial Statements • The three common financial statements are: • The balance sheet • A statement of your assets, liabilities and equity • The Income statement • Reflects when sales are made and expenses are incurred • The statement of cash flows shows • The amount of cash required to meet obligations, when it is required and from where it will come

Planning E-commerce Initiatives • A successful business plan should include activities that: • Identify objectives • Link objectives to business strategy

Identifying Objectives • Objectives businesses strive to achieve using e-commerce include: • Increase sales in existing markets • Launching out into new markets • Improve service to existing customers • Identifying new vendors • Coordinating more efficiently with existing vendors • More effective recruiting

Types of Objectives • Objectives vary with the size of the organisation, for example: • Small companies might want to build a Web site to encourage customers to do business using existing channels. • A site offering only product or service information is less costly to design and implement • Larger companies that might want to build sites that offer transaction handling, bidding, communication and other capabilities have to pay much more

SMART Objectives • Objectives must be: • Specific • Measurable • Achievable • Results-based • Time-bound

An Example *In this example, Icon is the name of a software product.

Linking Objectives to Business Strategy • After identifying objectives a company must: • identify business strategies that will help to realise these objectives • e.g. a small company’s objective might be to become a global player within a year and as a result one of its activities might be to build its brand

Linking Objectives to Business Strategy Cont’d • Businesses can use downstream strategies to improve the value that the business provides to customers • Or can pursue upstream strategies that focus on reducing cost or generating value by working with suppliers or inbound shipping and freight service providers

Linking Objectives to Business Strategy Cont’d • E-commerce can inspire businesses to partake in activities such as: • Building brands • Enhance existing marketing programs • Sell products and services • Sell advertising • Develop a better understanding of the customer’s need • Improve after sales support and service

Linking Objectives to Business Strategy Cont’d • E-commerce can inspire businesses to partake in activities such as: • Purchase products and services • Manage supply chains • Operate auctions • Build virtual communities • However, these can not be done in an ad hoc manner. It is important to measure the benefit and cost of each activity

Measuring Benefit • Some benefits are tangible and easy to measure, for example increase sales, decrease cost • Others are intangible thus difficult to measure, for example increased customer satisfaction • Managers need to try to set objectives that are measurable even for intangible benefits • E.g. increased customer satisfaction might be measured by counting the number of first-time customers who return to the Web site and make a purchase

Measuring Benefit Cont’d

Managing Cost • IT projects are often difficult to estimate and control • E.g. web development technologies change rapidly, thus it is difficult for managers to estimate cost • These cost include hardware and software • Even though hardware costs tend to decrease, new software often demands new hardware, thus increases costs

Total Cost of Ownership • The project budget must include • Hardware and software cost • Costs of hiring, training and paying personnel • Web site designers, developers, content providers, operators and maintainers • Organisations tend to track costs by activity

Total Cost of Ownership Cont’d • The total cost of ownership (TCO) includes • Cost of hardware (servers, routers, firewalls and load balancing devices) • Cost of software (licenses for operating systems, Web server software, database software, and application software) • Cost of outsourced design work • Salaries and benefits for employees • Cost of maintaining the site once operational • A good TCO will include cost of future redesign

Change Management • Every project involves change • Change management is the process of helping employees cope with change • Change management techniques include • Communicating the need for change • Inclusion in the change decision process • Inclusion in the planning for the change

Change Management Cont’d • If change is not properly managed, employees feel • Uncomfortable • Inadequate • Stressed which leads to reduced work performance • Unable to do the job properly • Powerless

Opportunity Cost • Opportunity cost is the benefit that will be lost if a company chooses not to initiate an e-commerce initiative • This is of great concern to management and accountants

Web Site Costs • The cost required for a large company to build an entry-level e-commerce site is US$1 million • 79% is labour cost • 10% software cost • 11% hardware cost • Source: International Data Corporation and Gartner Inc.

Web Site Costs Cont’d • The cost required for a large company to build a site that is comparable to leading sites is US$2 - $5 million • To build a Web site that is noticeably better than competitors will cost a minimum of US$15 million • 10 of the top 100 e-commerce sites spent over US$10 million for Web site development and implementation • Source: International Data Corporation and Gartner Inc

Web Site Costs Cont’d • A small company can put a Web site online for US$5000 • For a business with full transaction and payment processing capabilities, it is difficult to keep it under US$10,000 per year • Construction of new Web sites for small businesses actually averages US$140,000 • Minimum amount to open a complete e-commerce Web site is US$150,000

Web Site Costs Cont’d • Web site costs include • Start-up cost • Ongoing costs (between 50% - 200% of initial cost)

Web Site Costs Cont’d • The cost for a full portal magazine site • To build: US$2.4 million • US$4.3 million per year to maintain with a staff of 35 people • The cost for a more limited site • To build: US$150,000 • US$270,000 per year to maintain with a staff of 2 people

Web Site Costs Example • Kmart (http://www.kmart.com/) • >US$140 million to create online retail website • Much of the site’s cost is hidden from the user • Cost of customising middleware that connects the Web site to Kmart’s vast inventory and logistics databases

Web Site Costs: A Final Word • The high cost of creating e-commerce Web sites can serve as a discouragement to small businesses • Smaller organisations can control costs by: • Using a combination of third party hosting services and packaged e-commerce software • Sign up for mall-style service providers • This provides low initial cost and controls annual TCO, however cost of related activities can not be ignored, e.g. creating and maintaining a product catalog

Comparing Benefits to Costs Determine value of benefits Identify benefits Compare value of benefits to value of cost Determine value of costs Identify costs

Return On Investment (ROI) • Return on Investment techniques measure the amount of income (return) that will be provided by a specific expenditure • ROI requires that all costs are stated in a dollar amount • ROI focuses on benefits that can be predicted • Many benefits are often hidden • ROI tends to emphasise short-term benefits over long term benefits

ROI Hidden Benefits Example • CISCO systems created an on-line customer forum to discuss product issues • The intended benefits were to • Reduce customer service costs • Increase customer satisfaction regarding the availability of product information • Additional (hidden) benefit • Cisco engineers were able to get feedback on new products

ROI Problems • If managers rely only on ROI incorrect decision may be made • Due to biases towards short term cost and benefits rather than long term

Strategies For Developing E-commerce Web Sites • 1994-1996: Static Brochures • Contact information • Logos and or other branding • Some product information • Financial statements

Electronic Commerce COMP3210