MANAGEMENT INFORMATION SYSTEM

Chapter 3Using Information Technology to Engage in Electronic Commerce

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OVERVIEW Electronic Commerce E-Commerce beyond boundaries of the firm E-Commerce Benefits E-Commerce Constraints E-Commerce Scope External Databases Search Engines E-Commerce Strategy Interorganizational Systems (IOS) B2C Strategies for E-Commerce Mobile Commerce Internet World Wide Web (WWW) 2

ELECTRONIC COMMERCE

E-commercerefers to a business transaction that

uses network access, computer-based systems, and a Web browser interface.

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TYPES OF E-COMMERCE Business-to-consumer (B2C)

refers to transactions between a business and the final consumer of the product.

Business-to-business (B2B) refers to transactions between businesses

in which neither one is the final consumer. Electronic Government (E-gov)

refers to transactions between a government agency and typically a citizen.

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BENEFITS OF E-COMMERCE

Main benefits to firms: Improved customer service before, during,

and after the sale Improved relationships with suppliers and

the financial community Increased economic return on stockholder

and owner investments

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E-COMMERCE (CONT’D)

Main constraints to firms:High costsSecurity concerns Immature or unavailable software

Scope of E-commerceWWW.CENSUS.GOV Link to the E-stats Web page to find the

most current e-commerce figures.

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E-COMMERCE SALES

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BUSINESS INTELLIGENCE Business Intelligence (BI)

is the activity of gathering information about the elements in the environment that interacts with the firm.

External databases are commercial databases that, usually for a fee,

provide information and analyses on virtually any subject.

Firms use these databases to gather BI because it is faster and less expensive than trying to research a wide array of information sources.

Government databases offer a wide range of topics for researchers in many

fields. 8

BUSINESS INTELLIGENCE (CONT’D) Firms are more inclined to initiate their own

external searches for market intelligence. Search engines are the most popular means

for people to obtain information available from the Web.

Search engine is a special computer program that asks a user

for a word or group of words to be found. Searches the content of web sites on the Internet

to see if the word or words are on any Web sites. Makes it possible to scan large volumes of

information quickly, easily, and thoroughly.9

SEARCH ENGINES EXPLORE THE INTERNET TO FIND SITES CONTAINING INFORMATION YOU SEEK

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E-COMMERCE STRATEGY AND INTERORGANIZATIONAL SYSTEMS

Interorganizational system (IOS) is the strategy in which a firm is linked

with transmissions of electronic data with other firms so that all of the firms work together as a coordinated unit, achieving benefits that each could not achieve alone.

Participating firms are called trading partners, business partners, or a business alliance. 11

E-COMMERCE STRATEGY AND INTERORGANIZATIONAL SYSTEMS

E-commerce is fundamental to IOSs.

Electronic data interchange (EDI) is a means for achieving an IOS; a subset.

Extranets are another alternative.

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IOS BENEFITS

Comparative Efficiency: is obtained by the IOS because the

trading partners can produce their goods and services with greater efficiency and provide their goods and services at lower costs to their customers. (price advantage over competitors)

Internal efficiency within the firm’s own operations.Gather and analyze data quickly.Make decisions faster. 13

IOS BENEFITS (CONT’D)

Interorganizational efficiency gained by working with other firms.Offer more products and services.Serve more customers.Shift certain work to suppliers or

customers.Gather environmental data more easily.

Bargaining Power is the ability of a firm to resolve

disagreements with its suppliers and customers to its own advantage. 14

BARGAINING POWER IMPROVEMENTSUnique product features enable

firms to offer better service to their customers in the form of easier ordering, quicker shipments, and faster response times to requests for information.This better service becomes a feature of

the firm’s products, making them more appealing than similar products offered by competitors.

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BARGAINING POWER IMPROVEMENTS (CONT’D)Reduced search-related costs can

reduce the firm’s “shopping” cost that its customers incur in searching for a supplier, identifying alternative products, and getting the lowest price.The firm is a customer of its suppliers, the

firm can realize the same shopping-cost reductions when ordering from its suppliers.

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BARGAINING POWER IMPROVEMENTS (CONT’D) Increased switching costs is when a

firm makes it more expensive, in cost and/or convenience, for customers to switch to a competitor.Providing customers with such information

resources as hardware, software, and data communications channels that would have to be replaced if products were purchased from another firm.

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IOS EXPANSIONVendor stock replenishment is a

special type of IOS in that the customer trusts the supplier enough to allow the supplier to access its computer-based inventory system.The supplier initiates the replenishment

process by electronically monitoring the firm’s inventory levels.

Wal-Mart uses the IOS strategy extensively.

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EDI EDI consists of direct computer-to-computer

transmissions of data in a machine-readable, structured format.

Older technology, but majority of B2B commerce use

Enables data to be transmitted and received without rekeying

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EDI (CONT’D) Equipment (communications lines, hardware,

etc.) and support services provided by telephone companies (AT&T, MCI, et al.)

Value-added network (VAN) is when the services that operate and manage the communications line (circuit) are provided in addition to the line itself.

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EDI (CONT’D) EDI is the dominant implementation of an

IOS. More that two-thirds of e-commerce is conducted

using EDI compared to other alternatives. More costly: $5,000-$30,000 per year with a

single vendor or customer More bulky than newer IOS systems

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EXTRANETExtranets enable the sharing of

sensitive computer-based information with other firms using information technology over the internet.Used in collaboration with trusted suppliers

and large customersSecurity and privacy are serious concerns,

so extranets are generally secured behind a firewall and use encryption such as Pretty Good Privacy (PGP).

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EXTRANET (CONT’D) Firewall permits only authorized users to

access the firm’s information. Extranets allow for the same type of data

exchange as EDI. Extranets incorporate the common protocols

and communication networks of the Internet, which results in a great cost savings (EDI is costly to use).

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IOS ADOPTION INFLUENCES Proactive and reactive business

partners Adoption influences

Competitive pressures (HIGH, firm is reactive in adopting IOS, usually EDI)

Exercised power (powerful firm is proactive in adopting/demanding IOS)

Internal need (firms see participation as a way to improve)

Top management support (ALWAYS influences the decision)

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FIGURE 3.2 INTERNAL AND ENVIRONMENTAL INFLUENCES ON IOS ADOPTION

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IOS BENEFITSDirect benefits

Reduced data entry errorsLower costs Increased operational efficiency

Indirect benefits Increased ability to compete Improved relationships with trading

partnersBetter customer service

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FIGURE 3.3 IOS DIRECT AND INDIRECT BENEFITS

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B2C STRATEGIES FOR E-COMMERCE Important to understand B2C

StrategiesMore products and services are becoming

available for digital delivery.More consumers are overcoming their

reluctance to purchase using the Web.Higher communication speeds in homes

has made delivery of digital products practical.

Fear of information theft has been replaced with acceptance. 28

DIGITAL PRODUCTS Entertainment–songs, albums, movies,

etc. WWW.SONY.COM Computer programs and updates–virus

protection software, tax software, etc. Services–WWW.LENDINGTREE.COM Can be consumed as soon as they are

downloaded Purchasers incur a substantial cost of

the transaction in terms of computer cost, online connection fees, storage media, and so on.

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PHYSICAL PRODUCTS Items must be transported to the consumer. Shipment has to be arranged. Traditional delivery methods are slow. Faster delivery time options are costly. Mail/shipping companies offer services such

as online tracking that allows more information and control over delivery.

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VIRTUAL VS. HYBRID SALESVirtual sales are those made by a

firm that does not operate a physical storefront.Customer can’t enter and purchase the

product.Hybrid sales occur when firms have

both a physical storefront and a Web site where customers can purchase products.Brick-and-click operations

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VIRTUAL SALES CHALLENGES Provide necessary product information

without overwhelming the customer. Communicating image files from the Web site

to the customer’s computer can take time. Payment over the Internet has suffered bad

press–credit card fraud.

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HYBRID SALES Most firms had storefronts before sales over

the Internet were possible. Both a physical storefront and the Internet

are necessary to their business plans. Stores act as showcases for products. Customers enjoy convenience of shopping

over the Web. B2C sales means less inventory at its store;

more sales floor space.

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VIRTUAL SALES Limit images displayed response time,

WWW.OFFICEDEPOT.COM. Secure data transfer of credit card

information. VeriSign PayPal

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THE NEXT STEP FOR E-COMMERCEMobile commerce (m-commerce) is

the use of cell phones and personal digital assistants (PDAs) to engage in wireless e-commerce.

Third generation (3G) telecommunications is data-capable wireless technologies.Europe purchased 3G licenses in 2000;

United States in 2004.$40 billion per year global industry by

2009.

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M-COMMERCE Early applications included news services,

financial information alert/transactions, and banking.

Movie ticket purchases, parking payments, etc. gaining acceptance.

Japan is 1st country to have a 3G carrier (almost all Japanese have a cell phone).

United States-only about 40% have a cell phone.

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THE NEXT STEP … (CONT’D)Wireless Internet Hot spots are

created using a wired connection (for high communications speed) and then broadcast via a wireless access point to an area approx. 100 meters; Starbucks.

Business-class wireless computing would provide fast wireless communication everywhere over the same communications carrier as cell phones; Verizon. 37

USING THE INTERNET The origin of the Internet can be traced to

1969, when the U.S. government established a network called ARPANET.

ARPANET demonstrated that it was possible for a person to request and receive data over a complex network that included many computers and network connections.

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WORLD WIDE WEB World Wide Web (WWW)

efforts began in 1989 when Tim Berners-Lee came up with a idea for physicists to communicate.

Hypertextelectronic documents that are linked

together. Physicists

would be able to click on words or phrases displayed on their computer screens and retrieve the hypertext.

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WORLD WIDE WEB (CONT’D) Hypertext

became a reality in 1992. Hypermedia

is the transmission of multimedia consisting of text, graphics, audio, and video over the WWW.

WWW (Web) is information accessible via the Internet

whereby hypermedia documents (computer files) are stored and then retrieved by means of a unique addressing scheme. 40

WORLD WIDE WEB TERMS Web site

collection of Web pages Hypertext link

pointer (text or a graphic) used to access hypertext stored at a Website

Web page hypermedia file stored at a unique Web site

address Home page

first page of a Web site Browser

software designed to find and read files on the Internet written in hypertext markup language. 41

WORLD WIDE WEB TERMS (CONT’D) Uniform resource locator (URL)

unique address of a Web page Protocol

set of standards that govern communication of data (HTTP, FTP, URL)

Domain name address of the website where a Web page is

stored Path

certain directory/subdirectory and file at the Web site

File Transfer Protocol (FTP) users can copy files onto their computers from

any Web site.42

WORLD WIDE WEB TERMINOLOGY

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UNDERSTANDING THE DIFFERENCE The Internet

is a global communications network that connects millions of computers.

Provides the network architecture The Web

is a collection of computers acting as content servers that host documents formatted to enable viewing of text, graphics, and audio as well as allowing linkages to other documents on the Web.

Provides the method for storing and retrieving its documents 44

CYBERSPACE AND THE INFORMATION SUPERHIGHWAY Cyberspace1: a society that had become a

slave to technology. Information Superhighway describes a

positive force that gives everyone access to the wealth of information that exists in modern society.

1 Term coined in 1984, author William Gibson Neuromancer 45

INTERNET STANDARDS Internet Society (1992) promotes

commercial Internet use. Internet Engineering Task Force (IETF)

responsible for Internet standards. World Wide Web Consortium (W3C)

responsible for Web standards.

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E-COMMERCE AND HOSPITAL SUPPLY CHAIN MANAGEMENT Hospitals conduct most of their purchases

online. Only 5 % benefit compared to manual purchasing.

Hospitals can use a standard protocol such as the Internet to replace EDI. Global Healthcare Exchange (WWW.GHX.COM) help

hospitals implement clinical commercial exchange Hospitals have hundreds, sometimes thousands, of

vendors; the savings is substantial. Speed and ease of connection to a new

vendor for e-commerce is a strong incentive for change. Analyze purchase requests. Find less expensive substitute or less costly vendor.

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BUSINESS APPLICATIONS OF THE INTERNET Retailing Operations

Most of the large retail chains have established a Web presence.

Retailers make their home pages directly accessible through the Web.

Virtual mall combine with other stores in a collection sites.

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SUGGESTIONS FOR SUCCESSFUL INTERNET USE Make sure your Web site is robust. Make sure your browser and database

structure are both flexible and intuitive. Emphasize content. Update often. Look beyond customers. Target content to specific users’ needs. Make the interface intuitive. Be in the right Web location. Create a sense of community. Get help if you need it.

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