Chapter 12

Planning for Electronic Commerce

Gary Schneider, 2003

Planning the Electronic Commerce Initiative

• A successful business plan for an electronic commerce initiative should include activities that will:

• Identify the initiative’s specific objectives• Link those objectives to business strategies• Manage the implementation of those business

strategies• Oversee the continuing operations of the initiative after

it is launched

Identifying Objectives

• Common objectives include:• Increasing sales in existing markets• Opening new markets• Serving existing customers better• Identifying new vendors• Coordinating more efficiently with existing

vendors• Recruiting employees more effectively

• Resource decisions should consider the expected benefits and costs of meeting the objectives

Linking Objectives to Business Strategies

• Businesses can use downstream strategies– tactics that improve the value that the business provides to its

customers

• Businesses can pursue upstream strategies– tactics that focus on reducing costs or generating value by working

with suppliers or inbound logistics

• The Web is an attractive sales channel that can be used to complement business strategies and improve competitive positions

• Electronic commerce opportunities can inspire businesses to undertake many activities

Linking Objectives to Business Strategies

• More companies are taking a closer look at the benefits and costs of their electronic commerce projects

• A good business plan will set specific objectives for the benefits to be achieved and costs to be incurred

• Companies use pilot Web sites to test an electronic commerce idea, and then release a production version when it works well

Measuring Benefit Objectives

• Many companies create Web sites to build their brands or enhance existing marketing programs

– These companies can set goals in terms of increased brand awareness, as measured by market research surveys

• Companies that sell goods or services on their sites can measure sales volumes in units or dollars

– Companies can use a variety of similar measurements to assess the benefits of other electronic commerce initiatives

• Supply chain managers can measure supply cost reductions, quality improvements, etc.

Measuring Benefit Objectives

Measuring Cost Objectives

• Many changes in the cost of hardware are downward

– The increasing sophistication of software provides an ever-increasing demand for newer hardware

– The project budget must include the cost of hiring, training, and personnel

• Based on data collected in separate recent surveys, International Data Corporation and the Gartner Group both estimated that the cost for a large company to build and implement an adequate entry-level electronic commerce site was about $1 million

• About 79% of that cost was labor related• 10% was the cost of software• 11% was the cost of hardware

Measuring Cost Objectives

• Recent estimates of the cost to build small Web sites have continued to increase as more companies establish themselves on the Web

• Expensive features, such as shopping carts and search engines, have become standard on even the most basic sites

• Analysts have estimated the minimum dollar amount needed to open an entry level electronic commerce Web site at $150,000

Measuring Cost Objectives

Measuring Cost Objectives

• The McKinsey study estimated costs for two types of magazine sites: a full portal site that would serve as a destination in itself and a more limited magazine companion site

– The full portal site cost estimate was $2.4 million to build and $4.3 million per year to maintain, with a staff of 35 people

– The companion site cost estimate was $150,000 to build and $270,000 per year to maintain, with a staff of two people

• Kmart’s Web store, Blue-Light.com, cost more than $140 million to create

– The site is certainly well-designed and highly functional, but the typical visitor would never guess how much this site cost

Comparing Benefits to Costs

• If the benefits exceed the cost of a project by a comfortable margin, the company invests in the project

– Companies should evaluate each element of their electronic commerce strategies using this cost/benefit approach

• Managers often use return on investment (ROI) to evaluate any capital investment

• Newspaper Web sites are a good example of this desire to establish a foothold in the online market space

– Profitable electronic commerce initiatives in the newspaper business, such as Gannet’s USA Today and The Wall Street Journal’s WSJ.com sites, are few

Strategies for Web Site Development

• The evolution of Web site functions:

• From the static brochures of the early days of electronic commerce• To transaction processing tools• To today’s automated homes for business processes of all kinds

• The transformation of Web site functions occurred rapidly, taking only a year or two in most companies

• Few businesses have caught up with the changes in terms of how they develop Web sites

• The purposes and scope of Web sites have increased greatly, but few businesses today manage them as the dynamic business applications they have become

Strategies for Web Site Development

Strategies for Web Site Development

• Many large and medium-sized companies find it extremely difficult to develop new information systems and Web sites that work with their existing systems to create new markets or reconfigure their supply chains

• Internal Development vs. Outsourcing – The key to success is finding the right balance between

outside and inside support for the project

– Hiring another company to provide the outside support for the project is called outsourcing

The Internal Team

• The first step in determining which parts of a project to outsource is to create an internal team that is responsible for the project

– Business knowledge and creativity are much more important than technical expertise in establishing successful electronic commerce

– Measuring the achievement of an internal team is very important

• Customer satisfaction, number of sales leads generated, and reductions in order-processing time are examples of metrics that can provide a sense of the team’s level of accomplishment

Early Outsourcing

• In many electronic commerce projects, the company outsources the initial site design and development to launch the project quickly

• The outsourcing team then trains the company’s employees in the new technology before handing the operation of the site over to them

• This approach is called early outsourcing

Late Outsourcing

• The company does the initial design, development, implementation, and operates the system until it becomes stable

• After the company has gained all the competitive advantages provided by the system, the maintenance of the electronic commerce system can be outsourced

• This approach is called late outsourcing

Partial Outsourcing

• In partial outsourcing, the company identifies specific portions of the project that can be completely designed, developed, implemented, and operated by another firm that specializes in a particular function

– E-mail systems, electronic payment systems, and Web hosting are examples of partial outsourcing projects

– Another common example of partial outsourcing is an electronic payment system

• Web hosting is one of the most common elements of electronic commerce initiatives that companies outsource using partial outsourcing

Selecting a Hosting Service

• The internal team should be responsible for selecting the ISP that will provide the site’s hosting service

• For smaller electronic commerce projects, teams can consult an ISP directory, such as ‘The List’

• For larger Web sites, the team will want to obtain the advice of consultants or other firms that rate ISPs and CSPs, such as ‘Keynote Systems’

Selecting a Hosting Service

• The factors to evaluate when selecting a hosting service include:• Functionality• Reliability• Bandwidth and server scalability• Security• Backup and disaster recovery• Cost

• Determine the functionality offered by a hosting service and carefully evaluate whether that functionality will be sufficient to meet the needs of your Web site

• Because the company’s information on customers, products, pricing, and other data will be placed in the hands of the service provider, the vendor’s security policies and practices are very important

New Methods

• New ways of implementing the partial outsourcing strategy have evolved for Web businesses

– Incubators • A company offering start-up companies a physical location with

offices, accounting and legal assistance, computers, and Internet connections at a very low monthly cost

• Incubators might offer seed money, management advice, and marketing assistance

• In exchange, the incubators receive an ownership interest in the company

• A number of companies have used internal incubators in the past to develop technologies that the companies planned to use in their main business operations

• Recently companies, such as Matsushita Electric’s U.S. Panasonic division, have started internal incubators to help launch new companies that will grow to become important strategic partners

Fast Venturing

Existing company joins external equity partners and operational partners to scale up the project rapidly

• Equity partners are usually banks or venture capitalists• Operational partners are firms that have experience in moving projects along

Managing Electronic Commerce Implementations

• The best way to manage any complex business software implementation is to use formal project management techniques

– Individual projects can become so large that it becomes impossible for managers to maintain control without some kind of assistance

• Project management is a collection of formal techniques for planning and controlling the activities undertaken to achieve a specific goal

– The project plan includes criteria for cost, schedule, and performance– It helps project managers make intelligent trade-off decisions regarding

these three criteria

Project Management

• Project managers use specific application software called project management software to help them manage projects

– Microsoft Project and Primavera Project Planner are tools for managing resources and schedules

• Project management software can help the team manage the tasks assigned to consultants, technology partners, and outsourced service providers

– The Project Management Institute is a not-for-profit organization devoted to the promotion of professional project management practices

• Project portfolio management is a technique in which each project is monitored as if it were an investment in a financial portfolio

• In project portfolio management, the CIO assigns a ranking for each project based on its importance to the strategic goals of the business and its level of risk

Staffing the Operation

• Regardless of outsourcing, an internal team must determine the staffing needs of the electronic commerce initiative

– The general areas of staffing include:

• Business management• Application specialists• Customer service staff• Systems administration• Network operations staff• Database administration

• Some companies outsource parts of their customer relationship management operation to independent call centers

• A call center is a company that handles incoming customer telephone calls and e-mails for other companies

Post-Implementation Audits

• A post-implementation audit is a formal review of a project after it is up and running

• The post-implementation audit gives managers a chance to examine the objectives, performance specifications, and cost estimates, to schedule delivery dates that were established in its planning stage, and to compare them to what actually happened

Ecommerce Evolution

• Most large companies evolve both ecommerce strategies & the physical Web site over time– Albertsons– Amazon– IBM– WebMD

• Successful companies never lose site of solid business practices and the processes that fulfill customer expectations