Introduction To E-Business and E-Commerce: 5 © Marketing Insights Limited 2012

CHAPTER 1
Introduction to e-business and e-commerce
Table of contents
Learning outcomes 5
Management issues 5
Chapter at a glance 6
Suggested teaching and learning approaches 6
Case studies 8
Additional case study 12
Questions for debate 16
Exercises 17
Activity answers 21
Learning outcomes
After completing this chapter the reader should be able to:
• Define the meaning and scope of e-business and e-commerce and their different elements
• Summarize the main reasons for adoption of e-commerce and e-business and barriers that
may restrict adoption
• Outline the ongoing business challenges of managing e-business and e-commerce in an

organization.
Management issues
The issues for managers raised in this chapter include:
• How do we explain the scope and implications of e-business and e-commerce to staff?
• What is the full range of benefits of introducing e-business and what are the risks?
• How do we evaluate our current e-business capabilities?
5
© Marketing Insights Limited 2012
Dave Chaffey, E-Business and E-Commerce Management, 5th Edition, Instructor’s Manual
Chapter at a glance
Main topics
• The impact of the electronic communications on traditional businesses
• What is the difference between e-commerce and e-business?
• E-business opportunities
• Business adoption of digital technologies for e-commerce and e-business
• E-business risks and barriers to business adoption
Case studies
• 1.1 A short history of Facebook
• 1.2 North West Supplies extends its reach online
• 1.3 eBay – the world’s largest e-business
Suggested teaching and learning approaches
Please refer the slides prepared for each chapter when reading this section.
The opportunities of e-business innovation

Start by generating interest in the innovation made possible by the web through familiar
consumer facing examples in Figure 1.1 and Table 1.1. Ask students about other innovative
businesses that have been launched online which aren't on the list.
The challenges of managing e-business innovation

These can be discussed by asking students to read the ‘Real-world E-Business experiences. The
e-consultancy interview’. All of these interviews are available at www.econsultancy.com, if you
need to print or ask students to reference them from e-learning facility – use the search facility
to find them. The main challenges this introduces are:
• The rate of innovation – techniques like social media and search engine marketing evolve
daily
• Managing across multiple sites and with different partners
• Reviewing the return on investment of new initiatives
• Specialist skills to manage these facilities.
6
Can also review transactional risks using a ‘blank slide’:
• Poor site availability or performance
• Products unavailable although advertised
• Poor experience or service – negative reviews.
Introducing the terms and defining the scope of e-business and e-commerce
Use Figures 1.2–1.4 to agree differences between e-commerce and e-business with students.
This works well to highlight the misconception that e-business refers only to sell-side
e-commerce. A show-of-hands for how many agree with Figure 1.3 a, b and c works well.
It is also useful to ask different groups to identify the different types of sites defined in Activity
1.3:
Visit each of the sites below and then indicate which of the five categories of online presence
are their primary and secondary focus:
1. Transactional e-commerce site.
2. Services-oriented relationship-building website.
3. Brand building site.
4. Portal or media site.
5. Social network.
Of course, these aren't mutually exclusive – most sites will have elements of all of these.
Digital marketing
This section introduces some of the more recent Web 2.0 approaches. Students
can be asked for definitions or examples of different approaches in Figure 1.6.
They can be asked which are most important for consumers and site owners.
Business or consumer models of e-commerce transactions.
Figure 1.10 is the classic categorization of sites by audiences with examples. The Betfair case
study (Mini Case Study 1.3) gives an example of the popularity of the peer-to-peer (or C2C)
model.
E-business opportunities
Box 1.2 introduces the Reach–Richness–Affiliation model for success.
7
Business adoption of digital technologies for e-commerce and e-business

Tables 1.3 and 1.4 highlight the business benefits while Figure 1.11 highlights the actual
adoption levels across Europe. Relative adoption of different services can be discussed.
Consumer adoption (listing drivers and barriers to adoption) should also be discussed, perhaps
through taking an example such as grocery e-retail and relating this to students' adoption.
• Case Study 1.2 highlights benefits for SME organizations.
E-business risks and barriers to e-business adoption
• Figure 1.13 illustrates these barriers and Figure 1.14 shows how companies can evaluate
their capabilities – how advanced they are on the adoption ladder.
Drivers of consumer Internet adoption

Consumer adoption (listing drivers and barriers to adoption) should also be discussed, perhaps
through taking an example such as grocery e-retail and relating this to students’ adoption.
Two tables are provided in the slide deck showing how drivers and barriers can be listed and
then marketing approaches to overcome these are discussed.
Case studies
Case Study 1.1 A short history of Facebook

Note – Updates to this case study are provided at: http://www.davechaffey.com/E-commerce-
Internet-marketing-case-studies/facebook-case-study.
Questions
1. As an investor in a social network such as Facebook, which financial and customer-related

metrics would you use to assess and benchmark the current business success and future
growth potential of the company?
From comments in the case study, the main revenue model is ad-based advertising (CPC and
CPM). Facebook has said it will not sell customer data and there is no indication of affiliate-
related models.
Customer-related metrics are related to engagement which indicates capability to sell ad space –
not simply users, but active returning users and the number of pages viewed per day. The
proportion of ad inventory sold is also important.
A basic answer will provide
• Understanding of financial metrics. Revenue, costs, growth.
8
• Clear framework of different metrics types – efficiency vs effectiveness.
• Audience engagement and satisfaction metrics such as those mentioned in the case.
A more competent answer will reference elements of profitability (e.g. ad revenue, alternative
models), e.g. subscription (although clear data not sold) costs (e.g. R&D, Development)
Operational costs of managing business (on a per active user basis).
2. Complete a situation analysis for Facebook focusing on an assessment of the main business
risks which could damage the future growth potential of the social network.
Typical risks are:
• Ad revenue limited because of difficulty of engaging audience in ads.
• Major privacy problem as with Beacon.
• Intellectual Property Rights.
• Technical problems with scalability leading to performance problems and increased

technical costs.
• New entrant or alternative company offers superior experience – what is the likelihood of
this?
Students could be encouraged to create a SWOT analysis. The likely probability and impact of
each risk should also be reviewed.
3. For the main business risks to Facebook identified in Question 2, suggest approaches the
company could use to minimize these risks.
• Ad Revenue – review different forms of advertising. Test with users and advertisers.
• Privacy. Explain clearly at signup. Test changes to use of data with user-group of trusted
users. Explain reason for future changes clearly.
• Technical problems. Testing programme focusing on load testing.
• New entrants – developing proposition to lock-in existing users, forming partnerships to

approach new audiences.
Case Study 1.2 North West Supplies extends its reach online
North West Supplies are featured as a small business retail example:
http://www.northwestsupplies.co.uk/.
Question
Q. Discuss the new opportunities and risks that need to be managed by North West Supplies
with the increased importance of its online channel to market.
9
Opportunities referred to in case study:
• Increase reach – nationally and internationally and reach new types of audiences through the
search engines
• Increase average order value – increase cross-selling
• Sell products to existing customers – increase cross-selling
• Increase range of stock sold.
Risks:
• High cost of advertising online and dependence on this – subject to changes in online
advertising made by search engines.
• Managing demand.
• Managing fulfillment – quality of experience and service is important to repeat business.
• Fraud – the business needs to authenticate purchasers to make sure that they do pay for
products.
Case Study 1.3 eBay – the world's largest e-business

Updates to the eBay case study are available at: http://www.davechaffey.com/E-commerce-
Internet-marketing-case-studies/eBay-case-study-e-commerce.
Question
Q. Assess how the characteristics of the digital media and the Internet together with strategic
decisions taken by its management team have supported eBay’s continued growth.
Students should be guided as to whether they review the whole eBay business or the core
business (The Marketplace).
It is best to divide this question into two parts.
1. How the characteristics of digital media have supported eBay’s growth.
The particular characteristics of digital media compared to traditional media that are important
to eBay are straightforward:
• Change from a one-to-many communication model to one-to-one or many-to-many

communication model.
• The ability to create user-generated content listing products is also related to the one-to-one
aspect. This is important as well.
10
• From Push to Pull – eBay offerings are often visible within search engines.
• From monologue to dialogue (a two-way information exchange for enquiries about products
facilitated by e-mail).
• Ratings for sellers are important to generate trust (although there are methods of falsifying
these).
• Community – the sense that users are part of a community and additionally are bypassing
traditional retail channels will be important from some users.
See section starting on p43 for more details on these characteristics.
2. How strategic decisions have supported growth.
As with other cases based on SEC filings that is, United States Securities and Exchange
Commission submission, this case is useful for showing how growth is dependent not only on
exploiting the right opportunities but also is about managing risks successfully.
Students may structure strategic decisions in different ways according to the level of course they
are following, but since the case is early on in the book, they could be advised to simply look
for success factors. Alternatively, if they have completed Chapter 5 on Strategy and Chapter 8
on the Marketing mix (p382), then these provide alternative frameworks.
Strategic success factors that students may mention include the following:
• Branding – a distinctive brand – the earlier brand name was perhaps less appropriate
although more direct.
• First mover advantage – gaining a critical mass through the foresight of the owner.
• Security and fraud – realizing that this is important to its reputation eBay has developed
‘Trust and Safety Programs’ to manage this, thereby investing in managing this and
controlling PR related to this.
• Partnerships and acquisitions, which fit relate well to the service, that is, PayPal and Skype.
• Communication of customer value proposition – the case describes how eBay explains this.
• Revenue model – the market has judged that this gives a good balance for sellers,
purchasers and eBay. Setting fees at the right level has enabled eBay to scale for some time.
• Process efficiency – the case describes how eBay measures and then seeks to improve the
key areas of acquisition, activation and activity.
• Growth strategies – these are covered in Chapter 4 and include market development
(geographic) and product development (new categories for consumers and businesses).
• Technology scalability – not referred to in the article, but eBay has been successful in
deploying technology that has supported the company's rapid growth.
11
Additional case study
Encouraging SME adoption of sell-side e-commerce

This case explores the usage of the Internet by small and medium Enterprises (SMEs) of less
than 250 employees. This case can be used for taking a retrospective look at the problems of
encouraging SMEs to use online services.
The Internet has given small companies the same reach to global marketplaces as larger rivals,
which have invested millions in building an international presence.
Eighteen months ago, Cooksons Tools, a builders’ merchant in Cheshire, north-west England,
was contemplating joining the ranks of small companies that have given in to the muscle of the
Do-It-Yourself (DIY) multiples, and shutting up shop for good.
‘We were battling hard just to hold our own, rather than being able to grow the business’, says
Stuart Armstrong, managing director. ‘To stay in business, we had to change the way we
operated’.
The company then decided to try selling via the Internet, and since then it has gone from serving
customers in a seven-mile radius of its depot in Stockport, to serving customers worldwide.
Cooksons.com has even sold Korean tools back to customers in Korea.
Turnover from the traditional business, established more than 40 years ago, now stands at
£1 million a year. The website, which went live in March 1999, rapidly attracted orders worth
£1600 a day. Turnover doubled every 2½ months in the first year of operation.
Cooksons managed to do this without cannibalizing its existing business – less than 1 per cent
of orders on the website come from existing customers.
Mr Armstrong says that the margin on Internet sales is lower, but because sales volume is higher
and the costs of selling are lower, the company can afford to sell goods 15 per cent cheaper.
Such is the power of the Internet to deliver world markets to parochial businesses. And the
evidence is that small companies do recognize that electronic channels can vastly extend their
range.
Research carried out by the market research organization MORI shows that more than 50 per
cent of SMEs would like to sell more online, and are looking for a simple way to do it.
However, SMEs are lagging behind larger competitors in their use of the Internet, according to a
survey of 2,500 SMEs across Europe by IDC, the IT research organization.
Overall, 66 per cent SMEs had access to the Internet, compared to 76 per cent of larger
companies. Of the 66 per cent, far fewer were using the Internet to generate sales, with 30 per
cent of retailers and wholesalers, but only 17 per cent of manufacturers and 9.2 per cent of
business services SMEs, were selling via the net.
Only 6.6 per cent of the SMEs surveyed had websites that could carry out online transactions.
12
The research, carried out on behalf of the network equipment company Cisco Systems,
identified a number of ‘fast tracker’ SMEs that, like Cooksons, have used the Internet to
transform their business. Examples include Sarl Noraude, a French mail order clothing company
with 30 employees, which has rapidly expanded sales of made-to-measure shirts with a website
that allows customers to input measurements, select the style and fabric and purchase made-to-
measure shirts online.
Another is Paper One, a Swedish producer of fine papers, which has gone from start-up to
£3.8 million turnover in 2 years by enabling customers to order via the website at any time,
365 days a year.
These examples show how the Internet has changed the rules that have governed business for
centuries, according to Robert Lloyd, vice-president of Enterprise and Small-Medium lines of
business at Cisco.
He says: ‘A four-fold increase in turnover, for example, can now be accommodated through
technology in a matter of days, if not hours, instead of having to wait weeks or months to recruit
and train staff, increase production, and so on’.
And it is not just existing small companies that have seized the opportunity to compete outside
their traditional range.
Large, established multinationals are probably more discomforted by the rise of a brand new
breed of SMEs, the dotcoms. These companies may be small in terms of physical assets, but
they are becoming the giants of the Internet, expanding their customer bases rapidly, and taking
significant market share from traditional businesses.
The early focus of e-commerce development in SMEs has been in using the Internet to target
new retail customers, but now a range of business-to-business e-commerce services is
developing. The MORI research was commissioned by Mondus.com, a recently established
electronic marketplace dedicated to the needs of SMEs.
Rouzbeh Pirouz, founder and chief executive, says: ‘We set up this business because research
shows that to date services have been oriented to bigger businesses and the benefits of e-
procurement have passed over SMEs’.
Mondus allows SMEs to get multiple quotes for goods and services via the Internet, rather than
having to ring round or write to suppliers.
‘SMEs get access to suppliers outside their immediate geography. From June, we will have a
global database of suppliers’.
The site, which includes foreign language translation and credit checking services, began
operating eight months ago. After six months there were 50,000 SMEs on the system, 90 per
cent of them buyers. ‘We have gone from two quotes per order posted on the system to five
quotes per order’, says Mr Pirouz. ‘It is unlikely that companies would gather more than that
using traditional methods’.
There is no charge for signing up to the site but Mondus takes a small percentage on each deal
concluded.
13
Another example of an e-commerce site dedicated to SMEs is B2B.com, set up by Barclays

Bank. As well as providing online banking, this site is a portal for a range of products and
services used by SMEs and provides secure purchase-to-payment procurement.
Chris Lendrum, chief executive of Barclays corporate banking, says the site will cover all essential
services, ‘From the purchase of stationery and raw materials through to the administration of
human resources’.
This site is targeted at companies with a turnover between £5 million and £250 million.
However, Barclays has 450,000 SME customers with a lower turnover, which are serviced by
its retail banking operations. It has set up a 40:60 joint venture company with the Internet
provider Freeserve to provide e-commerce services for these customers.
The point is that the Internet makes it cheaper to market and sell to SMEs, spurring the
development of e-services dedicated to this sector. A good example of this is the way in which
Application Service Providers, which deliver and maintain software applications via the web,
are targeting SMEs.
Western Europe has 16 million companies that are classified as SMEs. While they already
represent a significant chunk of the economy, the Internet is giving them the ability to punch
beyond their weight.
‘Nowhere has the effect of the Internet been felt so much as in its ability to give SMEs the
strength to compete and beat multinational companies’, says Mr Lloyd.
Source: Internet enables SMEs to punch above their weight, by Nuala Moran, 3 May 2000, FT
Information Technology Supplement (www.ft.com/ftit). © Financial Times.
Questions
1. Explain how Cooksons Tools used the Internet to support their business.
The Internet has enabled the company to increase sales by the acquisition of new customers
from international markets.
2. What are the differences in business model used for Internet sales?
The company sells at a lower price on the Internet, resulting in a smaller margin. It is able to do
this since the cost of sales is lower and it results in greater sales volume.
3. Visit the Cooksons Tools website and assess the range of services it offers in relation to
Table 1.3.
The facilities are standard for an online retailer or e-tailer, but the online customer support and
internal support facilities are more limited. This may be so because it is relatively costly to set
these up and traditional phone support methods are preferred.
14
4. What is Mondus? How does it facilitate trade amongst SMEs?
Mondus is an example of a new intermediary (no longer active) that was created as a
marketplace to bring together buyers and sellers. It is an online marketplace that failed because
its business model was not sustainable.
Introduction to how to use Questions for Debate in classes
The text below shows how the debate can be introduced for students. This example is taken
from an approach we developed at the University of Derby. Students were assessed on their
presentations and contribution.
Two debates each week will take place during normal tutorial sessions. Each debate will be
argued between two groups of two or three students.
For each debate, the format will be as follows:
• An initial vote will be taken amongst the non-presenting members of the tutorial group for
an initial benchmark;
• the team presenting the case FOR the statement will make a 10-minute presentation
supporting the topic statement;
• each team in the opening part of their presentation should take care to define terms used in
the topic in question;
• the team presenting the case AGAINST the statement will then make an appropriate
10-minute presentation;
• the teams presenting each side of the case question the other in turn for 5 minutes each;
• questions and discussions involving the whole tutorial group will follow for 10 minutes;
• FOR followed by AGAINST, each to make a short summary of their key points and
observations;
• final vote to take place FOR and AGAINST the statement – this will reflect the success of
the various arguments presented;
• remember tutors do not play a role here and students must take ownership of classroom
management etc.
Assessment
Assessment will be made by the tutor of each presenter’s performance. Criteria will include the
following:
• Strength of argument
15
• Use of current Information System (IS) industry examples
• Use of academic references
• Quality of presentation (visual and verbal)
• Response to questions and counter arguments
• Accuracy of observations and conclusions
• Discretionary mark for involvement in other debates.
The voting will not influence the marks awarded unless it is clearly the result of a poorly
presented case. A ‘difficult’ case well presented and defended will not be penalized even if no-
one agrees with it!
Questions for debate
Debate 1.1 How new is the e-business concept?
‘E-business is just a new label – there is no distinction between the role of e-business
and traditional information systems management’.
Summary of arguments for are as follows:
• The tools are the same – hardware, software and communications technology are not new –
witness use of EDI (Chapter 3)
• IS strategies have always looked at portfolio of applications across the business and links
with third parties and how they can be utilized for competitive advantage (Chapter 4)
• Control of e-business usually resides with the IT department
• Only the largest companies tend to have specific responsibilities and departments for
e-business – typically part of IS function.
Summary of arguments against are as follows:
• The emphasis is different – away from technology to how information can support business
• The expenditure on e-business has exceeded traditional IS expenditure
• New organizational structures and new processes have been introduced (see Chapter 4)
• E-business is seen as a board-level issue with board-level responsibility.
Debate 1.2 Limited SME adoption of e-business
‘Adoption of e-business by established SMEs is generally less than that in larger

businesses. This is principally a consequence of the negative attitude of managing
directors and CEOs to the business benefits of information and communication
technology’.
16
• Refer to the International Benchmarking study data in Chapters 4 and 6 which show that
SME adoption is lower than larger businesses.
• Look at the arguments presented in benchmarking data in Chapter 1 – many of these

arguments show that the benefits on investment are not clear.
• More a matter of resources – would like to invest, but there are other priorities; not enough
time.
• Depends on the type and age of business and market – technology start-ups and innovators
are active adopters.
• Many customers of SMEs are themselves SMEs and adoption rates for these groups are
lower (Chapter 3).
Exercises
Self-assessment questions
1. Distinguish between e-commerce and e-business.
This can best be explained by referring to different elements shown in Figure 1.2 that is,
• sell-side e-commerce;
• buy-side e-commerce;
• internal use of electronic communications to support business processes.
E-business is generally understood to include all three elements. E-commerce is commonly used
to refer to either the first one or first two of these elements, but less commonly the third.
E-business is broader in scope than e-commerce.
2. Explain what is meant by buy-side and sell-side e-commerce.
Again refer to Figure 1.2. Buy-side e-commerce is using communications technology to support
the upstream supply chain from procurement to inbound logistics. Sell-side refers to selling and
distributing products and services from an organization to its customers.
3. Explain the scope and benefits of social media and social commerce to an organization of
your choice.
4. Summarize the consumer and business adoption levels in your country. What seem to be the
main barriers to adoption?
Clickz (www.clickz.com/stats) is a good source of country information. For business, the main
barriers are highlighted by the DTI (2000) survey:
17
• lack of imperative;
• security risks.
For consumers, the ‘Which’ report highlights fears about security and privacy as well as the lack
of a perceived need.
5. Outline the reasons why a business may wish to adopt e-commerce.
The 6Cs are a good framework here:
• Cost reduction – less use of physical resources and staff.
• New Capability – for example, to sell into an overseas market.
• Improved communication – internal and external.
• Control – better visibility/information for managers of trading relationships.
• Customer service – more detailed information, faster response can be provided 24 hours,
and 7 days a week.
• Competitive advantage – any of the above.
• Factors may provide this, but it is likely to be short-lived.
6. What are the main differences between business-to-business and business-to-consumer

e-commerce?
Please refer to the table below for a summary of the differences. Note that this table was
originally included in earlier editions of the book.
Table: Differences in characteristics of B2C and B2B trading

Characteristic B2C B2B
Proportion of adopters with Low to medium High to very high

access
Complexity of buying Relatively simple – More complex – buying process
decisions individual and influencers involves users, specifiers, buyers,
etc.
Channel Relatively simple – direct More complex, direct or via
or from retailer wholesaler, agent or distributor
Purchasing characteristics Low value, high volume or Similar volume/value. May be
high value, low volume. high involvement. Repeat orders
May be high involvement (rebuys) more common
Product characteristic Often standardized items Standardized items or bespoke
for sale
18
7. Summarize the impact of the introduction of e-business on different aspects of an

organization.
The McKinsey 7S model is a useful framework for looking at the different aspects of a business
that may be affected by the move to e-business.
• Strategy – new strategic responses are required.
• Structure – new structures and responsibilities may be required.
• Systems – new information systems and new processes will be required.
• Style – less likely to change, but some organizational styles are more responsive to change.
• Staff – new responsibilities.
• Skills – new skills.
• Superordinate goals – higher level aims may be updated depending on the business.
8. What is the relevance of intermediary sites such as Kelkoo (www.kelkoo.com) to the B2C
company?
Companies must think about whether they are represented on such intermediaries. If they are
not, they may lose potential business. They also need to consider the positioning of their
products relative to competitors who also use the intermediary.
Note that Mondus wound down operations in 2002. Another example is Clearly Business, a
joint venture between Barclays and Freeserve.
Essay and discussion questions

1. Suggest how an organization can evaluate the impact of digital technology on its business.
Is it a passing fad or does it have a significant impact?
Suggested approach:
This is covered by the situation analysis in Chapters 5 (p250) and 8 (p391).
Situation analysis should concentrate on the micro-environment (Figure 2.1) including demand
for online services from customers. Services should be considered across the buying cycle from
pre-purchase (supplier and product selection), purchase and post-purchase support. Demand
levels can be assessed by reviewing figures of percentage of customers with access and those
who are prepared to use it for information gathering and purchase. Competitor activity can also
be benchmarked. Macro-environment SLEPT factors should also be reviewed, but they are not
the main thrust of the question.
Assessment of whether the impact is transitory or permanent can be done through developing
projections of the online revenue and promotion contribution (Chapter 8, p401).
19
Examination questions
1. Explain the relationship between the concepts of e-commerce and e-business.
E-commerce is generally understood to be a sub-set of e-business. E-commerce refers to

financial and non-financial transactions between organizations. These transactions are often
considered in the context of a supplier organization distributing and selling its product to
consumers. E-business includes transactions from a buy-side and sell-side e-commerce
perspective and also the use of communications technology to improve internal process
efficiencies.
2. Distinguish between buy-side and sell-side e-commerce and give an example of the
application of each.
Buy-side e-commerce refers to electronic transactions concerned with the purchase and inbound
logistics of goods such as a supermarket coordinating purchases from its suppliers. Sell-side
e-commerce concerns transactions related to the sale and distribution of goods such as a
supermarket selling direct to its customers.
3. Summarize three reasons why a company may wish to introduce e-commerce.
• Cost reduction in purchasing or selling through less human involvement and lower resource
costs.
• Increased efficiency enabling faster cycle times for purchasing or sale of goods.
• Capability to sell to overseas markets or previously untargeted markets.
4. Describe three of the main barriers to adoption of e-commerce by consumers and suggest
how a company could counter these.
• Security fears – fraudulent use of credit cards.
• Privacy fears – personal data held by companies or criminals.
• Cost of access devices and online costs.
• Lack of perceived need.
Education and reassurance via the website and offline communications can counter these.
6. Summarize the differences between adoption of Internet access for consumers and businesses
and give reasons for these differences.
Business adoption is higher since there is a greater potential for cost savings through comparing
suppliers and buying online and the risks may be perceived as lower.
7. Name three risks to a company that introduces buy-side e-commerce.
• Payback period may be long due to cost of implementation.
20
• Maverick purchasing (Chapter 7).
• Some purchasing staff may need to be redeployed or made redundant.
• Security risks of outside organizations accessing company data.
8. Name three risks to a company that introduces sell-side e-commerce.
• Payback period may be long due to cost of implementation
• High cost of sales due to fraudulent use of credit cards.
• Security risks of outside organizations accessing company data.
Activity answers
Activity 1.1 Innovative e-businesses
1. Think about the innovation that you have witnessed during the time you have used the
Internet and World Wide Web. What would you say are the main sites used in your country
that have been created which have changed the way we spend our time or buy online?
Answer: Not applicable – depends on student opinion and country.
2. We talk about these businesses being ‘successful’, but what is success for a new e-business?
For established businesses, success is stable or growing profitability, but start-ups will rarely be
able to achieve this. What becomes important are:
• Unique visitors – number of individuals per month.
• Engagement or stickiness – page views per visitor (useful for advertising) and percentage of
active or returning visitors (essential for a social network such as Facebook).
• Monetization – is it possible gain revenue, for example, Ad Revenue from visitors.
• Growth.
• Publicity – this will help fuel the other success measures given above.
3. What do these sites have in common that you think has made them successful?
• All these sites are American, so the funding and publicity they can achieve is significant.
• You will notice that many of these sites (other than Joost, Last.fm and Skype which were
founded in Europe) were originally developed in the United States, with the majority now
used around the world. But in each country, similar types of businesses have evolved, for
example, the search engines Baidu in China and Yandex in Russia.
21
• Meet a fundamental consumer need.
• Clear revenue model.
• Memorable branding and experience.
• Initially they had a straightforward proposition – offering one service.
• Generally they were first-movers.
• Notable that many have taken several years before becoming widely known and used.
Activity 1.3 Understanding different types of online presence
Questions
Review the popularity of the different site types in your country or globally. The recommended
information sources are:
• The Doubleclick AdPlanner compilation of the 1,000 most-visited sites on the web
(www.google.com/adplanner/static/top1000/).
• The Hitwise Data Centers (e.g. www.hitwise.com/us /resources/data-center) available for

Australia, Canada, France, Hong Kong, Singapore, New Zealand, UK and US.
Visit each of the sites below and then place them into one of the four categories of online
presence according to their primary focus:
1. Transactional e-commerce site
2. Services-oriented relationship-building website
3. Brand-building site
4. Portal or media site
5. Social network.
You should also indicate their secondary focus in terms of these four site types.
1. Transactional e-commerce site
Bank, for example, HSBC (www.hsbc.com), secondary purpose is relationship-building or

brand-building.
Travel company, Thomas Cook (www.thomascook.com), secondary purpose as for HSBC online
retailer such as Amazon (www.amazon.com). Secondary objectives are to be a portal?
2. Services-oriented relationship-building website
Management consultants such as PricewaterhouseCooper (www.pwcglobal.com) and Accenture

(www.accenture.com). Secondary aim – brand-building.
22
A end-product manufacturer such as Vauxhall (www.vauxhall.co.uk). Secondary objectives are

building brand and referring leads or transactions to offline sources.
3. Brand-building site
Lingerie manufacturer, for example, Gossard (www.gossard.com). Secondary objectives are

linking to transactional sites.
Beverage manufacturers, for example, Tango (www.tango.com), Guinness (www.guinness.com).

Secondary objectives are supporting relationship-building.
4. Portal or media site
• Business site: Silicon (www.silicon.com) (secondary transactional site for subscriptions).
• Consumer site Yahoo! (www.yahoo.com). Yahoo! is more than a search engine – it is an

online portal. Secondary objectives are encouraging transactions.
23
CHAPTER 2
Marketplace analysis for e-commerce
Table of contents
Learning outcomes 24
Management issues 24
Case studies 26
Exercises 31
Activity answers 36
Learning outcomes
• Complete an online marketplace analysis to assess competitor, customer and intermediary

and competitor use of the Internet as part of strategy development
• Identify the main business and marketplace models for electronic communications and
trading
• Evaluate the effectiveness of business and revenue models for online businesses.
Management issues
The fundamentals of e-commerce imply these questions for managers:
• What are the implications of changes in marketplace structures for how we trade with
customers and other partners?
• Which business models and revenue models should we consider to exploit the Internet?
• What will be the importance of online intermediaries and marketplace hubs to our business
and what actions should we take to partner these intermediaries?
24
Chapter at a glance
Main topics
• The e-commerce environment
• Location of trading in the marketplace
• Business models for e-commerce
Focus on...
• Auction business models
• Internet start-up companies
Case studies
• 2.1 i-to-i – a global marketplace for a start-up company
• 2.2 Zopa launches a new lending model
To highlight changes introduced in the e-marketplace, the following topics can be covered:
• Why are environment influences important? Activity 2.1 (based on Figure 2.1) gives a
structured approach to highlighting changes in the macro- and micro-environment. Can use
the strategic agility video(s) featured in Mini Case Study 2.1. Maybe difficult to find on
FT.com – a Google search may reveal it in ‘Truveo’.
• Online marketplace analysis. This is an important section since it provides students with a
technique/tools they can use to evaluate a company within its online marketplace for
assignments or in the workplace. Work through an example, for example, for a retailer or a
bank for Figure 2.3. Use examples of research sources shown in Table 2.2. to illustrate data
available on customer demand for products through search engines (Google Keyword Tool,
Figure 2.10) and comparing site popularity (Google Trends for Websites).
• Channel changes – disintermediation and reintermediation. Use diagrams such as

Figure 2.5–2.7 for a particular industry such as the car industry to explain these terms. Talk
about these as strategic responses. What are the penalties for ignoring these?
• Location of trading in the marketplace. Tables 2.3 and 2.4 and examples shown in Figure 2.8
should be understood by students. Understanding customer journeys across online and offline
channels through using channel chains (Figure 2.8) should also be covered.
25
• Different types of online intermediary. The different types of intermediary shown in Table 2.3
and their relative importance through the buying process should be discussed with students. As
a group activity, intermediaries important in different sectors such as retail, banking, financial
services and travel can be identified.
• Business and revenue models. Ask students to consider different models in the context of
Figure 2.11 or by reviewing different revenue models of different companies such as those
introduced in Table 1.1. Different advertising revenue models such as CPM, CPC and CPA
should be reviewed and the example in Figure 2.12 can be reviewed or used as an activity.
A spreadsheet version of this model is available from www.davechaffey.com/Spreadsheets.
Case studies
Case Study 2.1 i-to-i – a global marketplace for a start-up company

This case is about a specialist travel and education company, focusing on its online TEFL
(Teaching English as a Foreign Language) courses. The case illustrates the importance of
marketplace analysis.
Questions
1. Select one country that i-to-i operate in and summarize the main types of sites and
businesses involved using a marketplace map (Figure 2.3).
2. Review the different factors that i-to-i will need to review to gauge the commercial
effectiveness of their online presence in different geographic markets.
Source: Smart Insights (2010) i-to-i case study. Written by Dave Chaffey and Dan Bosomworth
with agreement from the company.
Case Study 2.2 Zopa launches a new lending model
Question
Q. Imagine you are a member of the team at the investors reviewing the viability of the Zopa
business. On which criteria would you assess the future potential of the business and the returns
in your investment based on Zopa’s position in the marketplace and its internal capabilities.
Students should be given guidance on the extent to which you require an analytic answer based
on a detailed revenue model or a consideration of the strategic issues.
If a detailed revenue model is required, then some additional information will be required or
students will need to state their assumptions. The relevant section to point students to is
Conversion marketing in Chapter 9 on p460.
26
Essentially this question is about revenue models and costs, so it requires the students to
consider total costs of driving visitors to the site and converting them to sale in comparison with
revenue sources. Profitability will also be dependent on the long-term capability of the company
to gain revenue customers.
Students should mention these elements of a conversion-based revenue model including:
• Total market size for these products based on the size of existing loans markets. Sub-set of
market who would meet Zopas lending criteria.
• Cost of customer acquisition – this is a competitive market and it may be difficult to attract
visitors to the site, for example, using search engine marketing or offline advertising.
• Cost of servicing sales – to what extent are phone contacts needed to facilitate sales?
• Conversion rate from visitor to lead to sale.
• Average revenue earned from each new borrowers that is based on charging borrowers 1 per
cent of their loan as a fee, and from commission on any repayment protection insurance that
the borrower selects.
• Lifetime value from customers based on attrition rates – will borrowers continue to use
Zopa or will they use it as a one-off?
• Flexibility on revenue model – for example, after launch, Zopa has gained additional
revenue from lenders.
From a strategic perspective, the issues that students should consider are as follows:
• Proportion of total loans market that this service will appeal to.
• Proportion of savings and investments market this model will appeal to. It is a lot of effort
compared to other savings and investments methods for a limited differential. As a result it
will only appeal to a limited number of investors.
• Will the number of lenders balance the number of borrowers depending on the appeal of the
proposition as noted above?
• Business model scalability – can it be applied in other countries and to other financial
products or beyond?
• Technology costs and scalability.
Dynamic pricing at SmithKline Beecham

When the healthcare company SmithKline Beecham bought supplies of a basic solvent recently,
the price was 15 per cent lower than the day’s spot price in the commodity market. On other
27
purchases, also of highly specified solvents and chemicals, SmithKline Beecham is regularly
beating its own historic pricing by between 7 and 25 per cent.
The reason is that SmithKline Beecham is using the Internet to hold downward or ‘reverse’
auctions in which suppliers bid against each other for pre-specified contracts. FreeMarkets, the
company that manages the SmithKline Beecham auctions, quotes examples of savings achieved
by other clients in these virtual marketplaces: 42 per cent on orders for printed circuit boards,
41 per cent on labels, 24 per cent on commercial machinings and so on.
As well as production items, the process also works well for many services, such as car hire
contracts.
This pricing free-for-all sounds a little shocking at first. After all, successful companies are
supposed to buy on quality, nurture critical supplier relationships and think strategically. And,
of course, they still do.
Guy Allen, director of purchasing at SmithKline Beecham emphasizes that the auction itself is a
new part of a still rigorous buying process. ‘It’s just one tool in our toolbox’, he says. ‘The
process only works if you put good purchasing management up front’. This includes issuing a
particularly detailed request for proposals (RFP) to which hopeful suppliers respond as usual,
but without quoting a price.
On the basis of the RFPs, selected suppliers are invited to take part in the auction.
Training in using the software is available. Once the bidding starts, the participants see every
bid, but not the names of the bidders. In the final stages of the auction, each last bid extends the
bidding time by one more minute. One auction scheduled for 2 hours ran for 4 hours and
20 minutes and attracted more than 700 bids.
A buyer need not necessarily accept the lowest bid, but may still prefer to use a tried and tested
supplier at a slightly higher price. But the reverse auction offers buyers a number of benefits: it
shortens the time spent negotiating separately with each supplier; the inclusion of non-
incumbent suppliers can help bring pricing down and, according to Mr Allen, ‘It makes the
process a little more transparent, since everyone can see the lowest price on offer. In general,
non-incumbent suppliers like the process, though some incumbent suppliers are a little less
happy’.
SmithKline Beecham is using private online auctions for global procurement of highly specified
items at a spend that is attractive to the market. In contrast, Andrew Biggs, managing director of
Bidbusiness.co.uk, is providing public reverse auction facilities for what he describes as ‘low
touch’ products – construction bricks and sand and gravel, for example, – as well as haulage
services and builders’ skips. Buyers can post their tenders on his specialist sites and sellers can
bid for the work using a pseudonym.
Mirroring the need for liquidity in successful financial markets, auctions need a competitive
environment and public auction sites seek to attract more buyers and sellers through features
such as Category Watch from OpenSite, the company that supplies software for Bidbusiness.
This feature will notify registered users by e-mail when an item of interest to them is posted.
28
Now companies that provide auction facilities are looking to factor other variables into their
software as well, to let buyers and sellers take account of differences in transport costs, lead
times, duration of warranty periods and so on.
The strength of the auction is that it allows prices to fluctuate according to demand and factors
in the value of opportunity. But, arguably, its weakness is the fixed nature of the event. The
auction format demands the simultaneous attention of everyone interested in that particular
contract or item.
Airlines try to match availability to demand and reward early bookers by creating fare classes
where some seats on a particular flight cost more than others. The problem is that fare classes
are determined in advance and fare differentials can be rigid, creating a blunt tool, according to
Sharookh Cambata, president of Greaves Travel USA, an airline ticket wholesaler.
Greaves has teamed up with Equant to develop a dynamic pricing engine to automatically adjust
the price of airline tickets according to demand. First, the airline needs to be able to track all
bookings into one point, so the pricing engine can view the current request against other’s
demands. The pricing engine must then work rapidly. Customers booking through a website, for
example, are not going to wait minutes for lengthy number crunching; they want an instant
price.
Greaves will soon start trials of the new system, called ‘Web-fares’, but Mr Cambata believes
that it also has potential for other pre-booked travel services, such as hotel accommodation.
Using the system, a website user would not only quickly get the price for the flight or service
they wanted but could also be directed to a cheaper alternative at a different time.
Online auctions are no longer just for surplus goods or unwanted gifts, and the advent of
‘d-commerce’ is more than marketing hype. The concept of dynamic pricing is gathering
interest very quickly. For example, Transco, the UK provider of gas piping infrastructure, has
recently introduced web-based auctions to sell capacity in its pipelines, since demand for gas
fluctuates according to weather and other conditions.
Dynamic pricing is a convincing example of the way in which the Internet will fundamentally
change the way we do business.
Source: Bidding Process is opening doors to newscomers, by Anne Queree, 1 March 2000,
Financial Times Technology Supplement. © Financial Times.
Questions
1. Explain how SmithKline Beecham is achieving lower prices than traditionally through
e-commerce.
Reverse auctions are used to drive down prices from a range of suppliers. Note that the decision
to purchase may not be made on price alone – a traditional supplier may still be chosen, but
their price will have been decreased through competition!
2. To what extent do you think this approach would work for companies smaller than
SmithKline Beecham?
29
Such an approach can clearly yield major benefits to a large company that can attract a range of
suppliers to its auctions to compete for its businesses. This is less likely to happen for smaller
companies, so alternatives may need to be evaluated such as aggregated buying with other
smaller companies.
3. What are the implications for a dynamic pricing engine referred to a supplier and its
customers.
In theory, such an engine could benefit both supplier and customer since supply and demand are
better matched.
Debate 2.1 Countermediation
The advent of e-commerce means that marketers cannot rely on the online presence of
existing intermediaries, instead they must create their own online intermediaries.
Examples from particular industries should be used to demonstrate this.
• Intermediaries are important online because of service and product comparison online –
missed opportunity to communicate.
• Cost of paying referrals to third party.
• Company can use intermediary to explore new concepts and markets while minimizing
damage to core brand.
• Cost of setting up independent intermediaries.
• Risk that intermediaries will not appear as independent and may not be used.
• Risk of failure in already crowded marketplace.
• Can form partnerships instead at lower risk.
Debate 2.2 Innovative business models
The new business models associated with the dot-com era were, in fact, existing models
in an online context. Business models and revenue models have not changed.
• Look at online business model proposed by Timmers in the section on business models –
few have changed.
• Look at online revenue mechanisms – similar to previous, for example, sale, commission,
subscription.
30
• Look at payment mechanisms – again similar to before.
• New business models such as C2B.
• Change in emphasis – for example, more reverse auctions.
• Look at examples of companies that have changed sectors, for example, eBay auctions,
Lastminute travel.
Exercises
1. Outline the main options for trading between businesses and consumers.
These are:
• B2C – retail to consumers
• B2B – interorganizational
• C2C – consumer interactions for example, auctions
• C2B – customer make offers to businesses, for example, Priceline.
2. Explain the concepts of disintermediation and reintermediation with reference to a

particular industry; what are the implications for a company operating in this industry?
Example, air travel. A carrier has the option of:
• distintermediation – selling direct from its website
• reintermediation – selling via new online intermediaries with new pricing models such as
Priceline, Lastminute or Expedia.
3. Describe the three main alternative locations for trading within the electronic marketplace.
• From company’s own website
• From an intermediary website or marketplace
• By making bids after reviewing customers’ websites.
4. What are the main types of commercial transactions that can occur through the Internet or
in traditional commerce?
See Table 2.4.
31
Commercial (trading) mechanism

1. Negotiated deal
2. Brokered deal
3. Auction
4. Fixed-price sale
5. Pure markets
6. Barter
5. E-business involves re-evaluating value-chain activities. What types of changes can be

introduced to the value chain through e-business?
• Improve speed of information flow between primary activities of value chain
• Increase depth of information shared between activities
• Reduce costs of information processing.
6. List the different business models identified by Timmers (1999).
Timmers (1999) identifies no less than 11 different types of business models that can be
facilitated by the web as follows:
1. E-shop – marketing of a company or shop via web.
2. E-procurement – electronic tendering and procurement of goods and services.
3. E-malls – a collection of e-shops such as Barclays Square (www.barclays-square.com).
4. E-auctions – these can be both for B2C and B2B as is the case with eBay.
5. Virtual communities – these can be B2C communities such as Xoom (www.xoom.com)
or B2B communities such as Vertical Net (www.vertical.net); these are important for
their potential in e-marketing and are described in the Focus on Online Communities
section in Chapter 9.
6. Collaboration platforms – these enable collaboration between businesses or individuals
for example, E-groups (www.egroups.com), now part of Yahoo! (www.yahoo.com)
services.
7. Third-party marketplaces – Marketplaces are described in the Focus On section of
Chapter 7.
8. Value-chain integrators – offer a range of services across the value chain.

9. Value-chain service providers – specialize in providing functions for a specific part of
the value chain such as the logistics company UPS (www.ups.com).
10. Information brokerage – providing information for consumers and businesses, often to
assist in making the buying decision or for business operations or leisure.
11. Trust and other services – examples of trust services include Which Web Trader
(www.which.net/webtrader) or TRUSTE (www.truste.org) that authenticate the quality
of service provided by companies trading on the web.
32
Timmers, P. (1999) Electronic commerce strategies and models for business-to-business trading
John Wiley series in information systems. Chichester, England.
See Fig 2.11 (alternative perspectives on business models) and Table 2.5.
7. Describe some alternative revenue models for a website from a magazine publisher.
See Fig 2.11 (alternative perspectives on business models).
Subscription: per-month payment.
Pay per view: pay for each article, or articles up to a value.
Advertising revenue – for advertising space on site.
Affiliate revenue – for referral to other sites leading to sale.
8. Draw a diagram summarizing the different types of online marketplace.
Refer to Figure 2.9.
1. Disintermediation and reintermediation occur simultaneously within any given market.

Discuss.
Suggested approach:
• Research intermediaries in market by using a directory such as Yahoo!
• Research disintermediation by online services offered by existing players.
• Evaluate whether existing players are making use of the new intermediaries to promote their
services through advertising or listing on a trade directory.
• Define the terms with reference to this market.
• Demonstrate that both do occur simultaneously.
• Explain that this is a consequence of companies simultaneously following a disintermediation

and reintermediation strategy.
2. For an organization you are familiar with, examine the alternative business and revenue
models afforded by the Internet and assess the options for the type and location of e-
commerce transitions.
Suggested approach:
Research this question by referring to Figures 2.9 and 2.11.
33
3. For a manufacturer or retailer of your choice, analyze the balance between partnering with
portals and providing equivalent services from your website.
An example of this approach is Boots The Chemist that have produced their own portal
Handbag.com (www.handbag.com).
Suggested approach:
Review the benefits of creating a separate independent portal (new market, new positioning,
perceived independence) against the negatives (cost of building traffic, maintaining content –
becoming a publisher, establishing brand, lack of credibility).
4. Contrast the market potential for B2B and B2C auctions.
Suggested approach:
• Research current and sales history of major B2C players such as eBay.
• Research current and future trading of commodities in different B2B marketplaces that
could be possible though auctions, e.g. steel at eSteel.
• Review buyer behaviour – what are the barriers to purchasing in this way, for example,
trust, authenticating purchase?
• Explain difference in magnitude: B2B much greater than B2C.
5. Select an intermediary site and assess how well it makes use of the range of business models
and revenue models available to it through the Internet.
Suggested approach:
• Make sure these types of revenue models are included
• Subscription: per-month payment
• Pay per view: pay for each article, or articles up to a value
• Advertising revenue – for advertising space on site or listing in directory
• Affiliate revenue – for referral to other sites leading to sale
• Transaction revenue – proportion of all transactions completed.
1. Explain disintermediation and reintermediation using examples.
Disintermediation
The removal of intermediaries such as distributors or brokers that formerly linked a company to
its customers.
34
Reintermediation
The creation of new intermediaries between customers and suppliers providing services such as
supplier search and product evaluation.
2. Describe three different revenue models for a portal such as Yahoo!
• Advertising revenue
• Affiliate revenue
• Content subscription revenue.
3. What is meant by buy-side, sell-side and marketplace-based e-commerce?
• Buy-side – suppliers visit customer’s website to bid and win business
• Sell-side – customers visit supplier’s website to make purchase
• Marketplace-based – suppliers meet customers in neutral marketplace to agree sales.
4. What are the different mechanisms for online auctions?
• Forward, upward or English auction (initiated by seller). These are the types of auctions
available on consumer sites such as eBay. Increasing bids are placed within a certain time
limit and the highest bid will succeed provided the reserve (minimum) price is exceeded.
According to Commerce One, companies may use online forward auctions to sell slow
moving, excess or obsolete inventory items. The forward auction could also potentially be
used to perform price discovery in a market.
• Reverse or downward auction (initiated by buyer). These are more common on business-to-
business sites such as Commerce One. Here, the buyer places a request for tender or
quotation (RFQ) and many suppliers compete, decreasing the price, with the supplier with
the lowest price getting the contract. According to Commerce One, companies may use
reverse auctions to:
• Rationalize suppliers in a particular spending category
• Source new components in an area they are unfamiliar with.
5. Describe two alternative approaches for using e-business to change a company’s value
chain.
Disintermediation
its customers.
Reintermediation
The creation of new intermediaries between customers and suppliers providing services such as
35
6. Explain what a business model is and relate it to an Internet pureplay of your choice.
Business model
A summary of how a company will generate revenue identifying its product offering, value-
added services, revenue sources and target customers.
Revenue sources for the pure-play, for example, lastminute.com include:
• Subscription: per-month payment
• Pay per view: pay for each article, or articles up to a value
• Advertising revenue – for advertising space on site or listing in directory
• Affiliate revenue – for referral to other sites leading to sale
• Transaction revenue – proportion of all transactions completed.
7. Outline the elements of the e-business environment for an organization and explain its
relevance to the organization.
Micro-environment – customers, competitors and intermediaries
Macro-environment – social, legal, economical, political and technological constraints
Organizations need to audit these influences when developing strategies and monitor them
continuously to respond to changes.
8. Give three different transaction types that an industry marketplace could offer to facilitate
trade between buyers and suppliers.
• Straight fixed-price transaction
• Auction to lowest bidder – reverse auction
• Barter
Activity answers
Activity 2.1 Why are environmental influences important?

Q. For each of the environmental influences shown in Figure 2.1, give examples of why it is
important to monitor and respond in an e-business context. For example, the personalization
mentioned in the text is part of why it is important to respond to technological innovation.
Immediate micro-environment
• Customers – which services are they offering via their website that your organization could
support them in?
36
• Competitors – need to be benchmarked as described in Chapter 5 to review the online

services they are offering – do they have a competitive advantage?
• Intermediaries – are new or existing intermediaries offering products or services from your
competitors while you are not represented?
• Suppliers – are suppliers offering different methods of procurement to competitors that give
them a competitive advantage?
Macro-environment
• Society – what is the ethical and moral consensus on holding personal information?
• Country-specific, international legal – what are the local and global legal constraints, for
example, on holding personal information, or taxation rules on sale of goods?
• Country-specific, international economic – what are the economic constraints of operating

within a country or global constraints?
• Technology – what new technologies are emerging by which to deliver online services such
as interactive digital TV and mobile phone-based access?
Activity 2.2 Exploring business models

Q. Identify overlap between the different business models identified by Timmers (1999). Can
you group the different business models into different types of services? Do you think these
business models operate in isolation?
An immediate distinction can be made between the operation of individual companies (e-shop)
using the web to sell direct to the customer and deal with suppliers (e-procurement) and
intermediary services such as e-auctions and third-party marketplaces that make up most of the
remaining services. For some business models such as virtual communities and e-auctions it
could be argued that these services could be provided by intermediaries or businesses, but they
are often best provided by neutral intermediaries.
Overlap can be identified between e-auctions, e-malls, third-party marketplaces and business
communities since they all facilitate the exchange of products between sellers and buyers. It can
be argued that the business model is similar, but the mechanism for exchange is different. It
can also be argued that some of the business models referred to are simply instances of the
mechanism of exchange, for example, e-auctions as distinct from fixed-price sales (e-shop).
Auctions could potentially occur for the e-shop and third-party marketplace as well as e-auction.
Activity 2.3 Revenue models at e-business portals

1. Summarize the revenue models which are used for each site by looking at the information
for advertisers and affiliates.
37
Econsultancy (www.econsultancy.com)
• Online revenue models include annual subscription and pay per view access to articles. The
site has limited advertising on a fixed monthly term basis.
• Traditional revenue models include training courses and conferences related to e-business.
Marketing Sherpa (www.marketingsherpa.com)
• This mainly offers a pay per view model for articles and reports. Surprisingly, it has limited
advertising, so as not to annoy site visitors. Some of its reports are syndicated from other
online sources, so this is a commission-based model.
2. What are the advantages and disadvantages of the different revenue models for the site
audience and the site owner?
This answer can be broken down by the different revenue models as shown in the table given
below. Given the advantages and disadvantages of each, it makes sense to have several models
to maximize monetization of site visitors.
Revenue model Advantage Disadvantage
Online subscription Continuous revenue stream Difficult to get visitors to

commit to an ongoing
agreement
Pay per view Instant fulfilment likely to appeal Difficult to provide sufficiently
if article or reports meets compelling unique content
someone’s immediate need. that is not already freely
Reports are often more available on the web
specialized and more
immediate than books
Advertising Relatively easy to setup, Advertisers have to be
particularly if an established recruited and payments
programme like Google managed. If this fails, then
AdSense where no advertisers online ad inventory may be
have to be recruited unsold and so wasted
Affiliate Individual transactions can be Difficult to recruit affiliates and
significant value work best with high volume
consumer markets rather than
business markets
Revenue only generated if
sale is made. A cost per click
arrangement is better for
publisher
3. Given an equivalent audience, which of these sites do you think would generate the most
revenue? You could develop a simple spreadsheet model based on the following figures:
• Monthly site visitors: 100,000, 0.5 per cent of these visitors clickthrough to affiliate sites
where 2 per cent go on to buy business reports or services at an average order value
of €100;
38
• Monthly page views: 1,000,000, average of three ads displayed for different advertisers at
€20 CPM (we are assuming all ad inventory is sold, which is rarely true in reality);
• Subscribers to weekly newsletter: 50,000. Each newsletter broadcast four times per month
has four advertisers each paying at a rate of €10 CPM.
A commission percentage is required to calculate this. Assume 25 per cent of average order
value.
You can also download the spreadsheet of Figure 2.16 from www.davechaffey.com/Spreadsheets.
Calculation:
Visitors Clickthrough Affiliate Conversion Sales Average Revenue

rate site visits rate order at 25%
value commission
(Euros)
100,000 0.50% 500 2% 10 100 250
– Monthly page views: 1,000,000, average of three ads for displayed for different advertisers
at €20 CPM (we are assuming all ad inventory is sold, this is rarely true in reality).
Calculation:
Monthly Ad units per Inventory sold Total ads Cost per Total
page page served 1000 revenue
views (Euros)
1,000,000 3 100% 3,000,000 20 60,000
You can see that this model is more appealing for the publisher in terms of revenue earned.
– Subscribers to weekly newsletter: 50,000. Each newsletter broadcast four times per month
has four advertisers each paying at a rate of €10 CPM.
Newsletter Newsletters Advertisers Inventory Total ads Cost per Total

subscribers per month sold served 1000 revenue
(Euros)
50,000 3 4 100% 600,000 10 6000
39
CHAPTER 3
E-business infrastructure
Table of contents
Case studies 43
Exercises 48
Activity answers 53
Learning outcomes
• Outline the hardware and software technologies used to build an e-business infrastructure
within an organization and with its partners
• Outline the hardware and software requirements necessary to enable employee access to the
Internet and hosting of e-commerce services.
Management issues
• What are the practical risks to the organization of failure to manage the e-commerce
infrastructure adequately?
• How should staff access to the Internet be managed?
• How should we evaluate the relevance of web services and open source software?
40
Chapter at a glance
Main topics
• Internet technology
• Web technology
• Internet-access software applications
• How does it work? Internet standards
• Managing e-business infrastructure
Focus on...
• Internet governance
• Web services, SaaS and service-oriented architecture (SOA)
• Mobile commerce
Case studies
• 3.1 Innovation at Google
• 3.2 New architecture or just new hype?
There are many excellent broadcasts about the development of e-commerce technology. We
recommend subscribing to the BBC e-mail alert service for IT broadcasts http://www.bbc.co.uk/
cgi-bin/alert/settings.pl. Referring students to online explanations for directed study available at
Whatis (www.whatis.com) and Howstuffworks (www.howstuffworks.com) can also be commended.
Business relevance of technology/management of infrastructure
• Complete Activity 3.1 to highlight risks that can occur if infrastructure management is
neglected.
• Need to understand technology when working with solution providers.
• Approaches to managing infrastructure – use layer models (Figure 3.1) to explain these.
41
• Managing technology partners – look at e-business functions appropriate for outsourcing.

Look at worst-case scenario risks if outsourcing agreements fail. How much control is
required?
Basic introduction to Internet (for business people/students rather than

technology students)
• History of the Internet – place in the timescale of the student’s own experience using a
timeline as shown in Activity 3.2. Stress the importance of when and why the web was
adopted. What will the impact be in 5, 10, 25 years’ time as access becomes universal?
• How it works – hardware and software – use Figure 3.2 to highlight the different hardware
and software components as a flow or sequence from when URL typed in, or link clicked
through to return of page.
• How it works – network and communications – use Figure 3.9 and the postal analogy. Use a
quiz approach to test knowledge of jargon.
• Figure 1.4 helps students understand the difference between intranets, extranets and the
Internet. Illustrate intranets through university or organization systems, extranets through
log-in, for example, to Hotmail or Amazon. It is useful to show that e-business involves
closer links with business stakeholders as set up through intranets and extranets.
• Intranet and extranet benefits – consider with respect to Box 3.1 (using the intranet for cost-
cutting) and Mini Case Study 3.1 (Dell Premier Extranet). For challenges of management
use Activity 3.3.
Basic introduction to web technology (for business people/students rather than

technology students)
• Figure 3.7 and Box 3.2 can be used to walkthrough communications between web browser
and server. Ask students how they feel about the information tracked through http. Figure 3.9
shows the challenges of supporting different browser technology which is a ‘moving target’.
• Different web access applications such as blogs and feeds are illustrated in Table 3.3. Check
student usage and terminology of these through giving a definition and asking which is the
term.
• Discuss URL terminology and components through asking students about the example in
Box 3.3.
Selection and management of e-business
A range of topical decisions to be taken by e-business managers are covered in the Boxes and
Activities at the end of the chapter:
• Cloud computing/Software as a Service model
42
• Open-source software
• Net neutraility
• Twitter.
Case studies
Case Study 3.1 Innovation at Google
Question:
Explain how Google generates revenue and exploits innovation in digital technology to identify
future revenue growth. You should also consider the risk factors for future revenue generation.
Google’s revenue has traditionally been based predominantly on advertising which is divided
into these models:
• Pay Per Click Sponsored links within the Google Search Results (and partner search engines
such as AOL)
• Pay Per Click and CPM model within partner sites of the content network which includes
third-party sites such as newspapers and social networks and Google's own properties such
as YouTube. Increasingly there is a move from text-sponsored links to dynamic display ads
and advertising such as those in YouTube.
Increasingly, revenue will be from Google Applications and associated storage deployed within
businesses as paid services (although basic services are often free). The Google Search
Appliance is a physical product sold to sites for providing their online search service.
Risk factors for future advertising revenue include:
• Competition in bidding has traditionally driven up prices but this could fall as companies
become more effective at optimizing their investment through introducing wastage.
• Advertising revenue from the content network may fall as site owners explore other ad
models and clickthrough rates on Google Ads fall as familiarity increases.
• Ad-blocking (currently limited since not an automatic feature in browsers).
• Click fraud.
• Quality of search results falls due to spamming, so Google users turn to a competitor with
an improved search service.
Further risks factors are available in the SEC filings referenced in the case study.
43
Case Study 3.2 New architecture or just new hype?
Question
Discuss the extent to which SOA will reduce reliance on a single provider of enterprise software
and increase flexibility in deploying new applications and functionality.
A service-oriented architecture is a collection of services that communicate with each other as

part of a distributed systems architecture comprising different services.
Through using web standards like XML, data and functionality can be exchanged between
different applications from different providers. The case study gives the example of an office
worker booking a holiday and then this request being communicated to another application like
an enterprise resource planning system.
The main tenet of the question is whether it will make it easier to have multi hardware and
software vendor solutions. This depends on how widely SOA is deployed. As the article
suggests, it is a widely adopted, open standard, so in theory it should do this.
However, there may be increased costs of developing a system that integrates different
solutions, and it may still be more cost-effective to adopt a single solution such as those
mentioned in the article like SAP of CA for the majority of application functionality. Software
from other vendors is then best used for specialist functionality. There will also always be
switching costs associated with moving from one functionality provider to another. Similarly,
adopting new business processes via software will always require some tailoring and managing
of associated change. It will never be as simple as flicking a switch! Enterprise software is not
as straightforward as Plug and Play hardware on a Windows PC. Tens of thousands of functions
are required, even for a simple application, and it is very difficult to standardize these. That said,
for some applications, which can be standardized such as procurement, the article shows that
SOA can assist. It gives the example of ‘a single company or spanning several business
partners: a customer placing an order in one system could automatically trigger production
requests in another and an invoice in a third’.
SOA is really an evolution of previous standards that have aimed at being hardware platform
and software platform neutral. In this sense, it will not increase flexibility since it is not
significantly different to previous approaches, rather, as some interviewees in the article claim,
it is a re-branding of existing technologies.
Although the article mentions the increase in hardware, software and support costs that were
partly caused by migration to client/server architecture, this does not mean that SOA will suffer
a similar fate since it already uses a similar model. However, some would argue that it may have
increased memory and storage requirements than existing solutions.
This case illustrates some of the issues involved with implementing an extranet. The benefits of
the extranet are described together with some of the problems such as security and content
management. The ability to handle large volumes of material is one of the most important
criteria for choosing a content management system, but it is not the only one.
44
When AXA Ireland was planning a new extranet to link it with external legal firms, security was
a critical issue – and some content management solutions it looked at did not come up to the
mark.
AXA Ireland sells general insurance in both the Republic of Ireland and Northern Ireland. The
company, part of the AXA Group of insurance and asset management companies, is Ireland’s
second largest insurer and the largest motor insurer with more than 30 per cent of the private car
market.
However, it is in its personal injury business that the company has initially sought to implement
content management. Here, AXA typically has around 9000 claims outstanding at any one time,
involving communications with tens of thousands of claimants. Needless to say, this represents
a large volume of documentation. The extranet is to handle this, and the company is rolling it
out not only to internal staff but also to 50 or more legal firms with which it deals when
processing claims.
Content management is provided by Parallel, the IT vendor whose collaborative and content
management solution is called pTools. On one level, the aims of AXA’s project are not so
exceptional: to speed up processing times, standardize documentation and thereby realize
substantial cuts in the cost of the associated bureaucracy.
However, as Paul Woodley, AXA Ireland claims manager, explains, security is paramount. The
company initiated a beauty parade of content management solutions last September and was
surprised that several solutions were not secure.
Solutions fell down not only in terms of being able to control hierarchies of access, so that, for
example, system administrators could manage the system but not change any of the content on
it. But in some cases they also did not convince AXA on the less demanding criterion of being
robust enough for an extranet. Parallel’s pTools met the security demand and so was chosen,
although Mr Woodley adds that ethical hackers employed to test its resilience did initially find
some gaps, which they rapidly closed.
Security aside, the extranet is aimed at dealing with the 2000 letters, forms and collateral
documents AXA receives each day. It replaces a legacy, internal imaging system. ‘That system
was pretty inflexible’, Mr Woodley explains.
‘Any analysis of the communications taking place between us and third parties was very
difficult, and although you could look at documents that was about all you could do with them’.
Further, a number of people, including doctors, barristers and mechanics, might contribute to
any document, in addition to the lawyers.
By the time the documents reach AXA, not only can it be hard to interpret the information any
individual item contains, but it is also very difficult to analyze the performance of the claims
processing operation as a whole.
45
To deal with this, the extranet has introduced standardized, electronic forms. Also, the task of
scanning collateral documents is being handed over to the legal firms with which AXA deals.
Imaged documents can then be attached to the electronic forms, which the firms submit.
‘The advantages of the extranet on this count are enormous’, says Mr Woodley. ‘We can
capture a lot more information from lawyers. We can keep much better tabs on the quality of
service they are providing and can analyze the cost of processing claims by cross-referencing
and comparisons’.
Already, AXA publishes league tables showing how different law firms perform. The aim
eventually is to introduce internal competition. ‘The extranet represents a steep learning curve
for some of the firms’, Mr Woodley adds ‘Some lawyers still don’t have PCs’. Face-to-face
contact with them is therefore an essential part of the change management, particularly in terms
of building their trust in the system.
Although the extranet is still being rolled out, the fundamental aims are already clearly being
realized. Processing times are being cut to minutes per transaction rather than taking days or
even months. ‘Parallel is also particularly good on the analysis front. And it has other features,
such as messaging, which we are now looking at too’, says Mr Woodley.
Source: Extranet meets high security demands by Mark Vernon, FT.com site; 3 July 2002.
© Financial Times.
Questions
1. Explain the benefits of the AXA Ireland extranet to AXA Ireland and its partners.
• More rapid settlement of claims is the main requirement to ensure customer satisfaction.
• Workflow and messaging (not mentioned explicitly). This can be used to automatically send
the claim to the right person for actioning and give them e-mail reminders.
• Cost reduction will be a secondary benefit.
• Control and monitoring of lawyer activities.
2. Why is an effective content management system an important component of the extranet?
The CMS enables the documents to be delivered to the people who need them rapidly. It enables
sharing of documents between the large number of partners involved in settling a claim. Using a
web-based extranet means that specialist software does not need to be installed on each person’s
PC – it is just accessed through a web browser.
3. Referring to the article, assess potential problems with the deployment of a content
management system and suggest options managers have to minimize these problems (note
that Chapter 12 has further details on CMS).
Note this requires consideration of general issues with any large system rollout covered in
Chapter 10.
46
• Security – AXA were concerned about this – a good CMS will restrict access to different
types of users with different privileges. This was checked for when the supplier was being
selected.
• Performance – since the system involves images of letters, the speed of download could be a
problem. This would need to be tested in trials.
• Training – this will be difficult due to the large number of third parties using the system. It
could be conducted via the web (e-learning).
Changeover – moving from the old system to the new system will need careful control since
disruption to the claims process could result otherwise.

Debate 3.1 Web 2.0
‘Web 2.0 is simply a new label for a range of web technologies and consumer behaviours
that have existed since the 1990s. They don’t represent a “paradigm shift”’.
• Communications techniques have all been possible for at least 10 years, for example –
community interactions and user-generated content (papers written in 1997 describing
usage). For example, eBay facilitated these.
• Video streaming and animations were also possible.
• There has been a shift since user participation is much higher now. Use statistics (e.g.
Profile tool on Forrester ‘Groundswell blog’) or the Comscore research briefings to show the
level of interaction in social networks (which didn't exist in the 1990s).
• Access technology access has changed – always-on broadband has been key in reducing
time spent with traditional media.
• Software technology has changed – the use of streaming videos and AJAX wasn't practical
in the 1990s.
• Atomization through widgets and feeds didn't exist, although forerunners.
Debate 3.2 Best of breed vs single-source systems
Selecting ‘best-of-breed’ applications from multiple system vendors for different

e-business applications such as enterprise resource planning, customer relationship
management, transactional e-commerce and supply chain management is a better
approach for an effective e-business infrastructure than using a single-vendor solution.
• More effective in delivering results
47
• Functions meet requirements better – can best achieve competitive advantage
• Less reliant on single supplier
• Less likely to have failure than with a large-scale single-vendor solution/less disruption.
• More expensive – single sourcing cheaper for purchase and support
• Difficulty of integrating different systems from different suppliers.
Debate 3.3 Predicting the future of the mobile Internet
Future generation mobile access devices using technologies such as 3G will supersede
PCs as the main consumer access device for the Internet within 5 years.
• Original problem of speed of access removed
• Convenience of accessing anytime, anyplace
• Handheld devices will have several functions – phone, camera, diary and office facilities
• Data in Chapter 1 shows that approximately three quarters of the population has a mobile
phone while Internet access is only available to a quarter
• Adoption of iMode devices in Japan
• High turnover of handsets will mean many new purchasers naturally purchase 3G.
• PCs are already in 50 per cent of households and this will grow also
• Higher costs of 3G connectivity
• PCs will be more convenient for Net access because of larger screens and keyboards –
these will always be the limitations of mobile devices
• The experience of WAP suggests limited demand.
Exercises
1. What is the difference between the Internet and the World Wide Web?
Use TV analogy: Internet is the network for transmitting data globally, web is the method of
delivering the content (channels).
48
The Internet
The Internet refers to the physical network that links computers across the globe. It consists of
the infrastructure of network servers and communication links between them that are used to
hold and transport information between the client PCs and web servers.
2. Describe the two main functions of an Internet Service Provider (ISP). How do they differ
from applications service providers?
Internet Service Provider (ISP)
A provider enabling home or business users a connection to access the Internet (1). They can
also host web-based applications.
ASPs can host specific business applications.
Application server
An application server provides a business application on a server remote from the user.
3. Distinguish between intranets, extranets and the Internet.
Internet is public, intranet restricted to organizations employees, extranet has restricted access
beyond the company.
Intranet
A private network within a single company using Internet standards to enable employees to
share information using e-mail and web publishing.
Extranet
Formed by extending the intranet beyond a company to customers, suppliers and collaborators.
4. Describe the standards involved when a web page is served from a web server to a user’s
web browser.
Request page and deliver page (HTTP), transfer request and information (TCP/IP), render page
in browser (HTML).
TCP/IP
The Transmission Control Protocol is a transport layer protocol that moves data between
applications. The Internet protocol is a network layer protocol that moves data between host
computers.
HTTP (Hypertext transfer protocol)
HTTP or Hypertext transfer protocol is a standard which defines the way information is
transmitted across the Internet between web browsers and web servers.
49
HTML (Hypertext Markup Language)
HTML is a standard format used to define the text and layout of web pages. HTML files usually
have the extension .HTML or .HTM.
5. What are the management issues involved with enabling staff access to a website?
• Cost of access
• Time spent in access lost from main activities
• Access to illegal material.
6. Explain the following terms:
• HTML
• HTTP
• XML
• FTP
HTML (Hypertext Markup Language)
HTML is a standard format used to define the text and layout of web pages. HTML files usually
have the extension .HTML or .HTM.
HTTP (Hypertext transfer protocol)
HTTP or Hypertext transfer protocol is a standard which defines the way information is
transmitted across the Internet between web browsers and web servers.
XML or eXtensible Markup Language
A standard for transferring structured data, unlike HTML which is purely presentational.
File Transfer Protocol (FTP)
Standard used for uploading and downloading files to and from web servers.
7. What is the difference between static web content written in HTML and dynamic content
developed using a scripting language such as JavaScript?
Static content appears the same to all users. Dynamic content can be updated to reflect the
environment, for example, time or personal preferences.
8. What software and hardware are required to access the Internet from home?
Software: web browser, operating system, TCP/IP stack.
50
Hardware: PC plus modem.

1. ‘Without the development of the World Wide Web by Tim Berners-Lee, the Internet is
unlikely to have become a commercial medium’. Discuss.
Suggested approach:
Contrast the use of the Internet pre- and post-web in terms of business applications and number
of users. Clearly indicates the importance of the web, although an equivalent is likely to have
been developed at some stage.
2. ‘In the future the distinction between intranets, extranets and the intranet for marketing
purposes is likely to disappear’. Discuss.
Suggested approach:
• Define the differences between them.
• Review reasons for each being produced separately in organization.
• Review need for shared content and management across each with respect to a B2B
company.
3. Discuss the merits and disadvantages of locating company e-business services inside a
company, in comparison with outsourcing to an ISP or ASP.
Suggested approach:
• Select e-business services, for example, site hosting and e-mail management.
• Review benefits – external: maintenance cost, expertise, responsiveness to short-term

problems, for example, new viruses and longer-term technological trends.
• Review benefits – internal: control and security.
• Assess benefits and risks overall.
4. You are consultant to a small retailer interested in setting up a transactional e-commerce

site. Create a summary guide for the company about the stages that are necessary in the
creation of a website and the management issues involved.
Suggested approach:
• Domain name registration.
• Content and e-mail hosting.
• Content development.
51
• Promotion/launch of site.
• Maintenance of site.
1. You have been tasked with arranging Internet access for other employees in your company.
Summarize the hardware and software needed.
Software: web browser, operating system, TCP/IP stack on each PC.
Hardware: PC plus network card to connect to modem for each user, plus gateway PC to
connect to Internet including firewall for security reasons.
2. How would you explain to a friend what they need to purchase to access the World Wide
Web using the Internet? Explain the hardware and software needed.
Software: web browser, operating system, TCP/IP stack.
Hardware: PC plus modem.
3. Explain the term ‘electronic data interchange’. Is it still relevant to companies?
Electronic Data Interchange (EDI)
The exchange, using digital media, of structured business information, particularly for sales
transactions such as purchase orders and invoices between buyers and sellers.
It is still relevant since it can be used as a method of structured data transfer for purchasing
across the Internet and has evolved as Internet EDI to support new standards such as XML.
RSS – to provide updates to subscribers about changes to the company services such as new
product introductions or promotions.
4. Describe how the following tools would be used by a company hosting a website:
• HTML – to publish static web pages.
• FTP – to upload web pages to a web server.
• RSS.
5. The existence of standards such as HTML and the HTTP protocol have been vital to the
success and increased use of the World Wide Web. Explain why.
These act as common standards that are used on all computers accessing the web regardless of
vendor. HTML (Hypertext markup language) provides a common markup language which
displays content consistently on a range of computers. HTTP (Hypertext transfer protocol) gives
a standard method of requesting and returning information over the ‘web’.
52
6. What benefits to a business-to-business company does the XML standard beyond those of
HTML?
Provides structured transfer of information that can be used to specify items in a purchase order.
7. Explain why the e-business co-ordinator of a company might investigate the use of
applications service providers.
ASPs provide a means of outsourcing business applications. These can then be provided at a
lower cost and with higher service quality standards.
8. Explain the differences between intranet, extranet and the Internet from an e-business
perspective.
The Internet is used to communicate with all interested parties, while the intranet is to manage
internal e-business processes and the extranet for external communications with favoured parties
such as key suppliers.
Activity answers
Activity 3.1 Infrastructure risk assessment

Q. Make a list of the potential technology problems faced by customers of an online retailer.
Consider problems faced by users of e-business applications which are either internal or
external to the organization. Base your answer on problems you have experienced on a web
site that can be related to network, hardware and software failures or problems with data
quality.
Some of the possible problems you may have identified are:

1. Website communications too slow.
2. Website not available.
3. Bugs on site through pages being unavailable or information typed in forms not being
executed.
4. Ordered products not delivered on time.
5. E-mails not replied to.
6. Customers’ privacy or trust is broken through security problems such as credit cards being
stolen or addresses sold to other companies.
It will be apparent that although most of these problems are technical, they arise because
humans have not managed the infrastructure adequately. They have not invested enough to solve
these issues or have not tested solutions adequately to check for deficiencies. Additionally, in
the case of some problems such as e-mails not being responded to, this may be entirely a
problem in the process created (or not created) by managers to deal with inbound e-mails.
53
Activity 3.2 The development of the Internet and digital technologies
Referring to Figure 3.4:

1. Give reasons why the Internet took a long time to develop into today’s essential business
tool.
Possible reasons for the slow development of the Internet include:
• The cost of specialized leased line connection to the Internet was only affordable for the
large companies. Access via phone lines did not happen until the 1980s.
• The limited deployment of desktop computers in organizations. The PC was not invented
until the early 1980s.
• The potential of the Internet to reduce costs as a business tool was not widely recognized at
company or government levels, so there was no momentum to achieve the benefits. It was
positioned as an academic and military tool.
• Difficulties in use of early tools of the Internet.
2. Develop your own timeline of significant events on the Internet. A key source is the Hobbes
Internet timeline (www.zakon.org/robert/internet/timeline/) or a relevant Wikipedia page,
for example: http://en.wikipedia.org/wiki/History_of_the_Internet. The author’s timeline is
on p. xxiii. See also the ‘Focus on New access devices’ section towards the end of this
chapter. You may want to speculate on how timelines will differ for future generations.
No answer supplied. Think about when you started using different technologies like the web,
mobile, blogs (as reader and writer), RSS feeds, social networks and Twitter.
Activity 3.3 Overcoming limited use of intranets and extranets in a B2B

Company
1. A B2B company has found that after an initial surge of interest in its intranet and extranet,
usage has declined dramatically. Many of the warning signs mentioned in the KM (2002)
article listed above are evident. The e-business manager wants to achieve these aims:
1. Increase usage.
2. Produce more dynamic content.
3. Encourage more clients to order (extranet).
1. Increasing usage.
The solution is similar to marketing any product, or indeed a website. First, the e-business
manager needs to conduct research to identify the reasons why the intranet (product) is under-
utilized and also which content is useful. New applications that can help staff or customers in
their day-to-day work should also be identified. He then needs to sell the intranet to staff (or
customers for extranet) based on the benefits it will bring to them.
54
2. Produce more dynamic content.
The manager must check that suitable processes are in place to update static information such as
phone numbers – if the intranet is not trusted it will not be used. An education programme
should be arranged that explains not only how to use the intranet, but also the benefits it will
bring. This can be on an individual or group basis. Practical steps to explain the benefits such as
tag line, list of features, site map or user guide may also be needed.
Encouraging staff to develop their own content to update the intranet can also help adoption.
This may need to be added as part of the job description. Personal stories and informal stories
may help interest. Offering incentives either to start usage (e.g. discount for first usage) or
continue usage (discount when a certain volume of orders are placed online) can be used for the
extranet. Finally, the role of e-mail should not be neglected – this can help remind staff about
the intranet, and also alert them when news or new services become available.
3. Encourage more clients to order.
Encouraging use of an extranet or intranet is similar to encouraging usage of a public facing

open website, that is, its managers:
• Need to explain the value proposition (benefits)
• Need to incentivize first use and continued use
• Need to remind about usage
• Need to ensure updation.
Activity 3.4 Selecting open-source software

Q1. For the different alternatives facing a technical manager below, assess:
(a) Which is most popular (research figures).
(b) The benefits and disadvantages of the Microsoft solution against the alternatives.
(a) Popularity.
These are examples of freely available statistics about operating systems.
A. Desktop OS: http://www.w3schools.com/browsers/browsers_os.asp
Web server OS: http://www.serverwatch.com/stats/ and

http://www.securityspace.com/s_survey/data/200908/index.html
B. Browser:
http://www.w3schools.com/browsers/browsers_stats.asp
55
C. Language
http://www.google.com/trends?q=php%2Cruby%2Cpython%2C.net
(b) Benefits
Benefits could include paid support and a good quality knowledge base. However, many
bulletin boards are available for open-source software. Disadvantages of using the Microsoft
solution are the cost and the time it is likely to take to communicate the problem and have it
solved in a new release.
Q2. Make recommendations, with justifications, of which you would choose for a small–medium
or large organization.
A Operating system: Microsoft/Windows XP/Vista/Server or Linux (open-source) for server

and desktop clients.
B Browser: Internet Explorer browser or rivals such as Mozilla Firefox or Google Chrome
which is part based on open source.
C Programming language for dynamic e-commerce applications: Microsoft.Net or independent

languages/solutions such as the LAMP combination (Linux operating system, Apache
server software plus the MySQL open source database and scripting languages such as PHP,
Perl or Python).
A Operating system.
Although Linux has many adherents and is used by major corporations including IBM, its
overall market share is small (2.7% as against Microsoft 94%).
B Browser.
Internet Explorer is predominant, accounting for over 80 per cent of the browser market, but
Firefox at 20 per cent is increasing.
C Programming language.
This is more difficult to establish. PHP is used on main free web servers such as Apache, so
possibly is more popular than ASP or ASP.Net.
For small organizations, using non-Microsoft products such as OpenOffice is appealing in terms
of price. For larger organizations, the lack of paid-for support and uncertainty of future support
mean that Microsoft is a safer option. Additionally, Microsoft products often have greater
functionality, for example, Support for Visual Basic for Applications in Excel, which mean that
it is more flexible and can be tailored to the organizations’ needs. Internet Explorer is currently
free and can be used in all types of organizations. For development, Microsoft development
tools are likely to be more expensive, so for the small to medium company, non-Microsoft tools
are probably best if there are sufficient trained staff available (this is likely to be the case with
PHP/MySQL).
56
Activity 3.5 Opportunities for using web services by a B2B company
Question
Develop a balanced case for the managing director explaining the web services approach and
summarizing its advantages and disadvantages.
Advantages of web-service
• Readily accessible from remote locations.
• Cost savings through shared (multi-tenancy servers) access model.
• Reduced head-count within IT for managing applications and servers.
• Upgrades more frequent and less-costly for both client and server computers.
Disadvantages
• Performance slower due to network and shared access.
• Loss of access if problem with server(s) or connecting access.
• Dependent on service standards defined in SLA.
• Potentially less secure.
57
CHAPTER 4
E-environment
Table of contents
Case studies 60
Exercises 62
Activity answers 67
Learning outcomes
• Identify the different elements of an organization macro-environment that impact on an

organization’s e-business and e-marketing strategy
• Assess the impact of legal, privacy and ethical constraints or opportunities on a company
and devise solutions to accommodate them
• Assess the role of macro-economic factors such as economics, governmental e-business

policies, taxation and legal constraints.
Management issues
• What are the constraints such as legal issues placed by the e-environment on developing and
implementing an e-business strategy?
• How can trust and privacy be assured for the customer while seeking to achieve marketing
objectives of customer acquisition and retention?
• Assessment of the business relevance of technological innovation.
58
Chapter at a glance
Main topics
• Social and legal factors
• Environmental and green issues related to Internet usage
• Taxation
• Economic and competitive factors
• Political factors
• E-government
• Technological innovation and technology assessment
Focus on...
• E-commerce and globalization
Case studies
• 4.1 The implications of globalization for consumer attitudes
These are some of the key topics that can be covered with the aid of this chapter:
The importance of macro-environment factors in constraining strategy and implementation –

Activity 4.1 shows how these may directly impact students.
Adoption of the Internet – Activity 4.2 summarizes useful information sources for summarizing
levels of adoption. Alternative sources are the press sections on www.comscore.com and
www.nielsen-online.com. These are useful for building up a demand analysis. It is also
interesting to assess the growth in mobile applications (Table 4.3) stress it is not just access, but
usage of range of services (similar to the Web). Usage of applications is also affected by
broadband penetration (Figure 4.2) which surprisingly still varies dramatically by country.
The role of online in affecting offline sales (multi-channel) marketing should also be stressed
(Figure 4.3).
Ethical issues – privacy and trust. Table 4.2 is a useful summary/grouping of the main laws
affecting digital marketing which are covered later in this chapter.
59
Practical activities on cookies (Box 4.4) are helpful since they illustrate information collected on
individuals, which many students are concerned about, but perhaps do not know the detail.
Government control – Case Study 4.1 illustrates what is possible through proactive government
of the Internet. Monitoring of employee access is also a good topic for debate. Managers have to
decide what measures should be taken to monitor e-mails and web access.
Assessing technology adoption – consider the diffusion of innovation curve (Figure 4.12) for
different products, for example, Web, WAP, iDTV or games consoles. This highlights when
companies need to react to introduction of new technologies.
Case studies
Case Study 4.1 The implications of globalization for consumer attitudes
Question
Q. Based on this article and your experiences, debate the statement: ‘Site localization is
essential for each country for an e-commerce offering to be successful in that country’.
A good example to illustrate this case is Durex (www.durex.com), which offers varying degree
of localization according to the size of the market. A further example is Dell where localization
is mainly based on language.
The answer can start by describing what needs to be localized:
Local contact points (minimum)
Language
Style of content and images
Legal constraints on promotions.
Arguments for localization are as follows:
Differing cultures require different copy and content to appeal to them
Reduces negative impressions from dealing with a multi-national company
Shows local support is available.
Arguments against localization are as follows:
Simple cost
It follows that localization should be driven by the importance of the market and the perception
of foreign cultures in the market. Some markets such as Scandinavia may be more comfortable
with English compared to others such as France.
60
Debate 4.1 How far should opt-in go?
‘Companies should always use an ‘opt-in’ private policy for
a) e-mailing prospects and customers
b) monitoring website visitors using site analysis software
c) identifying repeat visitors using cookies’.
• May be required by law in future, if not now
• Improves customer opinion of company
• Should ensure better response, since only those wanting future communications are
targeted
• Reduce audience for future marketing campaigns
• Opt-in is not necessary so long as there is an opt-out
• Impractical for cookies and site monitoring – consumers have the choice of not using site
after they look at privacy policy – this should be sufficient
• Such stringent requirements are not laid down for other media
Debate 4.2 Getting value from e-government
‘Efforts by national governments to deliver e-government services for citizens represent

a massive waste of public money, given the limited demand for these services’.
• Failed targets for completion of service
• Poor consumer awareness and adoption of services
• Cost of creation of consumer services is not likely to outweigh cost reductions.
• Savings can be achieved through e-commerce
• Government can help demonstrate benefits of e-business to other companies
61
• Such services will be required by consumers in long-term as they become accustomed to

using web self-service for other facilities such as banking (already used by 30 per cent of
UK population).
Exercises
1. Why is environmental scanning necessary?
It is necessary at a macro-level to understand new constraints on conducting business such as

legal and technical constraints. These may also present opportunities. On a micro-level it is
important to be responsive to customers’ needs and competitors’ actions.
2. Give an example how each of the macro-environment factors may directly drive the content
and services provided by a website.
• Social – localized content for different cultures
• Legal – privacy statement
• Economic – funding and awards may be possible from governmental sources
• Political – same as above
• Technological – the incorporation of personalization.
3. Summarize the social factors that govern consumer access to the Internet. How can
companies overcome these influences once people venture online?
• Cost of access technology
• Cost of online access per minute
• Peer pressure
• Security fears
• Perception of need for online access
Companies should clearly communicate the benefits of online trading and make reassurances
about the threats.
4. What actions can e-commerce managers take to safeguard consumer privacy and security?
Privacy statements should explain the actions taken to the customers. Firewalls should be
maintained to minimize the risk of unauthorized access to customer data. The relevant data
protection act should be followed.
62
5. What are the general legal constraints that a company acts under in any country?
Table 4.2 includes
• Consumer data protection and privacy laws
• Copy promoting goods
• Sales of goods/returns
• Trademark law
• Intellectual property law
• Disability and discrimination.
6. How do governments attempt to control the use of the Internet?
They control through policies to promote its use and through monitoring messages through
ISPs.
7. Summarize adoption patterns across the continents.
Refer to a source such as the International Telecommunications Union (www.itu.int) for the
latest statistics.
8. How should innovation be managed?
It should be managed by frequent review of new opportunities, achieving balance between

adopting all new technologies and conservative non-adoption and careful selection of
technologies that will achieve competitive advantage.

1. You recently started a job as e-commerce manager for a bank. Produce a checklist of all the
different legal and ethical issues that you need to check for compliance on the existing
website of the bank.
Suggested approach:
Refer to a reference site such as http://privacy.org/ to ensure coverage of all data protection and
privacy (e-mail, cookies) actions. Table 4.2, introduced in the 4th edition, will assist with this.
2. How should the e-commerce manager monitor and respond to technological innovation?
Suggested approach:
• Best to base around the concept of diffusion of innovation.
• Contrast between the risks and benefits of the earlier adopter and late majority adopter.
63
• Give examples of technologies that have generated hype, but have not delivered, for
example, WAP.
3. Benchmark different approaches to achieving and reassuring customers about their privacy
and security using three or four examples for a retail sector such as travel, books, toys or
clothing.
Suggested approach:
• This is not a formal essay question. It is a web activity to visit the sites of different players
to review their privacy and security statements for differences and the emphasis attached to
them.
• Include reference to certification bodies.
4. ‘Internet access levels will never exceed 50% in most countries’. Discuss.
Suggested approach:
Data in Figure 4.2, p187, shows that only in developed countries will the level of access be
high, for example. The International Telecommunications Union (ITU) (http://www.itu.int/ti/
industryoverview/index.htm). In most countries, for the foreseeable future, it appears that the
access levels will be less than 50 per cent in terms of PC access. Further into the future access
through digital TV via satellite may increase this figure.
However, the access figure is now approaching 50 per cent in some developed countries
although PC access saturation is approaching.
5. Select a new Internet access technology that has been introduced in the last two years and
assess whether it will become a significant method of access.
Suggested approach:
• Determine current levels of access
• Evaluate how well it meets the criteria of a successful access technology (the web) in terms
of cost, speed and ease of use.
6. Assess how the eight principles of the UK Data Protection Act (www.dataprotection.gov.uk)
relate to actions an e-commerce manager needs to take to ensure legal compliance of their site.
The answer should review the eight data protection principles as follows. Reference to the
interpretation of the ASA guidelines in the text may be helpful. Note that a lot of the principles
refer to best business practice – marketers should want data to be accurate and secure, for
example.
The personal data must be:
1. Fairly and lawfully processed:

• It should not be sold or passed on to third parties without the data subject’s agreement.
64
2. Processed for limited purposes:

• It should be processed for the reasons set out within a privacy statement as explained to
individuals.
3. Adequate, relevant and not excessive:

• A minimum of relevant questions should be asked for online opt-in.
4. Accurate:
• Data should be validated for accuracy and consumers should be prompted for changed
details through time.
5. Not keeping longer than necessary:

• This is difficult to interpret – what does ‘necessary’ mean in this context? A company
may want to ‘reactivate’ or encourage new purchases from customers who have not
purchased recently.
6. Processed in accordance with the data subject’s rights:

• Rights set out in the Electronic Communications Act – for example – sensitive personal
data about religious and political interests should be protected.
7. Secure:
• Suitable security such as firewalls and log-ins should be used to prevent access to
personal data.
8. Not transferred to countries without adequate protection:

• In some cases it may not be appropriate to share the data with overseas companies.
1. Explain the different layers of governance of the Internet.
Dyson (1998) describes different layers of jurisdiction or governance. These are as follows:
• Physical space comprising individual countries where their own laws such as those
governing taxation, privacy and trading and advertising standards hold.
• ISPs – the connection between the physical world and virtual world.
• Domains name control (www.icann.net) and communities.
• Agencies such as TRUSTe (www.truste.org) which promote good practice.
2. Summarize the macro-environment variables a company needs to monitor.
These are referred to as the Social, Legal, Economic, Political and Technological (SLEPT)
factors in this chapter:
• Social – social trends in levels of access and what is acceptable ethical use
65
• Legal – legal constraints
• Economic – changes to economy affecting viability of service
• Political – government incentives or restrictions
• Technological – new technologies to enhance service.
3. Explain the purpose of environmental scanning.
Environmental scanning and analysis
It is the process of continuously monitoring the environment and events and responding
accordingly.
4. Give three examples of how websites can use techniques to protect the user’s privacy.
• Cookies linked to an individual machine
• Firewalls to prevent unauthorized access to databases
• Access control through user names and passwords.
5. What are the three key factors which affect consumer adoption of the Internet?
• Cost of access device
• Cost of online access
• Privacy perceptions
• Benefits perceptions.
6. Explain the significance of the diffusion–adoption concept to the adoption of new

technologies to:
(a) Consumers purchasing technological innovations. Managers should review the percentage
of user base who can use/access their site using a particular technology, for example, Flash
plug in.
(b) Businesses deploying technological innovations. Managers need to review the competitive
advantage possible through early adoption of an innovation.
7. What action should an e-commerce manager take to ensure compliance with ethical and
legal standards of their site?
Review data protection requirements in different countries.
66
Activity answers
Activity 4.1 Introduction to social, legal and ethical issues

Q. List all the social, legal and ethical issues that the manager of a sell-side e-commerce
website needs to consider to avoid damaging relationships with users of his or her site or
which may leave the company facing prosecution. You can base your answer on issues
which may concern you, your friends or your family when accessing a website.
The following answers are a small selection of what may be suggested. They are covered in
more detail later in the chapter:
• Cookies
• Are we limiting access to information from certain sections of society (social exclusion)?
• Privacy of personal information entered on a website
• Sending unsolicited e-mail
• Replying promptly to e-mail
• Copyright
• Site content and promotional offers/adverts are in keeping with the different laws in
different countries
• Providing text, graphics and personality in keeping with social mores of different countries.
Activity 4.2 Understanding enablers and barriers to consumer adoption

Q. Access a recent survey in your country of attitudes to the Internet. In particular, you should
concentrate on reasons why customers have used the Internet or have not used the Internet
at all. A compilation of research about the Internet and technology adoption is available at
www.clickz.com/stats. Examples of data are provided in Figures 1.10 and 1.14.
1. Summarize and explain the reasons for the levels of usage of the medium for different
activities.
These are the main observations:

• Using e-mail for communication remains the main online activity.
• The Internet is popular for finding product information with actual online purchases and
online banking less important, but increasing.
• General browsing has reduced.
• The government has not been successful in encouraging more users to access its
services online.
67
2. What are the main enablers and barriers to higher levels of adoption of these different
activities and which actions should organizations take to increase adoption?
The main driver for use is identification of need and benefit – marketing communications can be
used to sell the benefits, but this will not be successful in all cases – the government has
invested in advertising to encourage online use of its service without significant changes. The
main barriers are fear or lack of identification of need – again marketing communications to
explain benefits and reassuring customers can assist here.
Activity 4.3 Attitudes to behavioural ad targeting

Q. Imagine you are a web user who has just found out about behavioural targeting. Use the
information sources provided by the industry to form an opinion. Discuss with others
studying your course whether you believe behavioural ad targeting should be banned (as
has been proposed in some countries) or whether it is acceptable. Suggested information
sources:
• Internet Advertising Bureau guide to behavioural advertising and privacy
(www.youronlinechoices.co.uk).
• Web Analytics Association (www.webanalyticsassociation.org/?page=privacy). A trade
association of online tracking vendors.
• Google ‘Interest-based advertising’: How it works (www.google.com/ads/preferences/
html/about.html), which explains the process and benefits as follows:
Many websites, such as news sites and blogs, use Google’s Adsense program (‘a
network of publishers using advertising through Google’) to show ads on their sites. It’s
our goal to make these ads as relevant as possible for you. While we often show you ads
based on the content of the page you are viewing, we also developed new technology
that shows some ads based on interest categories that you might find useful. The
following example explains this new technology step by step:
Mary’s favorite hobby is gardening. With Google’s interest-based advertising
technology, Mary will see more relevant gardening ads because she visits many
gardening websites. Here’s how that works: When Mary visits websites that display ads
provided by Google’s AdSense program, Google stores a number in her browser (using
a ‘cookie’) to remember her visits. That number could be like this: 114411. Because
many of the websites that Mary visits are related to gardening, Google puts her number
(114411) in the ‘gardening enthusiast’ interest category.
As a result, Google will show more gardening ads to Mary (based on her browser) as
she browses websites that use AdSense.
Activity 4.4 Government and company monitoring of electronic

communications
Write down the arguments for and against each of these statements, debate individually or as a
group to come to a consensus.
1. ‘This house believes that organizations have no right to monitor employees’ use of e-mail or
the web’. Use Moreover (www.moreover.com) to research recent cases where employees
68
have been dismissed for accessing or sending e-mails or web content that is deemed
unsuitable. Is this just used as an excuse for dismissing staff?
Arguments for:
• Protects companies from employee fraud.
• Protects companies from time wasting activities (see the Lois Franxhi constructive dismissal
case: http://news.zdnet.co.uk/internet/0,39020369,2072304,00.htm) (see cases internet/
0,39020369,2083185,00.htm).
• Protects companies from making unwarranted claims about other organizations (see
Norwich Union 1997 case: Example: http://www.mccann-fitzgerald.ie/legal_briefing/
litigation_arbitration/email_libel.html).
• May be written into employment contract.
• Can be conducted with government data protection guidelines. Guidelines related by UK

government in June 2003: http://www.informationcommissioner.gov.uk/dpr/dpdoc.nsf/0/
024aaa3a87d81c1f80256bf000526286/$FILE/3+moitoring.pdf.
Arguments against:
These are difficult to enumerate – but revolve around the concepts of trust and invading an
individual’s privacy.
2. ‘This house believes that governments have no right to monitor all Internet-based
communications passing through ISPs’. Use Moreover (www.moreover.com) to research
action taken by the government of your country to monitor and control Internet
communications.
What action do you think managers in a company should take with regard to monitoring
employee access? Should laws be set at a national level or should action be taken by individual
companies?
Arguments for:
• Can alert them to terrorist activities.
• Not enshrined in law in all countries. In the UK, there is the ‘Regulation of Investigatory
Powers or RIP Act’ http://www.hmso.gov.uk/acts/acts2000/20000023.htm
Argument against:
• Invasion of privacy.
Activity 4.5 Overcoming SME resistance to international e-commerce

Q. For each of the four barriers to internationalization given in Table 4.7, suggest the
management reasons why the barriers may exist and actions that governments can take to
overcome these barriers. Evaluate how well the government in your country communicates
the benefits of e-commerce through education and training.
69
Table 4.7 Issues in SME resistance to exporting
Barrier Management issues How can barrier be overcome?
1. Psychological Will the investment be recouped? Success stories of companies

who have become exporters can
Do we have the human resources?
show the contribution to revenue
possible and the expenditure
necessary.
2. Operational Do we need to translate web Highlight availability and cost of
content for language and cultural specialists for legal advice, export
differences? documentation and translation.
How do we deal with country Publicity about the range of low
specific laws and taxation? cost, off-the-shelf solutions for
implementing e-commerce.
How do we build e-services?
How do we make transactions
secure?
3. Organizational Do we have the right structure and Provide training on best practice
responsibilities? for organizational structure and
employee development.
Do we need to open new overseas
sales offices?
4. Product/market Which market do we target? Benchmarking from other
countries can help address these
Do products or packaging require
issues.
modification for overseas
markets?
Source: Barriers from Hamill and Gregory (1997) and Poon and Jevons (1997).
70
CHAPTER 5
E-business strategy
Table of contents
Case studies 73
Exercises 80
Activity answers 86
Learning outcomes
• Follow an appropriate strategy process models for e-business
• Apply tools to generate and select e-business strategies
• Outline alternative strategic approaches to achieve e-business.
Management issues
Consideration of e-business strategy raises these issues for management:
• How does e-business strategy differ from traditional business strategy?
• How should we integrate e-business strategy with existing business and information systems
strategy?
• How should we evaluate our investment priorities and returns from e-business?
71
Chapter at a glance
Main topics
• What is e-business strategy?
• Strategic analysis
• Strategic objectives
• Strategy definition
• Strategy implementation
Focus on…
• Aligning and impacting e-business strategies
Case studies
• 5.1 Capital One creates value through e-business
• 5.2 Setting the Internet revenue contribution at Sandvik Steel
• 5.3 Boo hoo – learning from the largest European dot-com failure
This chapter is structured around a clear process framework for strategy development. The
chapter starts by asking how e-business strategy differs from other forms of strategy. Some of
the similarities and differences between e-business strategy and other forms of strategy are
discussed. Note the well-known Michael Porter paper listed in the Further Reading is useful for
debating differences between Internet and traditional business strategy development although it
was written in the context of the dot-com failure. The definitions of e-business strategy can be
used to discuss approaches to e-business strategies. Activity 5.1 can also be used in a seminar to
discuss these differences. A structured investigation of the elements of e-business strategy then
follows. The chapter can be used for structuring a module or part-module on e-business strategy.
The sections in this chapter integrate with and should be used in conjunction with other
chapters, where strategy issues are described in more detail, as follows:
• E-business strategy. Process models discussed through Activity 5.1 and Table 5.1. Once an
e-business strategy has been developed, developing ‘strategic agility’ is important. Table 5.2
can be used to discuss approaches to this.
72
• Strategic situation analysis

[See macro-environment analysis (Chapter 4), new marketplace, business and revenue
models (Chapter 2)]. The various stage models for defining current adoption of e-business
can be used for assessing current progression to e-business (e.g. Table 5.3 or those
introduced in Chapter 1). Postgraduates can assess organizations to which they have
belonged.
• Strategic objectives
[Also discussed for SCM (Chapter 6), E-procurement (Chapter 7) and E-marketing (Chapter
8)]. Discuss the need for vision or mission statements (Box 5.3). Develop examples of
SMART objectives (Box 5.4) and linking goals, strategies and KPIs (Table 5.6).
• Strategy definition
(Evaluation of revenue, business and distribution models, Chapter 2). Review of different
strategic initiatives to support customer acquisition, conversion, retention and supplier,
distribution partner objectives.
• Strategy implementation
(Chapters 10, 11 and 12).
Case studies
Case Study 5.1 Capital One creates value through e-business
Question
Q. Explain with reference to Figure 5.12 how Capital One has achieved competitive advantage
through creating value through e-business.
1. Add value. Value is added through providing better quality products and services to an
organization’s customers. Information can be used to better understand customer
characteristics, needs and their level of satisfaction with services. Capital One has invested
in this technology and it is a strategic competence.
Information is also used to sense and respond to markets. Information about trends in
demands, competitor products and activities must be monitored so that organizations can
develop strategies to compete in the marketplace.
2. Reduce costs. Cost reduction through information is achieved by making the business
processes more efficient. Capital One refers to credit, risk and marketing operations being
analyzed through this approach. Efficiency is achieved by using information to create,
market and deliver services using fewer resources than earlier.
3. Manage risks. Capital One uses information technology to assess lending risks.
73
4. Create new reality. Marchand uses the expression ‘create new reality’ to refer to how
information and new technologies can be used to innovate; to create new ways in which
products or services can be developed. With a flexible IT infrastructure, Capital One can
introduce new, tailored products more rapidly.
Case Study 5.2 Setting the Internet revenue contribution at Sandvik Steel
Questions
1. Summarize Sandvik Steel’s e-business strategy as described in the article.
The strategy is not simply to use the Internet as a sales tool, but also as a method of delivering a
better service to customers. From the article:
‘Its extranet enables users to obtain worldwide stock information, catalogues and training aids,
as well as take part in online discussions’. ‘Customer value comes when our product is used, not
when it is purchased’, Personalization is mentioned later in the article.
A further issue is the channel strategy – the Internet strategy has had to accommodate the
indirect sales.
Objectives are summarized by the sentence: ‘Shifting existing customers to the internet, winning
new ones and saving costs are also important’.
2. Suggest why the proportion of online purchases varies in the different countries in which
Sandvik trades.
Proportions vary due to:
• Penetration of Internet technology in the country
• Culture of using online trading
• Existing equivalent technologies such as EDI
• Service options offered in different countries
• Proportion offered in different countries.
Additional questions
1. Summarize how e-business has been used to transform Sandvik Steel.
E-business has changed the way the company deals with both customers and suppliers. But it is
targeted at customers. For customers an extranet enables users to find stock information, use
catalogues and training aids. At Coromant customers can design products (mass customization)
and can also receive advice on how to use them.
74
2. What are some of the risks of e-business that need to be managed that are highlighted by
the article?
a. Change management
‘“The major challenges are not IT and systems, but ‘soft’ things such as attitudes, insights and
getting people to understand and accept that this is part of their daily work.” This means
focusing hard on business needs and cutting through the internet hype’.
b. Channel management (conflict management)
‘The company’s approach was to work with the traditional sales channels. “So many companies
try to bypass traditional channels and lose sales and relationships,” Mr Fredriksson says’.
Notice also how the company has a good picture of its online contribution in different countries
and has objectives to improve it:
‘At present, only a small part of Coromant’s orders are transacted over the web. Nordic
countries are leading the way. Around 20 per cent of all orders from Denmark are online and
31 per cent of those from Sweden.
The proportion in the US, however, is only 3 per cent, since most business goes through
distributors and is conducted by EDI (electronic data interchange), the pre-internet means of
e-commerce.
Over the next 6 months, the company hopes to raise the US figure to 40 per cent.
Mr Fredriksson hopes that in 2 years, between 40 and 50 per cent of total orders will come via
the web’.
Case Study 5.3 Boo hoo – learning from the largest European dot-com
failure
Questions
1. Which strategic marketing assumptions and decisions arguably made Boo.com’s failure
inevitable? Contrast these with other dot-com-era survivors who are still in business, for
example, lastminute.com, Egg.com and Firebox.com.
These are assumptions that ultimately led to the downfall of Boo.com since in total they made it
unprofitable:
• Demand for online services would be higher, given the increase in adoption of the Internet.
Yet many users were not comfortable/familiar with purchasing online.
• Cost of customer acquisition would be lower.
• Conversion rates of visitors would be higher.
• Technology would not cause so many barriers to sale that is, slow download times and
usability problems. These issues are well known now, but were not at that time.
75
• Channel conflicts would be less – it was difficult for Boo to strike a deal with many brands
to sell direct online, so limiting its product range.
In retrospect and with the benefit of hindsight, many of these seem obvious, but the owners of
the business did not have experience of this marketplace although they did have online
experience through www.bokus.com for a simpler proposition in a single geographical market.
2. Using the framework of the marketing mix, appraise the marketing tactics of Boo.com in the
areas of Product, Pricing, Place, Promotion, Process, People and Physical Evidence.
The marketing mix is covered in Chapter 5, so this part of the question should only be set if this
concept has been covered previously.
These are aspects of how Boo.com applied the mix that students may comment on:
• Product – Premium brands were used leading to premium prices. Unclear on mix between
sportswear and high street fashion. Scope relatively narrow, so limiting target audience.
• Price – As mentioned in the case, there were issues of pricing in different regions. No
mentions of discounting are made consistent with the brands premium positioning.
However, competitive selective promotions are today commonly used by many e-retail
brands.
• Place – Boo.com had a worldwide distribution that was good for achieving reach, but added
to the cost-base of the company so impacting on promotion. A global launch of a new brand
was ambitious and can be contrasted with the more conservative approach from the likes of
Amazon and eBay.
• Promotion – To build the Boo brand and drive visitors was reliant on online advertising that
gave rise to a high cost per customer acquisition that ultimately led to the brand’s failure.
The use of PR was more effective and is one of the successes of Boo. The magazine appears
overambitious and did not pay for itself through sales generated. At the time their promotion
through online marketing techniques such as search engine advertising and affiliate
marketing techniques was limited in its possibilities. Today, these are more effective for
companies.
• Process, People and Physical evidence – It is well known that the technology was too
advanced for a time when the vast majority was accessing the web over dial-up modems.
This led to a ‘clunky’ experience that resulted in the low conversion rates referred to in the
article. It also seems likely that the cost of providing customer service was not factored into
the business model.
3. In many ways, the visions of Boo’s founders were ‘ideas before their time’. Give examples
of e-retail techniques used to create an engaging online customer experience which Boo
adopted that are now becoming commonplace.
These are some of the approaches used:
• Creation of a strong brand based on quality and service.
76
• Advanced product selection using 3D images. This approach is now used by Dell, for
example.
• Use of online customer service persona or avatar. This approach is now used by IKEA for
online sales support through their ‘Ask Anna’ facility.
• Integration of offline newsletter/catalogue with website to help build a brand. Today such
newsletters are more commonly delivered online.
Evolving business models in the Internet car sales market

Some of Internet retail’s magic-wand promises of an instant revolution appear to be drying up,
and perhaps nowhere is this more apparent than in the US auto retail market. Car web retailing
is in the midst of change – again. Take, for example, this headline from the industry trade
magazine, Automotive News, published in August: ‘Reports of the dealer’s demise appear to
have been premature’.
The first wave of web retailing of cars is already past with some very notable casualties,
including the cessation of operations at carOrder.com and doom-and-gloom parting shots by the
former head auto sales of Priceline.com.
Nevertheless, selling cars via the World Wide Web is far from dead. The model has simply
shifted back in favour of the traditional strengths of dealers, manufacturers and some mega auto
retail sites: access to a network of cars to sell.
The Internet was supposed to help consumers to bypass, if not to kill off, the unpleasantness in
buying a car: haggling with the car dealers.
Buyers would log on to the Internet, configure a car to their own specification, or just browse
and negotiate anonymously in serenity.
The promises came fast and furious. Venture capital was thrown at new ideas designed to sell
cars over the Internet.
Hopes were high all around except at the dealers, who became defensive at the thought of their
business being undermined. Many started to use the web for themselves.
Many harboured the suspicion that the big car manufacturers were manoeuvring to use the
Internet as a way of pushing dealers out in order to increase profits.
However, as many dot-com companies and ideas fall to earth, the shakeout has also changed the
initial perceptions of how cars would sell and who would sell them over the Internet.
The new thinking was crystallized by the recent resignation of Maryann Keller as the head of
the auto business of Priceline.com. Ms Keller, a former Wall Street auto analyst, who joined the
site with hopes of ‘revolutionizing’ car retail, left on a more disillusioned note.
‘For car buying, the Internet is an idea whose time has not yet come and may never’, she says.
77
Many industry analysts, however, see a bright future in online car retail on sites that can
actually improve the buying process, something not achieved by the web brokering or price-
naming model of Priceline.com.
That improvement could come with offering a searchable, unlimited virtual warehouse of cars.
This process, called Locate-To-Order (LTO), allows consumers to search an inventory of
dealers and the factory to find a match close to their desired specifications.
Transactions could occur through dealerships still, but demand could move close to supply with
customers able to reserve cars still on the factory line.
‘We think we are going to see an evolution of this process over the next few years’, says Baba
Shetty, senior automotive analyst at Forrester Research. ‘The Internet enables some fundamental
process improvements, but that doesn’t blow up the existing retail distribution system’.
Both General Motors and Ford have offered dealers an olive branch and started to build systems
heading in this direction. GM’s BuyPower.com launched in October a Minneapolis pilot
programme, where it linked Oldsmobile dealerships and offered e-prices. It plans to expand its
testing of this system.
Ford has launched a site, FordDirect.com, in which its dealers own an 80 per cent stake and
offer combined inventories with e-prices that vary according to region. Other early leaders
include AutoNation.com, and its AOL partnership, and Microsoft’s auto portal, CarPoint.com.
AutoNation, the US’s largest dealer holding group, says it will sell $1.5 billion in new cars
online this year, and is now running a system that could be considered a prototype for the
larger-scale LTO.
CarPoint.com has established 3000 dealer links with a relationship with Ford and has the
highest traffic of car sites to date. Right now, it only refers customers to dealers, but is likely to
change early next year.
Another big referral site, Autobytel.com, is thought likely to struggle if it does not change,
while direct sellers, such as Greenlight.com – which is linked with Amazon.com and finds cars
for buyers – also could gravitate to this model to compete.
In 5 years, Forrester Research estimates that 6.5 per cent of new vehicle sales, or $33 billion,
will happen over the Internet, compared with about 1 per cent, or $2.8 billion, currently.
Also, by 2005, Internet research is expected to influence 55 per cent of car sales, with 40 per
cent of buyers at least visiting an online selling site. In the meantime, data about vehicles being
sold on the Internet should be more detailed.
Source: Demise of Internet Car Sales is 'Premature' by Christopher Bowe, Financial Times,
8 December 2000. © Financial Times.
Questions
1. Evaluate the overall success of the Internet as a mechanism for car sales.
78
2. Which business models and revenue models appear to be effective on the Internet? Can
other success factors be identified?
3. Summarize the approach taken by the car manufacturers to the Internet marketplace.
Debate 5.1 E-business responsibility
1. A single person with specific e-business responsibility is required for every medium-
to-large business. It is not sufficient for this to be the responsibility of a non-
specialist manager.
• This needs a new approach to thinking and a new person to evangelize about the benefits.
• A distinct e-business manager can concentrate on strategic issues while IS manager will
also be involved in operational issues – additional resource is required.
• The IS manager may not be familiar with marketing and procurement/supply chain
management applications.
• E-business is a wide-ranging remit from buy-side to sell-side and inside – knowledge

management.
• Cost not warranted
• Danger of lack of clarity in direction
• IS manager will have required knowledge
• May be useful in short-term, but in long-term should become part of IS manager’s role.
Debate 5.2 The influence of IS managers
2. Board-level representation for IS managers is essential in the e-business era.
• IS is becoming increasingly important to influencing strategy and IS issues may affect

implementation of strategies.
• IS strategy needs to be aligned with business strategy – this is difficult to achieve if

importance of IS is not recognized.
• Other directors likely not to have specialist knowledge required.
• Many US companies find it useful to have CIO.
79
• IS not likely to influence business strategies – an enabler, but does not affect strategies
adopted.
• Not necessary if defined person has responsibility for example, finance director, operations
director.
• Only warranted in companies with technical products.
• Very few UK companies do have IS directors on board.
Exercises
1. What are the key characteristics of an e-business strategy model?
All strategy models should:
• Be based on assessment of internal and external environment.
• Have clearly defined SMART objectives backed up by vision.
• Have strategies, tactics and implementation that select the best techniques to achieve these
strategies.
• Have monitoring and control that assess whether the objectives are being achieved and a
feedback loop to ensure corrective action occurs.
For e-business in particular, the strategy objectives should define the balance of online and
offline trading with customers, suppliers and distributors. The tactics should look at how
investment in information systems and revising business processes should occur to hit these
targets.
2. Select a retailer or manufacturer of your choice and describe what the main elements of its
situation analysis should comprise.
Situation analysis is summarized in Figure 5.6, p251. It includes evaluation of the external
environment as described in Chapter 4 (SLEPT or PEST) and internal resources using
techniques such as SWOT, application portfolio analysis and also demand and competitor
analysis.
3. For the same retailer or manufacturer suggest different methods and metrics for defining
e-business objectives.
Objectives should be SMART. Examples of metrics are in Table 5.6, p268, for example:
• Revenue amount
80
• Revenue source (which geographical markets, segments and products)
• Acquisition and retention of particular segments
• New product development
• Cost and lead times that are part of the supply chain.
4. For the same retailer or manufacturer assess different strategic options to adopt for
e-business.
This refers to the types of decisions outlined in the strategy section of this chapter that is
• Decision 1: E-business channel priorities
• Decision 2: Organizational restructuring and capabilities
• Decision 3: Business, service and revenue models
• Decision 4: Marketplace restructuring
• Decision 5: Market and product development strategies
• Decision 6: Positioning and differentiation strategies.
1. Evaluate the range of restructuring options for an existing ‘bricks-and-mortar’ organization

to move to a ‘bricks-and-clicks’ or ‘clicks-only’ contributing a higher online revenue.
Students should discuss restructuring in terms of:
• Relationships with partners. This is described in this chapter in the decision sections on
p288. Refer students to Gulati, R. and Garino, J. (2000) reference. Options for
restructuring the supply chain and value chain are also discussed in Chapter 6 (e.g.
p332–334). The concepts of disintermediation and reintermediation should also be
referred to.
• Internal restructuring. This is included in the change management chapter (Chapter 10)
– discussion of options on p558.
The options for restructuring should be evaluated against the extent to which revenues are
achieved online (the online revenue contribution).
2. Explain the main strategy definition options or decisions available to an organization

intending to become an e-business.
This question is intended to enable students to study, in more depth, the types of decisions
outlined on p275, that is
81
• Decision 1: E-business channel priorities
• Decision 2: Organizational restructuring and capabilities
• Decision 3: Business, service and revenue models
• Decision 4: Marketplace restructuring
• Decision 5: Market and product development strategies
• Decision 6: Positioning and differentiation strategies.
3. Between 1994 and 1999 Amazon lost more than $500 million, but at the end of this period
its valuation was still more than $20 billion. At the start of 2000 Amazon.com underwent its
first round of job cuts, sacking 150 staff or 2% of its worldwide workforce. Later in 2000 its
valuation dropped to less than half.
Write an essay on the strategy of Amazon.com exploring its history, different criteria for
success and its future. See the Wired Magazine archive for profiles of Amazon
(www.wired.com).
Amazon is now available as a case study ‘Case Study 12.1 Learning from Amazon’s culture of
metrics’ and further commentary is available via Techcrunch (www.techcrunch.com).
Amazon is the bellwether of the new economy and as such has been analyzed in depth. Students
should be encouraged to update themselves on the latest fortunes of Amazon from a source such
as Findarticles (www.findarticles.com) or Google Scholar (http://scholar.google.com/). Issues
that students can address in this question include the following:
• The importance of brand recognition and loyalty (generally reckoned to give good on-site
and post-sales customer service).
• The promotion strategy (use of affiliates and offline advertising)
• The focus strategy – initially books/CDs and then diversification into a range of products
including white goods.
• The distribution/fulfilment strategy (Amazon has had to invest in large warehouses in the
United States).
• The growth strategy.
• The technology strategy to produce customer service, for example, One-click ordering,
recommendations, search facilities.
4. Analyze the reasons for the failure of the original boo.com. Research and assess the
sustainability of the new boo.com business model.
Similar sources should be used to assess Boo.com. Issues to discuss include:
• Positioning and targeting of segments
82
• Use of expensive offline advertising to build brand
• Use of technology to offer 3D viewing of clothes.
The criteria for dot-com success referred to in Chapter 2 (p80) can be used here to evaluate Boo,
that is
i. Concept
ii. Innovation
iii Execution
• promotion – online or offline techniques are insufficient to attract sufficient visitors to the site;
• performance, availability and security – some sites have been victims of their own success
and have not been able to deliver fast access to the sites or the technical problems have
meant that the service is unavailable or insecure. Some sites have been unavailable despite
large-scale advertising campaigns due to delays in creating the website and its supporting
infrastructure;
• fulfilment – the site itself may be effective, but customer service and consequently brand
image will be adversely affected if products are not dispatched correctly or promptly.
iv. Traffic
v. Financing
vi. Profile.
5. What can existing businesses learn from the business approaches of the dot-com
organizations?
Reference to the six factors listed above (i to vi) could be used as a structure for this question
(p80–81) that is
i. Concept. The need to introduce new business concepts, assess potential business, marketing,
distribution and revenue models.
ii. Innovation. See (i). The flexibility and dynamism of dot-coms to rapidly respond to market
opportunities and threats.
iii. Execution.
• promotion – innovative techniques for example, affiliates, viral marketing
• performance, availability and security – the need to get these right
• fulfilment – same as above
83
iv. Traffic. Combination of online and offline techniques
v. Financing. Possible new financing sources and the use of joint ventures/partnerships to
achieve growth.
The Q1 2001 McKinsey Quarterly article ‘Lessons from e-marketing failures’ – see
www.mckinseyquarterly.com may also help with this question.
6. What are the similarities and differences between the concepts of business process re-
engineering (BPR) and e-business? Will the e-business concept face the same fate as BPR?
This question examines e-business as a faddish management concept. You can review how
similar concepts such as BPR and TQM are introduced to much acclaim and then fade. Given
that these are more than 10 years old, students can assess how these have been adopted and are
still used as part of management practice. Students should evaluate the similarities and
differences of BPR and e-business. Similarities include process focus, radical transformation of
processes and the role of technology in transformation. Differences include internal and
external focus of e-business – involving dynamic links to partners through value networks. BPR
is considered in Chapter 10, where it is noted that a more conservative approach to innovation
(BPI) has been adopted by many companies.
7. Discuss this statement by David Weymouth, Barclays Bank chief information officer
(Simons, 2000b):
‘There is no merit in becoming a dot-com business. Within five years successful businesses
will have embraced and deployed at real-scale across the whole enterprise, the processes
and technologies that we now know as dot-com’.
This quotation is also relevant to Questions 5 and 6. It suggests that gradually all businesses will
move towards an e-business. One approach to this is to look at the elements of a successful dot-
com (Question 5). An alternative approach is to look at stage models discussed in p248. You
can also look at the data from the DTI International Benchmarking study. The historical data
suggests that companies are gradually moving towards e-business. Refer to the four steps of
Figure 5.4.
8. Compare and contrast different approaches to developing e-business strategy.
This question calls for a wide literature review to assess overall approaches to e-business
strategy suggested by different authors. The sources on pp266–304 such as Hackbarth and
Kettinger, Kalakota and Robinson, Venkatraman and Plant can all be used to illustrate different
approaches. Students should use tables and figures of alternative strategy process models to
discuss these differences as in Activity 5.1 on p247.
These are all long examination questions requiring at least 30 minutes to answer.
1. Define the main elements of an e-business strategy.
The answer should start with definition of e-business, distinguishing it from e-commerce (see
Chapter 1). You should then look at elements of strategy using traditional strategy process
models such as those of Johnson and Scholes and Lynch described on p241. You can then
84
look at elements of strategy process as indicated by Figure 5.4 on p248 and details in
subsequent figures in Chapter 5 (e.g. Figure 5.5, p250; Figure 5.11, p262; Figure 5.14, p271 and
Figure 5.19, p280).
2. You are the incumbent e-business manager for a domestic airline. What process would you
use to create objectives for the organization? Suggest three typical objectives and how you
would measure them.
Scenario style questions such as this can be used to assess students on a range of e-business
issues. Section on p284 is relevant to this question. The answer should start by emphasizing the
importance of objectives in strategy process that is, to help guide strategy and tactics and
measure its enactment. Attributes of successful attributes can then be articulated (SMART).
Three objectives should be from:
• Online revenue contribution (direct)
• Online revenue contribution (indirect – reach of site in influencing sales)
• Role of site in supporting post-sale customer services (percentage of enquiries, clear-up

online)
• Role of intranet/extranet in managing operational aspects of airline such as staff rostering or

catering.
3. Explain the productivity paradox and its implications for managers.
This concept is described on pp 299–300. ‘Research results indicating a poor correlation

between organizational investment in information systems and organizational performance
measured by return on equity’. Students should note arguments for and against its existence. Its
implications are for companies to carefully assess the cost/benefit for investment in all IS and
particularly major initiatives such as e-business. The assessment should be based on business
impacting and aligning techniques described in this chapter. A further implication is the need
for successful implementation in terms of analysis and design to meet business requirements and
change management through education and training.
4. What choices do executives have for the scope and timeframe of implementing e-business?
This question is similar to essay Question 1 – essentially mix of ‘bricks and clicks’. You can use
the online revenue contribution to discuss this or the adoption ladder of Figure 1.14, p37.
Introduction can occur using piloting approaches for a particular process, department, area or
country where new systems are used in parallel with older approaches perhaps then followed by
a big-bang transnational rollout.
85
Activity answers
Activity 5.1 Selecting an e-business strategy process model

Q. Review three or four strategy process models that you have encountered. These could be
models such as those shown in Table 5.1. Note that columns in this table are independent –
the rows do not correspond across models.
1. What are the strengths and weaknesses of each model?
(a) 1: Strategy is based on thorough environment analysis, clear statement of vision and
objectives, emphasizes the feedback loop necessary for control.
2: Implies protracted, non-responsive strategy development that is not sufficiently dynamic.

Strategy development process is not emphasized.
(b) 1: Highlights detailed elements of analysis and strategy development.
2: Does not highlight sequence in process. Importance of objective setting and control not
emphasized.
(c) 1: A dynamic responsive model that highlights the importance of continuous environment
scanning in e-business.
2: Does not emphasize the detailed strategy development elements of (a) and (b).
2. What common features do the models share? List the key elements of an appropriate
strategy process model.
Study of the four models suggests that the following elements are significant:
One: Continuous internal and external environment scanning or analysis is required.
Two: Clear statement of vision and objectives required.
Three: Strategy development can be broken down into formulation and selection.
Four: After strategy development, enactment of the strategy occurs as strategy
implementation.
Five: Control is required to detect problems and adjust the strategy accordingly.
In addition, the models suggest that these elements, although generally sequential, are also
iterative and require reference back to previous stages.
Activity 5.2 Assessing the significance of digital channels

No suggested answer supplied.
86
Activity 5.3 E-business strategies for a B2C company
1. Review the summaries of the approaches recommended by IDC Research below (Picardi,
2000). Which elements of these strategies would you suggest are most relevant to a B2C
company?
2. Alternatively, for a company with which you are familiar, review the eight strategy
decisions within this section.
In brief, it can be suggested that the first three strategies apply to most organizations, and in
particular to B2C organizations. The attack e-tailing and defend e-tailing approaches do not
have to be mutually exclusive and can be applied to most commodity products such as books,
holidays and records. However, it is arguable whether a purchaser of kitchenware in a B2C case
would be that price sensitive. In this case the emphasis on trust leading to loyalty as suggested
by the defend e-tailing approach would be most relevant.
Activity 5.4 E-business investment types
1. Referring to the four investment categories of Robson (1997), discuss in groups which
category the following investments would fit into:
(a) E-procurement system.
(b) Transactional e-commerce website.
(c) Contract with ISP to host web server and provide Internet connectivity for staff.
(d) Workflow system to manage complex customer orders (e.g. processing orders).
(e) Upgrading a company network.
You will notice that the categories are not mutually exclusive.
(a) E-procurement system. This is an operational system, but as will be shown in Chapter 8,
the potential cost savings are such that this could also be considered to be a strategic
value investment.
(b) Transactional e-commerce website (Chapter 9). This is a customer facing system which,
if it increases the customer base of a company, can be considered to be a strategic value
investment. Within the e-business era, it can be thought of as a threshold investment to
remain competitive.
(c) Contract with ISP is to provide Internet connectivity for staff. It is an infrastructure
investment, with elements of threshold investment and operational investment.
(d) Workflow system to manage complex customer orders (e.g. processing orders). This
may appear to be an operational investment, but since it is a customer facing system that
should improve customer service, it can be viewed as a strategic value investment.
(e) Upgrading a company network is an infrastructure investment. If you think it is
unrealistic to decide on just two investments, this is a genuine problem faced by many
companies. An information system manager at a regional airline described how they had
an applications backlog numbering more than 100 of which only 20 or so could be
87
funded immediately. The e-procurement system and transactional website are clearly
the best strategic value investments.
2. Assume you only had sufficient funds to invest in two of these options. Which two would you
choose?
Discuss the balance of cost-efficiencies and incremental revenue for these options.
88
CHAPTER 6
Supply chain management
Table of contents
Case studies 91
Exercises 96
Activity answers 101
Learning outcomes
• Identify the main elements of supply chain management and their relationship to the value
chain and value networks
• Assess the potential of information systems to support supply chain management and the
value chain.
Management issues
The issues for the manager:
• Which technologies should we deploy for supply chain management and how should they
be prioritized?
• Which elements of the supply chain should be managed within and beyond the organization
and how can technology be used to facilitate this?
• What are the practical issues with online supply chain management?
89
Chapter at a glance
Main topics
• What is supply chain management?
• Options for restructuring the supply chain
• Using e-business to restructure the supply chain
• Supply chain management implementation
Focus on…
• The value chain
Case studies
• 6.1 Shell Chemicals redefines its customers’ supply chains
• 6.2 Argos uses e-supply chain management to improve customer convenience
• 6.3 RFID: keeping track starts its move to a faster track
Supply chain management (SCM) is a significant topic within operations management courses
and modules, but students may have limited exposure to this topic. Given this, the approach here
is to outline the key concepts of SCM for those who are unfamiliar, or as a refresher for those
who are familiar. Each of these concepts is then placed in an e-business context describing how
technology can support enhancement of the supply chain.
1. Benefits and challenges of e-business supported supply chain management.
Introduce through Box 6.1, Figure 6.1 and Table 6.1.
2. What is the supply chain?
Figure 6.2 can be used to illustrate the elements of a simple supply chain, with Figure 6.3 and
Figure 6.5 introducing more complexity, but not showing the role of second and third tier
suppliers. Figure 6.8(a) relates the supply chain to the value chain and shows the role of
inbound and outbound logistics.
The related concept of the value chain is reviewed in the Focus On section on p325. Figure 6.8
(b) can be used to illustrate the limitations of this model to service organizations where Figure
6.8(b) becomes more appropriate than Figure 6.8(a). The move from a single value chain to a
dynamic value network is an important change facilitated through e-business. This is illustrated
by Figure 6.9.
90
3. Restructuring the supply chain.
IT-enabled options for restructuring the supply chain are summarized in Figure 6.10.
4. The role of IS in revising SCM
This can be illustrated in a meaningful way to students by presenting Figure 6.12. These show
the adoption of e-business applications. In a seminar, students could be asked to relate these to
the ‘ladder of e-business adoption’ from Chapter 5.
Benefits that IS can bring to SCM are summarized on pp336–337 illustrated on the buy-side by
the Shell Case Study 6.1 on pp318–322 and on the sell-side by the Marks and Spencer
additional case below. The supermarket-related case is chosen to help students relate to SCM
issues.
Case studies
Case Study 6.1 Shell Chemicals redefines its customers’ supply chains
Questions
1. The SIMON system supports both ‘upstream and downstream’ business relationships.
Explain how this relates to Figure 1.1 and whether you would consider it an e-commerce
system or an e-business system.
The upstream relationships with suppliers equate to the buy-side e-commerce on the left side of
Figure 1.2 and the downstream relationships with customers are equivalent to the sell-side e-
commerce on the right side of Figure 1.2. The SIMON system can be best considered as two
separate e-commerce systems, one set up for suppliers and the other for customers. The two
systems do not appear to be linked. Indeed, the case study refers to the need for the Shell
customer service representative to enter the customer order information into the Shell
production system (an SAP enterprise resource planning system). If this information was
seamlessly integrated with the SAP system for the Shell internal business processes, then this
could be considered an e-business system. It also appears that paper invoices are still generated
and payment is not made electronically as would be expected for an e-business system.
2. Draw a table summarizing the before and after implementation roles for Shell and their
customers (downstream side).
See table below

Before After
Customer manages danger stock levels Shell manages danger stock levels
Customer places order Shell enters order info into SAP
Shell dispatches order
Customer pays multiple invoices Shell dispatches single invoice
91
3. This description of SIMON is explained from the Shell perspective. Using your answer to
question 2, state whether you think the customer truly benefits, or is Shell transferring some
of its workload to the customer?
This is a recurring theme in e-commerce – the concept of customer self-service is an attractive

one for suppliers, but may result in more work for the customers increasing their costs. Here, the
benefits seem to favour both customer and supplier.
4. Visit the Shell Chemicals website (www.shellchemicals.com). How are the benefits of these
facilities explained?
At the time of writing, only limited online sales support via e-mail was available from the
website. As the article explains, this facility is only available to a limited number of large
customer accounts. The benefits of such a system will be communicated via word-of-mouth by
sales representatives or account managers who will be in close contact with customers and
suppliers.
Case Study 6.2 Argos uses e-supply chain management to improve

customer convenience
Questions
1. Explain how Argos uses supply chain management to improve the proposition for their
customers.
2. What do you think are the factors that have made Argos successful within their
multichannel retail strategy?
Case Study 6.3 RFID: keeping track starts its move to a faster track
Question
Q. Select a manufacturing sector and then evaluate the benefits and risks of applying RFID in
this sector.
Benefits may include:

• Improved accuracy of inventory management enables lower inventory levels to be
managed.
• Better track can reduce fraudulent loss.
• Cost reduction through less human intervention for tracking.
Risks:
• Length of time for return-on-investment.
• Privacy concerns where RFID is used for tracking in retail outlets.
• Fraud changing RFIDs.
92
Applying innovative technology to the supply chain at Marks

and Spencer
This case shows how UK clothing retailer is using web-based technologies such as
Microsoft.Net and XML to improve supply chain management. The benefits are outlined in the
article. The questions at the end of the case prompt discussion of problems with early adoption
of new technology (which was relatively untried when the retailer was implementing it).
Consider this London scenario: a high-spending sheikh scoops up a sizable proportion of the
lingerie at Marks & Spencer’s Marble Arch store – a far from uncommon occurrence – and
within minutes the regional distribution centre (RDC) is made aware and re-allocates products
now being picked to fill the shortfall.
Or the Moorgate branch finds sudden overwhelming demand for avocado and bacon sandwiches
before noon, and by 1 pm the empty item has been restocked. While Marks & Spencer is still a
way from achieving this sort of real time response to the unexpected, it has put in place an
infrastructure which will allow it to do so and is already working towards achieving a real time
supply chain within the foreseeable future.
At the heart of the operation is a Microsoft.Net infrastructure which collects transactional data
from supermarket tills and transfers it to central data warehouses for use throughout the
organization within 10 minutes of the sale being made. ‘We put the infrastructure in place to
improve sales reporting’, says Neil Herbert, project manager in Marks & Spencer’s
infrastructure development group. ‘But once it was there, we began to appreciate the many other
possibilities available to the business’.
The first application to go live was Profit Protection.Net. This tracks transactional data, in real
time, looking for potentially fraudulent events and then uses SMS messaging to alert in-store
security staff (see article in May 1st issue of FT-IT).
Next on the project list has been the supply chain. ‘The key to real time supply chain is the
infrastructure’, says Simon Wood, head of demand management within Marks & Spencer’s IT
group. ‘We have that enabler in place so can now move forward on a piecemeal basis looking at
where we can achieve the best returns’.
First on the list has been the hanging garment sorting system at its Hardwick distribution centre
near Birmingham. The unit is already XML-enabled so it has been easy to link it to the .net
infrastructure. The warehouse management system – known as MUWS (multi-user warehouse
system) – is mainframe-based and is used by all the company’s third party logistics service
providers who run the warehouse operations.
Information about goods arriving at the centres is now passed automatically via XML to both
MUWS and central systems giving a real time view of stock availability. This automates the
laborious order and invoice matching process and ensures that suppliers are paid more quickly.
It also helps fast track items in short supply directly to the stores that need them.
93
The system is being extended to all RDCs during this year. ‘It is already giving us much more
visibility in the supply chain’, says Mr Wood. ‘We can see where stock is and where demand is
greatest’.
That visibility is also being expanded with a .net-enabled planning system under development
with Compass Software. The system will mean that merchandisers can access and change
allocation plans from any device, such as laptops or Pocket PCs, anywhere and at any time in
response to changing demand patterns. ‘The basic components are ready’, says Ian Bowater,
chief executive of Compass, ‘and we expect to roll out over the next 12 months’.
As well as speeding up the supply of fashion garments, M&S is also looking at the real time
benefits for short-life food products. ‘We’re already working on improving availability of salads
and sandwiches’, says Mr Herbert. ‘We can see how demand is building at any stage during
rush hours – without having to wait for an end of day report on sales. This means we can adapt
orders more flexibly to match demand’.
The aim is to pass more accurate forecast demand information to suppliers for next day delivery,
but for stores with a very high turnover and several deliveries during the day, this information
could ultimately affect same day delivery patterns. ‘It is helping us to become more dynamic’,
he adds, ‘so that we can work with suppliers to re-route merchandise to different depots and
change allocations as and when need be’.
Although Marks & Spencer has used EDI (electronic data interchange) for decades, the new
infrastructure is driving a move to XML messaging, which is bringing smaller suppliers into the
system. ‘By the end of the year we want to start looking at extending the supply chain visibility
back along the pipeline to improve responsiveness to customer demand and optimize the selling
opportunities at full price’, says Mr Wood.
Source: An Enhanced Response to Customer Demands by Penelope Ody, 19 June 2002.

© Financial Times.
Questions
1. Referring to the article and other sources which help explain new technology such as
Whatis.com (www.whatis.com) explain how .NET and XML can help improve supply chain
management.
XML and .net technologies are intended to facilitate sharing of data between different parts of
the supply chain. Here, data is shared across different platforms such as PDAs to servers
managing stock control in store and the regional distribution centres. This achieves better
information flow for real time ordering of goods and also reporting.
2. Assess the risks of being an early adopter of new technology such as .NET and suggests
steps that can be taken to reduce the risk.
As with many such articles reporting the benefits of new technology, the article does not
evaluate the risks. Practical problems with implementing such new technology include:
• More bugs than established systems leading to more downtime and poor customer
experience. Early adopters are undertaking testing.
94
• Less flexibility – new systems do not have the full range of features of more established
systems.
• More costly to implement – developers with working knowledge of new technologies such
as XML or .net will command a premium.
Debate 6.1 New value chain models
The traditional value chain model of Michael Porter (Figure 6.4(a)) is no longer useful as a
framework for value chain management. Instead, Figure 6.4(b) is more appropriate.
Summary of arguments for:
• Customer focused – driven by market research
• More representative of key processes
• Representative of information flows in organization.
Summary of arguments against:
• May be appropriate for service-oriented organizations, but Figure 6.8(b) still most important
for manufacturers
• Negates support roles such as HR and IS.
Debate 6.2 Virtual integration and outsourcing of core processes
The success of companies such as Dell in outsourcing and virtual integration suggests
that all companies need to adopt this model in order to be competitive.
• Success in marketplace – Dell has outperformed rivals such as Compaq, IBM and HP,
which originally had the largest market share
• Model works best in global marketplace
• Dell approach needed for cost advantage.
• Still need to keep core processes in-house – for Dell this is design, marketing and support
functions
• Only appropriate for some businesses – less true for FMCG brands or services organizations
• Needs careful management of partners.
95
Exercises
1. Define supply chain management; how does it relate to:
• logistics;
• the value chain concept;
• value networks?
Supply chain management (SCM)
The coordination of all supply activities of an organization from its suppliers and partners to its
customers.
Logistics – large overlap according to definition from Institute of Logistics and Transport:
‘Logistics is the time-related positioning of resource, or the strategic management of the total
supply chain. The supply chain is a sequence of events intended to satisfy a customer. It can
include procurement, manufacture, distribution and waste disposal, together with associated
transport, storage and information technology’.
Value chain concept – has similar components such as inbound and outbound logistics,
production and sales and marketing, different orientation which is how to deliver customer
value, plus separate identification of secondary activities such as HR and IS.
Value networks – interactions between different value chains of a range of organizations.
2. What is the difference between a push orientation to the value chain and pull orientation.
A change in supply chain thinking, and also in marketing communications thinking is the move
from push models of selling to pull models or combined push–pull approaches. The push model
is illustrated by a manufacturer who perhaps develops an innovative product and then identifies
a suitable target market. A distribution channel is then created to push the product to the market.
This situation is shown in Figure 6.8(a) where it can be characterized by the statement ‘This is a
great product, now who shall we sell it to’? or the quip about the original model T Ford – ‘you
can have any colour, so long as it is black’. The typical motivation for a push approach is to
optimize the production process for cost and efficiency.
3. How can information systems support the supply chain?
Information systems are used to increase the efficiency of information flow by:
• delivering more information (e.g. sales data in Tesco TIE system).
• analyzing information (e.g. alerting a large order).
• delivering it more rapidly (e.g. reduced lead times in e-procurement).
96
4. What are the key strategic options in supply chain management?
• How to restructure supply chain (vertical integration/disintegration/virtual integration).
• How to restructure (disintermediation, reintermediation, countermediation).
• How to restructure relationships in a value network.
• New procurement models, for example, auctions and B2B exchanges.

1. How does electronic communications enable restructuring of the value chain network?
Structure:
• Review elements of old and new value chain models (Figure 6.8) for context
• Review value network characteristics that is, dynamic formation; move to outsourcing
• Assess options for restructuring: push vs supply models; vertical integration vs disintegration
vs virtual integration and partnership management and value networks.
2. The concept of a linear value chain is no longer tenable with the advent of electronic
commerce. Discuss.
A similar approach can be used to Question 1.
3. Select an industry of your choice and analyze how business-to-business exchanges will
change the supply chain.
Examples that could be chosen include:
• Covisint in motor industry (Ford, DaimlerChrysler and GM). Here, former exchanges
created by Ford (AutoXchange) and GM (Tradexchange) have merged. Tait (2000) reports
on research that suggests between $1000 and $3600 savings on a $26,000 car could be
achieved for a car where all purchasing from manufacturer and end-customer is completed
electronically. By the end of 2000, Covisint already had completed $200 million.
• WorldWide Retail Exchange (Kingfisher, Kmart, Marks and Spencer).
• T2 US airline trading exchange.
• GlobalNetExchange (Retailers Sears and Carrefour). Note that Transora has been created by
50 of the world’s major FMCG suppliers including Coca-Cola and Kelloggs in response to
retailers.
• PaperX. Paper industry designed for one-to-one deals.
97
An answer to this question should:
• Introduce the characteristic nature of procurement in this industry.
• List neutral and company-backed exchanges currently available and contrast to use of buy-
side and sell-side options. Include generic cross-industry exchanges and industry-specific
exchanges.
• Through cases illustrate the pluses and minuses of exchanges referred to in the previous
questions.
• Use industry-wide survey data and published exchange financial reports to assess actual use
of exchanges.
• Assess future prospects – what rationalization is likely to occur – many articles suggest that
only one or two players are possible in each sector.
4. ‘In the end business all comes down to supply chain vs supply chain’. Discuss.
This question prompts discussion of the significance of SCM in the context of other aspects of
management, in particular corporate strategy and marketing. Marketers argue that the marketing
concept and customer-led strategy as suggested by Figure 6.8(b) is the most appropriate choice
since this involves assessing demand through market research and then devising products and
communications to satisfy demand. For marketers, efficiency of the supply chain may help
financial performance of the business, but does not create new customers. Supply chain
managers argue that increasing the overall efficiency of the supply chain can be used to deliver
customer value by enabling faster, more personalized new product development and on-time
delivery of quality products to customers. These factors are all likely to increase customer
satisfaction and so loyalty. Perhaps a more valid statement is that it comes down to value chain
vs value chain since this emphasizes delivery of value to customers in different segments.
5. Select a retailer of your choice and analyze their strategy for management of the upstream
and downstream supply chain.
Concepts that should be included are as follows:
• Push vs supply models.
• Vertical integration vs disintegration vs virtual integration.
• Partnership management and value networks.
• Procurement and fulfilment strategies.
1. Explain how the concepts of disintermediation, reintermediation and countermediation
apply to the supply chain.
Definition of each of these:
98
Disintermediation
its customers.
Reintermediation
The creation of new intermediaries between customers and suppliers, providing services such as
Countermediation
Creation of a new intermediary by an established company.
Explain how they can occur in the upstream supply chain or downstream supply chain, for
example?
Disintermediation upstream, buying direct from supplier; downstream selling direct to customer.
Reintermediation upstream – using a B2B exchange, downstream representation on new

intermediary.
Countermediation upstream – creating/backing a supplier exchange, downstream

creating/backing a new portal for promotion/distribution to customers.
2. You have recently been appointed as supply chain manager for a pharmaceutical company.
Summarize the main Internet-based applications you would consider for communicating
with your suppliers.
• Direct through EDI.
• Direct through sell-side catalogue system.
• Direct through buy-side bid and tendering system.
• Direct through real time system (e.g. Tesco suppliers).
• Indirect through intermediary.
3. How has the increase in electronic communications contributed to the development of value
networks?
Definition of value network:
‘The links between an organization and its strategic and non-strategic partners that form its
external value chain’.
Electronic communications make it easier to form and reform links with partner, for example, to
create a virtual company to deliver a project or to select new suppliers or channel partners.
99
4. What are the characteristics of a virtual organization? Using examples, explain how e-
commerce can support the virtual organization.
Definition:
An organization which uses information and communications technology to allow it to operate

without clearly defined physical boundaries between different functions. It provides customized
services by outsourcing production and other functions to third parties.
E-commerce can support the delivery of services since it allows the virtual organization to form
rapidly and then conduct the transactions necessary for its function. An example is a team of
global companies forming to deliver an engineering contract. Communications can be used to
prepare the bid and then deliver the services through exchanging technical designs and project
management material.
5. Explain how information technologies can be employed for different elements of a

purchaser–supplier relationship.
This is covered in Chapter 7, see Figure 7.3:
a. Originator request and selection (integration with catalogue systems).

b. Manager authorization.
c. Buyer places order.
d. On delivery warehouse reconciles order and delivery (integration with account and
warehouse systems).
e. Payment (integration with accounting applications).
6. Using industry examples, summarize three benefits of using e-commerce to streamline the
supply chain.
Main benefits:
1. Increased efficiency of individual processes. Here the cycle time to complete a process and
the resources needed to execute it are reduced. If the B2B company adopts e-procurement,
this will result in a lower cycle time and cost per order as described in Chapter 7.
Benefit: reduced cycle time and cost per order as described in Chapter 7.
2. Reduced complexity of the supply chain. This is the process of disintermediation referred to
in Chapter 2. Here the B2B company will offer the facility to sell direct from its e-
commerce site rather than through distributors or retailers.
Benefit: reduced cost of channel distribution and sale.
3. Improved data integration between elements of the supply chain. The B2B company can
share information with its suppliers on the demand for its products to optimize the supply
process.
Benefit: reduced cost of paper processing.
100
4. Reduced cost through outsourcing. The company can outsource or use virtual integration to
transfer assets and costs such as inventory holding costs to third party companies.
Technology is also an enabler in forming value networks, and in making it faster to change
suppliers on the basis of cost and quality.
Benefits: lower costs through price competition and reduced spend on manufacturing
capacity and holding capacity. Better service quality through contractual arrangements.
7. How can electronic commerce be used to support restructuring of the supply chain?
Review options for restructuring, that is:
• Vertical integration vs disintegration vs virtual integration (information exchange).
• Disintermediation (selling or buying direct), reintermediation (using intermediaries in the

upstream or downstream value chains), countermediation (using company-supported
intermediaries upstream or downstream).
8. What are the differences and similarities of using information technology to support:
(a) the upstream supply chain
(b) the downstream supply chain?
Can use new intermediaries in both (a) and (b) and can also achieve disintermediation in (a)
and (b)
Activity answers
Activity 6.1 A supply chain for a typical B2B company

1. Referring to Chapter 2 and the section on disintermediation and reintermediation, discuss
the opportunities for a B2B company to restructure its supply chain as part of the move to
e-business, and the benefits this may bring.
Upstream supply chain:
• Disintermediation offers the opportunity to buy direct from the supplier with reduced costs
and shorter cycle times.
• Reintermediation offers the chance to use business-to-business exchanges to source

products at lower costs.
Downstream supply chain:
• Disintermediation offers the opportunity to sell direct to the customer with lower cost of
sales and improved lead time for customers.
• Reintermediation offers the opportunity to compete in new marketplaces through B2B

exchanges.
101
A more detailed discussion can review the different options for distintermediation and
reintermediation.
2. How can information systems be used to accomplish the changes you have identified in
Question 1?
Without any restructuring of the supply chain technologies, such as e-mail, web-based ordering,
EDI and order-tracking can be used to reduce costs and cycle times. Disintermediation and
reintermediation options are also facilitated through e-mail, websites, EDI and e-commerce.
Activity 6.2 Supply chain models in personal computer manufacture

1. Review the approaches of the two companies illustrated below. Which tends to vertical
integration and which tends to virtual integration?
Approach 1. IBM. Vertical integration. Approach 2. Dell. Virtual integration.
2. Produce a table summarizing the benefits and disadvantages of each approach. Which do
you think is the better approach?
Some of the main advantages and disadvantages are shown in a table.
Advantages and disadvantages of vertical integration and virtual integration

Approach 1. IBM. Vertical integration Approach 2. Dell. Virtual integration
Advantages Disadvantages Advantages Disadvantages
Control of Less pressure on Excellent control of Less direct control
manufacturing quality manufacturing costs costs through supplier on quality (although
competition can swap to other
suppliers)
Lower overhead in Costs of systems all Fewer assets. Costs Emphasis on
dealing with third borne by of inventory borne by management of
parties (easier to manufacturer suppliers. Costs of suppliers
integrate systems data integration
internally) shared with partners.
– More responsive to More responsive to –
short- and medium- short- and medium-
term market demand term market demand
variations variations
The market success of Dell suggests their approach is superior.
3. How can information systems facilitate each approach?
Information systems can help both situations through using enterprise resource planning
systems, EDI and groupware systems to integrate market research, product design, sourcing,
material requirements planning, production, warehousing and distribution. As pointed out in the
table it may be easier to integrate systems with vertical integration, but more of the cost is borne
by the manufacturer.
102
Activity 6.3 An e-SCM performance management framework

In a large group, each pair of students should take one of the categories of measures and then
discuss:
1. How information systems can help improve performance.
2. The constraints that may limit performance improvements.
103
CHAPTER 7
E-procurement
Table of contents

Case studies 106
Exercises 112
Learning outcomes
After reading this chapter the reader should be able to:
• Identify the benefits and risks of e-procurement
• Analyze procurement methods to evaluate cost savings
• Assess different options for integration of organizations’ information systems with

e-procurement suppliers.
Management issues
Managers will be concerned with the following e-procurement issues:
• What benefits and risks are associated with e-procurement?
• Which method(s) of e-procurement should we adopt?
• What organizational and technical issues are involved in introducing e-procurement?
104
Chapter at a glance
Main topics
• What is e-procurement?
• Drivers of e-procurement
• Barriers and risks of e-procurement adoption
• Implementing e-procurement
• The future of e-procurement?
Focus on…
• Estimating e-procurement costs
• B2B marketplaces
Case studies
• 7.1 Cambridge Consultants reduce costs through e-procurement
• 7.2 Covisint – a typical history of a B2B marketplace?
Purchasing and procurement are topics that tend to be poorly represented in generic
undergraduate and some postgraduate business courses. Given this, this chapter takes the
approach of first explaining what procurement is and then reviewing what its benefits and risks
to business are. To help explain this, it lends itself to simple spreadsheet modelling, examples of
which are included.
Approach:
1. What is e-procurement?
Achieving the five rights of e-procurement
Illustrating the process by Figure 7.1
Using Mini Case 7.1 on Schlumberger to show its applications.
2. Benefits
These, and the need for re-engineering, are illustrated well by Activity 7.1 which uses flow-
process analysis and is a good seminar activity.
Case Study 7.1 on Cambridge Consultants case is excellent for highlighting benefits.
105
Activity 7.2 is also useful for showing how the benefits are calculated.
3. Risks
Risks associated with marketplace are a major issue for e-procurement since they enable
competition between suppliers to drive prices down. Mini Case Study 7.3 gives the example
of Alibaba. The Focus On section discusses the likely significance of these. The additional
case study also reviews this topic.
Case studies
Case study 7.1 Cambridge consultants reduce costs through

e-procurement
Questions
1. Given the scale of the purchasing operation at Cambridge Consultants, what benefits do
you think e-procurement has brought?
The large number of suppliers (4000) and range of items (needed for over 120 projects) mean
that many purchases are made annually. If it is possible to reduce the cost of each one, then
large potential for financial savings may be possible. Through using e-procurement it is also
possible to reduce the cycle time for ordering items for products that will help achieve on-time
completion of projects and satisfied customers.
2. Why are procurement costs currently as high as £60 to £100 per order?
Procurement costs are high since there are many stages involving identification of the need for
paperwork together with hand-offs between up to 8 and 10 staff in the process.
3. How are procurement costs reduced through e-procurement?
E-procurement enables distributed purchasing that requires less involvement from purchasing
staff and hence faster ordering. The use of paper has been eliminated. Combined reductions in
staff time and physical resources help to reduce purchase costs to an average of £10 per order.
4. What staff benefits accrue to Cambridge Consultants as a result of e-procurement?
The benefits to the internal customers at Cambridge Consultants include ordering whenever
required (out-of-hours) and more flexibility in the delivery of different items meaning that
urgent items can be delivered more rapidly since they are not awaiting other elements of a
combined order.
Case Study 7.2 Covisint – a typical history of a B2B marketplace?
Questions
Q By reviewing the case study and examples of the different supplier portals available on
Covisint (www.covisint.com) explain why Covisint has prospered as a supplier of
106
e-procurement portals and business document data exchange rather than as a neutral
marketplace.
The backing of several major manufacturers willing to try out a new approach initially provided
sufficient economy of scale for the exchange to be successful. Suppliers have no choice but to
participate because of the strength of the customers.
The companies did not see sufficient benefits of the neutral marketplace, instead requiring
technology to support their own supplier relationships. This is what Covisint provides today.
Worldwide oil exchange – the Shell perspective

On 5 July 2000, the world’s biggest online exchange started trading. In all, 14 oil and gas
companies like BP, Statoil, Conoco, Tosco, Unocal and Shell, with a combined annual spend of
$125 billion started to buy what they need to stay in business over the Web. The oil, gas and
petrochemical exchange is the latest in the global rush to electronic procurement that is already
being pursued by the aerospace, automobile and telecom industries. Setting up of the exchange
was agreed after a 40-minute discussion in January, and announced on 11 April.
So why are all the partners so keen? ‘The real key to e-procurement is the completeness of the
data’, says Chris Miller, group adviser of strategic sourcing at Shell International. ‘All the
procurement flows through a common database where you can analyze what’s going on in order
to make better commercial decisions’. ‘The competitive advantage goes to those who become
masters of the data created and make the best procurement deals’, he added.
‘To date there have been buyers facing off to suppliers individually’, says Miller. Now they will
be facing off in a marketplace. In the exchange, the catalogues will be maintained by suppliers
who have control over changes in prices, even minute by minute if they so want.
‘Up till now we’ve maintained the catalogues’, says Miller. This has been both costly and
inaccurate, owing to the ease of duplication. ‘At a stroke [the exchange] takes a massive amount
of cost out, making oil and gas markets more competitive in the twenty-first century’, he points
out.
Reducing costs for everyone is the key. The exchange reduces procurement effort through one
hub for transaction flow. ‘E-procurement is not about screwing suppliers’, Miller emphasizes.
‘It’s about taking cost out for both suppliers and buyers and reducing institutionalized
inefficiencies. Plus it supports smaller buyers and suppliers just as much as larger ones. It’s not
a big boys’ club’.
The greater transparency of pricing over the exchange, will, he argues, be commercially
healthier all round than the current practice of sealed bids. Having a single, transparent
marketplace will also, the participants hope, attack the costly, but all too frequent, practice of
off-contract, maverick buying by departments evading their own corporate purchasing policies
and standards.
107
Shell expects 23 per cent of the savings it anticipates from e-procurement to come from the
greater efficiency it will get from doing volume deals it had previously been unable to guarantee
because it did not know its spend accurately enough. But the biggest tranche of savings, 40 per
cent, will come, says Miller, from cutting out maverick procurement and complying with
corporate standards. He also expects about 20 per cent to come from auctions. ‘They’re a terrific
opportunity’, he enthuses.
Altogether, Miller anticipates the transaction cost of purchasing to plunge. ‘Most companies
have no idea [what each purchase costs them] – it’s something like $200–250 per transaction.
Now it will be under $1’, he says. E-procurement will also change the way orders are put
together and issued. Most purchases, he points out, are done on the basis of the specifications of
the equipments needed, which are affected by the conditions in which they are to be used. On an
exchange, a supplier could simply ask the buyer to tell them what conditions the kit has to be
suitable for, and they can select what meets that requirement and offer it, instead of the buyer
having to specifically request it.
‘The condition of use could become the purchase order’, suggests Miller. As the exchange gets
under way, more innovations in how suppliers could do business with purchasers, more cheaply
and efficiently, are bound to emerge. And already, e-procurement also promises other value-
added services, such as cheap capital, logistics and auctions.
‘We can even book our travel over it’, says Miller. Eventually, he believes, the transaction
charges that the exchange levies ‘will disappear, and it will exist on the value-added services
themselves’.
Vertical exchanges in specific industry sectors, believes Miller, grow very quickly once trading
starts. Market liquidity will increase as more suppliers come on to the exchange. They get a
shop window seen by all their customers. Their customers get yet more choice in what to buy,
from whom and at what price.
‘It means we can be far more imaginative about sourcing – we were a very conservative
industry’, says Miller.
As the market liquidity increases and the conservative tradition erodes, there is an opportunity
for oil and gas companies to tighten the inventory. ‘Our industry has massive inventory – we
have lots of duplicates sitting in warehouses hundreds of metres apart’, he points out. Miller
believes the exchange has allayed any initial fears that the industry’s suppliers felt would
distance them from their customers. ‘We feared they thought we wouldn’t be able to
differentiate between them’, he says.
In fact, he argues, the reverse is true – exchanges offer suppliers the chance of getting even
closer to their customers. ‘Suppliers can use the software to get to the desk of the manager
calling off the service’, he says. Even out on an oil platform, for example, offshore workers can
go to the exchange and look at all the data they need about a drilling tool. ‘The exchange makes
for a far closer relationship than they were able to have before’, says Miller.
With all the upside, is there any downside to e-procurement? Certainly there are some caveats,
warns Miller. First, the very ease of purchasing can mean that not every purchase is the best
possible one automatically, without effort. ‘The system can support bad deals as well as good’,
he points out.
108
Dangerously, at any rate to begin with, having an exchange can ‘create legitimacy for bad
deals’. Keyboard-happy purchasers let loose on the exchange can get literally carried away;
buying is so easy. ‘Three clicks and you’ve spent a quarter of a million dollars’, warns Miller.
‘And you’ve done it in three seconds, not three weeks’. Second, is the tricky issue of data
confidentiality. There is so much data generated by, or passing through, the exchange that
ownership and levels of access have to be scrupulously worked out and adhered to. It may be in
the interests of rival oil and gas industries to reduce the cost of procurement across the board, as
also for their rival suppliers; but respect for each other’s commercially sensitive data is crucial
for the overall success of the exchange. Thirdly, a global, industry-wide exchange will,
inevitably, operate globally. Will that mean that local suppliers are squeezed out, or their
support costs are exposed as higher than lower cost suppliers in cheaper parts of the world,
which will now become more accessible through a cyberspace marketplace? ‘It’s true to an
extent’, concedes Miller, ‘but we must get suppliers on the exchange’.
The final caveat has to be issued in the direction of the IT department. Inevitably, every
business opportunity is an IT challenge to make it happen and e-procurement is no exception.
‘How on earth is the exchange going to integrate with our enterprise resource planning systems?
It’s an enormous headache’, allows Miller.
However it is done, integration must be fully automatic, he stipulates. The sheer scale of the
user community within a major company like Shell is a challenge for IT. ‘We’ll have 100,000
users in 120 countries’, says Miller. Just training them to use the e-procurement system is a
significant task. Shell is rolling out training across countries that are as different in scale and
culture as the United States and Gabon – not forgetting its tanker fleet and offshore platforms.
Operational management will also be a challenge. ‘It’s important to maintain a data hierarchy’,
says Miller. ‘We must gather data in regional and global hubs. We have to put lots of
management in place to make it work’. One thing though is clear. E-procurement is not IT-led.
‘It has been a business-led initiative – it did not come from the IT department’, says Miller.
Being business-led, ‘the business demanded IT service – IT has had to make it integrate with
our ERP, and bring the speed up to scratch’. That business commitment to e-procurement
marks, says Miller, a sea-change in Shell. ‘For 15 years IT has said, “we’ve got a new idea,
we’ve got to have it!” For example, ERP, which business has been puzzled about how to use.
Now [with e-business] there’s a new self-confidence in business about making IT systems
increase profits and get costs down’.
Profit, should, hopefully, be arriving even more directly. This latest exchange on the web has a
chief executive from outside the oil and gas industry, and with outside equity partners, is
looking to float shortly.
Challenge for IT and business
ERP interfaces
Supporting the infrastructure
Speed and integrity of transactions (security; intranet vs extranet)
Maintaining the data hierarchy (management information)
Controlling the external interfaces
109
Business-led initiatives in the IT domain
Commercial challenges
Extending the use of contractual agreements for purchasing – but what will the contractual
relationships be in the e-world?
How will suppliers differentiate their products?
At the end of the day, who will actually be the masters of the data being created?
Benefits
What value will buyers get from the exchange?
Cut down maverick purchasing by enforcing corporate contracts and standards.
Cut transaction costs and boost internal productivity by saving time and effort in purchasing.
Better demand management and inventory control.
Better information leading to better decision-making.
Suppliers will benefit from:
Closer integration with buyers
Lower catalogue content management costs
Lower cost electronic sales channels
Lower inventory, better planning and less volatility
Global reach and visibility for all, irrespective of size
Better management information
Source: Article in Computer Weekly, 6 July 2000, pp. 26–27. Reproduced with permission of
Reed Business Information.
Questions
1. Using your judgement and by referring to the article summarize the benefits to Shell of
using an exchange rather than a buy-side or sell-side e-procurement.
The standard benefits of e-procurement namely cost reduction, reduction of maverick

purchasing and faster purchasing cycle time will be available from both the exchanges and the
alternatives. It may be, however, that greater cost savings are possible through an exchange that
has major industry backers since more suppliers will be keen to join it. Miller also suggests that
110
there will be a greater transparency of pricing than for buy- or sell-side and this is likely to lead
to price reductions.
2. Which of the commercial and technical challenges do you think are unique to an exchange,
and which may occur for other forms of e-procurement?
The example of the danger of ease of purchasing – Miller mentions three clicks to spend a
quarter of a million dollars – is the same as for any form of e-procurement, as is confidentiality.
The IT and commercial challenges listed at the end of the article are essentially the same as for
all forms of e-procurement. Other problems with these industry exchanges may come from the
shared ownership. It may have only taken 40 minutes to decide to produce the exchange, but
how long will it take to create and what will the costs be? It will be interesting to watch this
space.
Debate 7.1 E-procurement cost-savings
The cost-saving benefits of e-procurement are theoretical rather than actual since only
reduced headcount in procurement can result in savings.
• E-procurement often does not lead to reduction in headcount.
• Procurement staff can be redeployed to value-added functions such as finding better

sources.
• Savings in ordering process and consumables also achieve savings.
• Savings through reducing maverick purchasing may also be achieved.
Debate 7.2 The future for independent B2B marketplaces
There is no future for independent B2B exchanges or hubs, instead those sponsored by
buyers in the industry (for example, Covisint in the car industry) will be dominant.
• Success of exchanges such as Covisint and other non-neutral exchanges.
• Failure rates of exchanges – see those quoted in articles in chapters. Start-ups are more
likely to fail, as for any business, because of the high risk growth phase where raising
awareness is necessary.
• Easier for existing exchanges to build on existing relationships.
• Many industries do have hubs created by new players.
111
• It is in both parties’ interests for exchanges to be neutral.
• Neutral exchanges may work best as global trading platform.
Exercises
1. Outline the two main methods by which companies purchase supplies and the two broad
divisions of supplies needed.
There are two broad categories of procurement; those that relate to manufacturing of products
(production-related procurement) and operating or non-production-related procurement that
supports the operations of the whole business and includes office supplies, furniture,
information systems, MRO goods and a range of services from catering, buying travel or
professional services such as consulting and training. Raw materials for the production of goods
and MRO goods are particularly important since they are critical to the operation of a business.
2. Taking your answer from 1, give examples of B2B exchanges that have been created to meet
these purchasing needs.
Production-related procurement examples include Vertical Net (www.vertical.net), sites such as

www.oilandgas.com, Industry-to-Industry (www.itoi.com) which trades petrochemicals, and in
pharmaceuticals (www.chemdex.com).
MRO type sites include the Staples example from Schlumberger.
3. Draw a sketch that shows the main stages and people involved in traditional and
e-procurement.
This is Figure 7.1 on p356.
4. Outline the main reasons for e-procurement.
• Cost reduction
• Reduced lead time
• Better quality
See also the five rights of procurement on p355.
5. What is maverick purchasing? What safeguards need to be introduced into e-procurement

to avoid this?
This is where purchasing is poorly controlled and users within departments may order products
that are not from a favoured supplier, do not meet company standards (e.g. of software) or are
unnecessary. E-procurement enables checks such as limits on purchasing or from preferred
sources.
112
6. Explain the differences between the buy-side, sell-side and marketplace options for
e-procurement.
• Buy-side – Buyer invites bids through tender placed on its own site.
• Sell-side – Buyer goes to supplier website to purchase.
• Marketplace – Buyer goes to a neutral marketplace to purchase.
7. Outline the benefits and disadvantages of each of the options in 6.
• Buy-side – Only suits really large buyers, but displaces work to suppliers. Key suppliers
may be missed if unaware of tender. Can specify integration with IT systems.
• Sell-side – Effort placed on buyer to find sources. Integration with IT systems potentially
more difficult.
• Marketplace – Theoretically gives widest range of suppliers and if integrated with a

standard exchange which gives a standard method of data exchange and flexibility to move
suppliers. Difficulty in choosing exchange with critical mass.
8. What are the organizational implications of introducing e-procurement?
• Less staff time involved with procurement requires making staff redundant or re-skilling.
• Education and training needed to sell system to the staff using it.
• Better control of purchasing (reduce maverick purchasing).

1. Chris Miller of Shell Chemical has been quoted as saying:
‘E-procurement is not about screwing suppliers. It’s about taking cost out for both suppliers
and buyers and reducing institutionalized inefficiencies. Plus it supports smaller buyers and
suppliers, just as much as larger ones. It’s not a big boys’ club’.
Discuss this statement through reviewing the benefits and disadvantages of e-procurement to
both buyers and suppliers.
This statement highlights both the advantages (cost reduction and increasing process efficiency)
and the disadvantages (seen as reducing the margin for suppliers). A suitable answer for this
question is:
a. Define e-procurement.
b. Review advantages. Useful approach is: ‘E-procurement should be directed at improving

performance for each of the “five rights” of purchasing’ (Baily et al., 1994) which are
sourcing items:
1 At the right price
113
2 Delivered at the right time

3 Of the right quality
4 Of the right quantity
5 From the right source.
Should illustrate these advantages, particularly time and cost by case studies.
c. Review disadvantages. The disadvantages are highlighted well by the additional case, that is,
• Cause pressure on relationships with suppliers.
• Tier two and three suppliers are reluctant to sign up to portals because of the downward
pressure on price.
• Difficult to achieve component traceability through current generation of exchanges
(cost of integrating procurement systems with suppliers or exchanges).
d. Discuss current adoption of e-procurement using sources such as Conspectus

(www.conspectus.com) or DTI data from benchmarking study. Conclude by looking at how
the advantages and disadvantages will balance out for future adoption. What will need to
change for wider adoption?
2. For an industry sector of your choice review the current alternative options for, and
business adoption of, B2B marketplaces available to purchasing and IS professionals and
attempt to forecast the situation in five years.
Examples that could be chosen and referred to in the text:
• Covisint in motor industry (Ford, DaimlerChrysler and GM). Here former exchanges
created by Ford (AutoXchange) and GM (Tradexchange) have merged. Tait (2000) reports
on research that suggests between $1000 and $3600 savings on a $26,000 car could be
achieved for a car where all purchasing from manufacturer and end-customer is completed
electronically. By the end of 2000,Covisint already had completed $200 million.
• WorldWide Retail Exchange (Kingfisher, Kmart, Marks and Spencer).
• T2 US airline trading exchange.
• GlobalNetExchange (Retailers Sears and Carrefour). Note that Transora has been created by
50 of the world’s major FMCG suppliers including Coca-Cola and Kelloggs in response to
retailers.
• PaperX. Paper industry, designed for one-to-one deals.
An answer to this question should:
• Introduce the characteristic nature of procurement in this industry.
• List neutral and company-backed exchanges currently available, and contrast with use of
buy-side and sell-side options. Include generic cross-industry exchanges and industry-
specific exchanges.
114
• Through cases, illustrate the pluses and minuses of exchanges referred to in the previous
questions.
• Use industry-wide survey data and published exchange financial reports to assess actual use
of exchanges.
• Assess future prospects – what rationalization is likely to occur – many articles suggest that
only one or two players are possible in each sector.
3. Critically assess the claims made for cost savings and increased profitability available from
e-procurement.
To answer this question, students could assess the assumptions of savings made through
analysis such as Activity 7.1 on p358 and Activity 7.2 on p365. How many of these are valid?
Criticisms are indicated in p366. Essentially savings are only made if headcount is reduced or
staff are redeployed to a value-added role.
4. Analyze the procurement process for an organization with which you are familiar. Explain
the changes and possible problems involved with introducing e-procurement.
Techniques such as flow-process analysis (Activity 7.1 on p358) or cost-saving calculations

such as those of Activity 7.2 on p365 should be used.
5. Fully automated end-to-end procurement is not practical. Discuss.
This question addresses practical barriers to e-procurement. The section on implementation

p367 covers many of the issues. Cases and industry data from analysts can be used to show that
end-to-end procurement is rare. An answer to this question can start by illustrating the
procurement process using Figure 7.1 on p356 and the range of applications used (Figure 7.3,
p368). Difficulties that should be referred to are:
• Range of applications that need to be integrated often from different vendors (Figure 7.3)
• Order traceability issues between different systems
• Integration with different systems from partners such as suppliers needed for buy-side, sell-
side and intermediary-based purchasing.
1. Draw a diagram explaining four types of B2B exchanges that are dependent on the type of
purchasing and what is purchased. Give one example of a product that could be purchased
at each and the name of an exchange offering this service.
Should refer to Table 7.7, p377.
Examples shown on table.
115
2. Describe the different elements of an e-procurement system.
See Figure 7.1, p356
a. Originator request and selection (integration with catalogue systems)
b. Manager authorization
c. Buyer placing order
d. On delivery warehouse reconciling order and delivery (integration with account and
warehouse systems)
e. Payment (integration with accounting applications).
3. Draw a diagram that summarizes the main differences in processes within an organization
for traditional procurement and e-procurement.
Should refer to flow-process analysis – Table 7.1 p358 against Table 7.2 p359. Main differences
are shorter cycle times and fewer steps arising through electronic messaging and automatic
authorization and forwarding.
4. Outline the main benefits of e-procurement.
• Lower costs – flexibility of source
• Shorter cycle time
• Improved quality
• Fewer errors
• Better supplier arrangements.
Could also ask to explain reasoning.
5. Explain the differences between buy-side and sell-side e-procurement. Give an advantage
for each type for the purchasing company.
• Buy-side is tendering for bids from buyer’s own site. Advantage – effort is made by the
suppliers to tender.
• Sell-side is visiting supplier’s site for prices or integration with their e-commerce systems –
integration may be easier.
6. Current adoption levels of e-procurement are low. Identify the main reasons for this.
• There is conservatism within purchasing departments, perhaps to avoid redundancies or

redeployment.
• Suppliers may often not want to move to e-procurement since approaches such as auctions
lead to reduced prices.
116
• There are internal procurement systems from several different vendors, so may not be
compatible.
• There may be technical difficulties in integrating internal systems with several different
external systems.
7. Explain how cost savings may arise from e-procurement.
• More competition between suppliers, for example, at exchanges.
• Reduction in consumables such as paper.
• Reduction in inventory needed since e-procurement faster.
• Fewer staff resources required since process is made more efficient.
8. Why do some commentators suggest real cost savings from e-procurement may be nearer to
10 % than higher figures suggested by e-procurement solutions providers?
The large-scale savings will only occur if staff are removed from the organization, whereas
more typically they will be redeployed. The smaller-scale savings arise from reduction in
inventory and consumables.
Activity answers
Activity 7.1 Evaluating the benefits of the e-procurement process for a

B2B Company
1. Identify inefficiencies in the traditional procurement process (Table 7.1).
It is evident that the major delays are introduced through the transport of material (this may
have been through an internal post system with only one or two collections per day) and while
the item was waiting for processing in the buyer’s in-tray. Further inefficiencies occurred
through duplicating ordering of information – the order had to be specified separately on the
requisition and again on the order for the supplier. If a more senior manager is required to
authorize an expensive purchase then this would introduce further delay through a cycle of
transport, delay (in-tray), process (authorize), transport, delay (in-tray).
2. Identify process benefits to Table 7.1 that would be possible through the automation of a
system through an e-mail-based workflow system.
Before the advent of e-business it was possible to improve the paper-based process indicated in
Table 7.1 through using a workflow system to automate the entry of purchasing information and
passing information on through e-mail rather than internal post. This would certainly reduce the
delays due to transport, but delays still occur while the order is in the e-mail inbox of the
authorizer and purchaser.
117
3. Summarize why the e-procurement process in Table 7.2 is more efficient.
The real benefits of applying technology accrue through changing the process. In Table 7.2 the
process has been changed such that involvement by the purchaser is not required at all. It is also
easier to find products using the web than traditional catalogues. Large savings in time and
expense are possible by removing this person from the process.
Note to lecturers:
A description of the old and new processes and a blank version of this chart are available on the
CWS to enable students to conduct the analysis themselves.
Activity 7.2 Modelling cost savings and profitability arising from

e-procurement
Q. Imagine you are a procurement manager, IS manager or consultant who needs to
demonstrate the cost savings of e-procurement to a senior management team in order to
obtain approval for investment in an e-procurement system. Develop a spreadsheet model
for each of two hypothetical companies to demonstrate the case.
1. Cost-saving calculations. Using the input parameters for the two companies in Table 7.4,
develop a spreadsheet model to calculate traditional overall purchasing cost, new overall
purchasing cost, percentage change in cost per order and percentage change in overall
purchasing cost.
Table below shows that much greater savings are possible where there is combination of a
large number of orders and low order value.
Answers for cost-saving calculations for two companies A and B.

Input parameters (Company A) Input parameters (Company B)
Number of orders 25,000 Number of orders 2,500
Traditional cost per order (average) £50 Traditional cost per order (average) £50
New cost per order (average) £10 New cost per order (average) £10
Average value of order £150 Average value of order £1,500
Traditional overall purchasing cost £5,000,000 Traditional overall purchasing cost £3,875,000
New overall purchasing cost £4,000,000 New overall purchasing cost £3,775,000
% change in cost per order -80% % change in cost per order -80%
% change in overall purchasing cost -20% % change in overall purchasing cost -3%
2. Profitability calculations. Using input parameters of turnover, traditional purchasing costs,

other costs and a 5 % reduction in purchasing costs as shown in Table 7.5, develop a model
that calculates the profitability before and after introduction of e-procurement and also
shows the change in profitability as an absolute (£) and as a percentage.
Table below shows that change in profitability is much greater for a company such as
Company X where purchasing costs are a higher proportion of overall costs. Company X is
more typical of a manufacturing company, and company Y a services company. In both
cases, however, significant changes in profitability are achieved. A further exercise would
be to calculate the increase in the turnover necessary to achieve this through increased sales
(it would be potentially more difficult to achieve).
118
Input parameters for profitability calculations for two companies X and Y.
Input parameters (Company X) Input parameters (Company Y)

Turnover £10,000,000 Turnover £10,000,000
Traditional purchasing costs £5,000,000 Traditional purchasing costs £1,000,000
Other costs £4,000,000 Other costs £8,000,000
% Reduction in purchasing costs 20% % Reduction in purchasing costs 20%
Before After Before After

Turnover £10,000,000 £10,000,000 Turnover £10,000,000 £10,000,000
Purchasing costs £5,000,000 £4,000,000 Purchasing costs £1,000,000 £800,000
Other costs £4,000,000 £4,000,000 Other costs £8,000,000 £8,000,000
Profitability £1,000,000 £2,000,000 Profitability £1,000,000 £1,200,000
Profit change (£) - £1,000,000 Profit change (£) - £200,000

Profit change (%) - 100% Profit change (%) - 20%
3. Analyze the sensitivity of the models to differences in volume of orders and values of
purchases (Table 7.4) and the balance between traditional purchasing costs and other costs
such as salaries and capital by using the parameters (Table 7.5). Explain to the managers
the typical characteristics of a company that will make significant changes to profitability
from introducing e-procurement.
Combining the answers from Q1 and Q2, the greatest benefits will be achieved by a
company with:
• Large volume of orders
• Typically low value purchases
• High current purchasing cost per order
• A high proportion of costs involved in purchasing.
These spreadsheet models can be downloaded from the web.
Activity 7.3 Avoiding maverick purchasing

Q. To avoid maverick purchasing, businesses introducing e-procurement need to put safeguards
into the e-procurement system. Think about the type of rules that could be written into an e-
procurement system.
You may have identified the following:
• Overall limits on purchasing for each individual over a time period (e.g. spend limit/month)
• Limits on cost of individual items (spend limit/item)
• Limits on each order value (spend limit/order)
• Limited types of product that can be purchased by a certain individual; books, for example,
could be excluded.
If these limits are exceeded there is still an important role for the procurement department in
checking and controlling excesses.
119
CHAPTER 8
E-marketing
Table of contents

Case studies 122
Additional case studies 125
Exercises 129
Learning outcomes
• Assess the need for separate e-business and e-marketing strategies
• Create an outline e-marketing plan intended to implement the e-marketing strategy
• Distinguish between marketing communication characteristics of traditional and new media.
Management issues
• How do we integrate traditional marketing approaches with e-marketing?
• How can we use electronic communications to differentiate our products and services?
• How do we redefine our marketing and communications mixes to incorporate new media?
120
Chapter at a glance
Main topics
• What is e-marketing?
• E-marketing planning
• Situation analysis
• Objective setting
• Strategy
• Tactics
• Action
• Control
Focus on…
• Characteristics of digital media communications
• Online branding
Case studies
• 8.1 The e-volution of easyJet’s online revenue contribution
• 8.2 Dell gets closer to its customers online
• 8.3 The new Napster changes the music marketing mix
The scope of activities that need to be managed as part of E-marketing are covered in Figure 8.1.
Since not all readers may have a grasp on marketing concepts, the first section ‘Marketing defined’
introduces the role of marketing within an organization, and also explains the context of e-
marketing. Figure 8.2 can be used to explore the relationship between e-marketing, e-commerce
and e-business within a lecture.
121
The chapter is structured according to the SOSTAC planning model (Figure 8.4). Hence it has a
structure similar to Chapter 5, except that it focuses on sell-side or customer-centred
e-commerce. SOSTAC forms a natural structure for a mini-series of lectures as follows:
1. Situation analysis including reviewing the marketplace including demand analysis (pp. 392–
395), competitor analysis (pp. 396–397), Activity 8.2 and internal resources. Some of these
issues are also covered in Chapters 2 and 3.
2. Objective setting including the online revenue contribution. Table 8.3 shows how goals
should be integrated with strategy and tactics. Case Study 8.1 is useful for exploring this
concept in a seminar and relating its relevance to different industries.
3. Strategy (see also strategy definition section in Chapter 5). Market and product positioning,
target market strategies.
4. Tactics. A lecture can be structured around the 6Is covered in the Focus On section. The
diagrams work well since students can be prompted to explain the differences between
traditional and new media. This is valuable before describing tactics since this framework
introduces the key differences between new media and traditional media. Tactics should
acknowledge and account for these differences. The tactics section also looks at the
implications of new media for the 5Ps of the marketing mix and branding.
5. Actions. In this section the box (Box 8.5) shows a typical marketing plan. Assignments can
be set where students are asked to build up a more detailed plan using this framework for an
organization with which they are familiar.
6. Control. The concept of control is introduced, but a more detailed assessment of this is in
Chapter 12, maintenance (p668) and measurement (p674).
Case studies
Case Study 8.1 The e-volution of easyJet’s online revenue contribution
Questions
1. To what extent was the Internet revenue contribution of around 90% achieved ‘more by luck
than judgement’?
The case study shows that the owner of the company was not initially committed to the Internet.
It is instructive that it was not until the Internet contribution reached 20 per cent that he really
believed in its strategic importance. However, it is clear that the company did set targets for the
Internet contribution.
2. Explain the proposition of using the Internet for the customer and define the benefits for the
company.
The proposition for the customer is slightly lower cost (on tickets and phone calls) and perhaps
improved convenience. For the company the cost savings were such that it was unnecessary to
expand its call centre operations. Innovative communications techniques described in the
122
following answers enabled customer acquisition. And, a good quality of service through the site
can help achieve repeat business and build the brand.
3. Explain how easyJet uses the website to vary the different elements of the marketing mix
and as a marketing communications tool.
The case study shows how the site is used for PR (informing media and customers about its
offers and rivalry with competitors), and sales promotions based in offline media that drive
traffic to the site. The price of the offer is changed through the £1 discount for Internet
bookings. This is recouped through cost savings.
4. Use a news source such as www.ft.com or review its investor relations site
(http://www.easyjet.com/EN/about/investorrelations.html) to find out how easyJet has
extended its Internet applications.
Not applicable.
Case Study 8.2 Dell gets closer to its customers online
Question
Q. Describe approaches used by Dell within their site design and promotion to deliver relevant
offers for different types of online customers.
The answer should centre on different segmentation techniques. Different segments can then be
targeted by different media (e.g. paid search, display advertising, affiliates and offline
communications); on site through specific content for these audiences and through event-
triggered e-mail communications.
Segmentation approaches include:
• Geographic – Dell has a separate site for each country.
• Demographic – Dell can target different audiences by advertising or affiliate marketing on

different types of sites.
• Business vs consumer – Dell’s site offers products in each of these areas.
• Value – Higher value consumer audiences (gaming) and business audiences (larger
companies are offered separate content).
• Vertical business markets (e.g. government, education and healthcare – particularly in core
markets such as the United States).
• Lifecycle – first purchase or repeat purchase?
• Accessories and add-ons. Have they been purchased?
123
Case Study 8.3 The new Napster changes the music marketing mix
Question
Q. Assess how Napster competes with traditional and online music providers by reviewing the
approaches it uses for different elements of the marketing mix.
Students may comment on these aspects of how Napster.com applied the mix.
• Product. The core product is the streamed music service available through subscription, but
extended product offerings include the sale of compatible MP3 players. The wide range of
products (more than one million indicates a broad product range contrasting with existing
stores, but smaller than some online suppliers like iTunes).
The article shows the importance of the Napster brand identity including its pedigree and
community experience in shaping the service.
• Price. Different versions of the monthly subscription service are available according to
whether the music is kept on a computer or downloaded to the MP3 player. There are
options to purchase tracks by album or price, with cost reductions for volume purchases.
Place. The Internet is the place of distribution, although Napster has signed agreements with
colleges, radio stations and stores selling MP3 players, to distribute the service more
widely.
• Promotion. Establishing brand awareness and familiarity of Napster amongst potential

downloaders of music is key. Offline media are arguably best for this. Unlike other online
services, relatively few prospects will google ‘Online music download services’, instead
many prospects will have a consideration list and the aim of the offline communications is
to get Napster on the consideration list. Napster does use paid search marketing, particularly
when visitors are searching for the brand. It also uses affiliates to extend its reach into third
party sites to promote the service (not covered in the article).
• Process, People and Physical Evidence. These are the different aspects of the customer
experience such as usability and customer service. These are perhaps less relevant for
Napster, but they are important for converting triallists to subscribers and to renewing their
subscriptions.
This is relatively simple analysis. For a more in-depth question and answer, students could be
prompted to look more at the Napster offering compared to rivals such as iTunes and download
services run by e-retailers. This also works well as many students use such services and so, will
have strong opinions on them.
124
DBS Oegland (Original Case Study 8.2)
The company and its proposition
DBS Oegland is a well-established Norwegian bicycle manufacturer catering to the high-end

market with professionals and those with a passion for cycling as a sport as its core customers.
Through its website, customers can interactively design a personalized bike. Customers can
select a type (men’s, women’s, children’s) and then pick from a choice of generic models such
as the Cyber Track, Tricky Track and Bambo. Customers then decide on specific frames,
wheels, pedals, saddles, gear systems and colours. Once they have electronically configured
their personalized bike, the on-screen search facility identifies the nearest DBS dealer and the
bike is then delivered to the nearest store within 14 days from where the customer can pick it
up. John T. Roenneberg, the Managing Director for DBS, explains how possible channel
conflicts are avoided: ‘We alert the store that a Cyber cycle order is on the way, and dealers get
their commission as usual, so no one loses out’.
The DBS marketplace
In 2000, 1.5 million Norwegians and 390,000 households had access to the Web, an increase of
40 per cent since May 1997. According to recent figures from Norsk Gallup, the market
research company, 15 per cent of these shop via the Net, while 50 per cent express a positive
attitude towards Internet shopping.
DBS produces over 150,000 bicycles a year, over 95 per cent of which are currently sold
nationally. ‘Our business was initially aimed at Norwegian customers, but this new way of using
the Internet suddenly gives us the potential to market worldwide’, says Roenneberg. ‘Launching
the site has given the company the opportunity to create an international presence at a fraction
of the cost required to advertise outside the domestic market’.
Implementation
A secure site is necessary since customers are asked to pay 15 per cent of their total order over
the web. The customer’s payment data is encrypted using Secure Socket Layer (SSL)
technology. In addition, supplier IBM also installed an eNetwork Firewall solution. This allows
the secure exchange of information across an extranet between business partners, customers and
suppliers while restricting access to non-public parts of the site.
DBS and its supplier implemented the system using as much of the existing IT infrastructure as
possible to create the site. Customer and product information was traditionally held on IBM
AS/400 servers and this has been used as the basis for the new website. The data on the different
bicycle configurations is stored in a Lotus Notes database, which is made available on the web
through Lotus Domino. The managing director believes that this solution gives customers and
internal users the benefits of integration, ease-of-use, reliability and scalability.
Source: Reprint Courtesy of International Business Machines Corporation, copyright 2012.

© International Business Machines Corporation.
125
Questions
1. Comment on the strategy DBS has used to exploit the Internet with reference to Figure 5.16.
DBS can use the website for increased market penetration within Norway, but clearly its
intention is to use the Internet as a low-cost route to expand overseas markets since most of its
customer base is internal and limited by the population of Norway. The personalization
technology has been leveraged to offer what effectively are new products. Arguably, DBS has
achieved positioning in all four segments of Figure 5.7.
2. Explain how DBS has used technology to vary the marketing mix from the extract and
explain other opportunities for varying the mix.
The product component of the mix has been varied by offering personalization. Place has been
varied by using the Internet in combination with the existing channel. There is no reference to
price, but it is unlikely that the company would be able to offer large discounts since it still has
to pay its suppliers commission.
3. What marketing issues were involved with the implementation of the DBS e-business
solution?
Security and privacy were issues for customers that needed to be acknowledged through the
development of the SSL system. Communications between channel partners were also
facilitated through the extranet.
Hamleys e-tail
Hamleys’ up-market website offers unusual gifts and collectors’ items. By Kim Thomas.
Hamleys toy shop in London’s Regent Street seems quintessentially British, so it may come as a
surprise to learn that the majority of the sales from its website are to the United States.
This is not an accident, however. The content and appearance of the shop’s e-commerce site
have been carefully designed to attract a very particular kind of customer: those who have the
money to spend on expensive toys, but little time to visit toy shops.
While its London store stocks approximately 40,000 toys, the site offers only a small fraction of
that number. There are already numerous toyshops online offering cheap, plentiful toys aimed at
the mass market.
Hamleys wanted to differentiate itself, so it called in Equire, an e-commerce company

specializing in designing and hosting websites for retailers of luxury items, including Links of
London and jewellers Van Peterson.
Hamleys and Equire decided to use the website to sell goods that were difficult to obtain
anywhere else: Steiff bears, die-cast figures and other collectors’ items. Apart from collectors,
says Pete Matthews, Equire founder and chairman, customers tend to be parents and
grandparents looking for unusual gifts.
126
An article in the New York Times before Father’s Day, for example, resulted in the site selling a
large number of gold-plated models of the James Bond Aston Martin.
Because the brand name is crucial to the kind of customers Hamleys wants to attract, the look of
the site (www.hamleys.com) is also distinctive, with numerous graphics and animations, a
prominent Hamleys logo on each page and menu options with names such as Collectables,
Exclusive and Executive.
As well as designing and hosting the website, Equire manages all other aspects of the
e-commerce operation, including holding the stock in its warehouse, taking care of orders and
delivery and running the customer-care centre.
Its financial arrangement with Hamleys is unusual: instead of charging a large fee for hosting
the site, it charges a smaller fee and takes a cut of the revenue. The idea is that it has a stake in
making sure the site works, giving the customer confidence that it will do the job well.
It also means a smaller investment for the customer. ‘The typical cost of implementing an
infrastructure like ours would be in the many millions of dollars. Typically, Equire’s customers
don’t contribute anything like that’, says Mr Matthews.
Because of the site’s target customers, speed of delivery is important. Some e-commerce sites
have become notorious for not being able to fulfil orders quickly or efficiently. But Mr Matthews
says most of the US orders are delivered within three days – and many in fewer than that.
The Hamleys site uses the Broadvision e-commerce platform, which is integrated with the call
centre, the fulfilment centre and Equire’s despatch partners, who allow online tracking of every
parcel. ‘When an order comes in, it automatically informs the customer-care centre. At the same
time, it tells the fulfilment centre an order has come in and needs to go out today. It gets picked,
packed, gift-wrapped and despatched and is then tracked throughout its life via our despatch
partners, UPS and Parcelforce’, says Mr Matthews. Returns are low – less than two per cent.
Recently, Hamleys has announced a drop in profits. Part of its plan for drawing in more revenue
is to expand the website to include a wider range of toys: 50 per cent of calls and e-mails to the
customer-care centre are inquiries about toys not stocked on the site.
Instead of simply increasing sales to existing customers, the site has given Hamleys the
opportunity to attract many new customers who, according to Mr. Matthews, spend more on an
average visit to the site than visitors to the London shop. Other planned improvements include
greater emphasis on ‘personalization’, so that customers will be guided to their particular
interests.
Mr Matthews believes his company has a model that works. ‘Over a period of five years, we’re
able to deliver a very healthy net margin, their revenues flow to the bottom line, they have no
depreciation or amortization to consider, while we deliver them net incremental revenue, and we
help to build brand franchise outside their immediate geography’.
Source: Where to buy a gold-plated model of James Bond’s Aston Martin. http://www.ft.com/
ftsurveys/spbf9a.htm., 2 August 2000. © Financial Times.
127
Questions
1. What best practice principles of marketing or e-marketing does this case indicate?
• Careful positioning as quality brand, with a niche product (quality collectables)
• Targeting of customers who are cash rich, but time poor (and also new rather than existing
customers)
• Well timed and placed offline PR, for example, New York Times
• Customer orientation (see Chapter 11) on site with options of collectables, exclusive and
executive
• Rapid fulfilment
• Integration with call centre for efficient customer service and personalization through
Broadvision.
2. Visit the website (www.hamleys.com) and assess changes in strategy since the article was
written.
It is apparent that the company has now implemented the strategy to offer a range of toys – not
now only targeting collectables.
3. Also comment on the effectiveness of its design using the criteria described in the Focus On
section in Chapter 12.
• Good customer orientation through search tools of age/gender and models.
• Proposition quite clear – finest toy shop, but does not emphasize quality in content.
• Options for reassurance on privacy, delivery and security, but again proposition not that
clear as Jungle.com.
Frames design is a limitation.
Debate 8.1 Is a distinct e-marketing plan necessary?
A separate e-marketing plan is not necessary as part of the marketing planning process –
e-marketing can and should be integrated into existing marketing plans.
• There are already a large number of types of marketing plans (see Figures 8.1 and 8.2).
• E-marketing should be integrated into plans at other levels.
128
• Required for focus, to avoid missed opportunities.
• Required to achieve integration of different communications.
• Specific objectives needed to achieve e-marketing contribution.
• Require specific responsibility for e-marketing and this can then be used to account for
person’s responsible activities.
Exercises
1. Explain the link between e-marketing and e-business and why they may be considered
separately.
E-marketing is a subset of e-business focusing on sell-side e-commerce and delivering value to

customers. Adding value does also need to consider the upstream supply chain since this
influences cycle time and product quality.
2. Outline the stages in a strategic e-marketing planning process, for each stage noting two
aspects that are of particular importance for e-marketing.
• Situation – Where are we now? 1. External (customers, competitors, PEST), 2. Internal

resources.
• Objectives – Where do we want to be? Online revenue contribution, complementary vs

replacement.
• Strategy – How do we get there? Market and product positioning.
• Tactics – How exactly do we get there? 6Ps, in particular, promotion and place.
• Action – What is our plan? Project planning and resourcing.
• Control – Did we get there? Marketing research.
3. What is the Internet contribution and what is its relevance to e-marketing strategy?
Can consider a direct and indirect form:
Direct – Online revenue contribution
An assessment of the direct contribution of the Internet or other digital media to sales, usually
expressed as a percentage of overall sales revenue.
129
Indirect – Online promotion contribution
An assessment of the proportion of customers (new or retained) who use the online information
sources and are influenced as a result.
This is useful for objective setting, highlighting the importance of the new channel.
4. What factors will govern the Internet contribution that is set for a given organization?
Deciding on the objective can use a form of Kumar or de Kare-Silver test that is,
Kumar: high if:
1. customer access to the Internet is high;
2. the Internet can offer a better value proposition than other media (i.e. propensity to
purchase online is high);
3. the product can be delivered over the Internet (it can be argued that this is not essential
for replacement, so it is not shown in the figure);
4. the product can be standardized (user does not usually need to view to purchase).
De Kare-Silver: high if these attributes are positive:

1. Product characteristics
2. Familiarity and confidence
3. Consumer attributes.
5. Why and how should a company approach benchmarking of online competitors?
Why – rapidly evolving marketplace – new entrants and new services give competitive advantage.
Approaches – companies should review:

• well-known local competitors (e.g. UK/European competitors for British companies);
• well-known international competitors;
• new Internet companies local and worldwide (within sector and out of sector).
Can use three-criteria test:

1 Business effectiveness (online revenue, profitability);
2 Marketing effectiveness. Outcomes such as leads and sales;
3 Internet effectiveness. Effectiveness of website as a communications tool.
6. Describe what is meant by a complementary and replacement Internet channel strategy and
give examples of products for which companies follow a particular approach.
• Complementary – Internet is an additional channel, but less significant than others – high
value products and services with complex buying decision or strong channel.
• Replacement – Internet becomes main channel to market for sales and support – typically
lower value product, or straightforward buying decision (commodities).
130
7. Summarize new opportunities to vary the marketing mix that arise through deploying the
Internet.
Use 5Ps as framework.
• Product (new digital products and value-adds)
• Price (price reduction, new pricing models)
• Place (new representation on intermediaries, direct-selling)
• Promotion (integration of online and offline techniques)
• People, Processes and Physical Evidence (new forms of service delivery).
8. How can online and offline techniques be used in the control stage of strategy?
This question is about marketing research aspect of control. Refer to Chapter 12.
Online techniques – server log file analysis, pop-up surveys, e-mail audits.
Offline techniques – traditional surveys of customer service.

1. Select a particular market sector and assess the past, current and future customer use of the
Internet as a medium to select and buy products.
This is an online research exercise, it will also form part of Question 2. The key site to keyword
search on the chosen sector is:
Clickz Stats (www.clickz.com/stats)
This will highlight analyst reports including projections.
For use, students should look at:
• Customers connected to Internet (%)
• Active users (within the last month or week)
• Influence online
• Buy online
• Support online.
Can use buying process described in Chapter 9 as a framework.
131
2. Develop an outline strategic e-marketing plan for an organization with which you are
familiar.
This can follow the SOSTAC structure described at the start of this chapter and supported by the
relevant sections in the chapter.
3. ‘Traditional strategic planning has no relevance for the start-up company given the
dynamism of the marketplace’. Discuss.
This question prompts students to consider the relevance of traditional situation analysis,
objective setting and strategy definition in a cyclical annual planning process. To help answer
this question, the student can be referred to the first part of Chapter 5, which considers
differences between the e-business strategy process and more traditional strategy processes.
Similarities and differences can be assessed.
4. Assess the value and importance of the Internet contribution in setting e-marketing
objectives in relation to other possible objectives.
In this chapter the Internet contribution has a strong emphasis. This can be justified since:
• It can be applied to all companies (direct and/or indirect reach).
• It provides a tangible, forward-looking target for the development of sell-side e-commerce.

The easyJet case shows how it can be applied to give a clear target and how business
practices can be changed to achieve it.
• It is widely used and reported, enabling comparison.
Weaknesses are that it is tangible and does not address issues such as:
• Brand equity
• Acquisition, retention and loyalty measures (equally important)
• Customer satisfaction
• Channel profitability
• Risks of channel conflicts.
5. Explain how the e-business can make use of technology to monitor and control its
operations.
This question requires reference to the different tables showing frameworks for goal setting and
control for Internet marketing. Students should also be advised to read the focus on e-marketing
measurement section in Chapter 12. Technology includes:
• Server log file analysis (describe different aspects – traffic volume and online behaviour, for
example, conversion).
• Online market research using questionnaires and focus groups.
132
• Monitoring and routing of e-mails.
• Control of product manufacture and distribution.
1. Outline the stages involved in developing a strategic e-marketing plan.
The SOSTAC framework can be applied here:
• Situation – where are we now?
• Objectives – where do we want to be?
• Strategy – how do we get there?
• Tactics – how exactly do we get there?
• Action – what is our plan?
• Control – did we get there?
2. Explain what is meant by the Internet contribution and outline how companies will decide
on a realistic objective.
Can consider a direct and indirect form.
Direct – Online revenue contribution
An assessment of the direct contribution of the Internet or other digital media to sales, usually
expressed as a percentage of overall sales revenue.
Indirect – Online promotion contribution
An assessment of the proportion of customers (new or retained) who use the online information
sources and are influenced as a result.
Deciding on the objective can use a form of Kumar or de Kare-Silver test, that is,
Kumar: high if:

1. customer access to the Internet is high;
2. the Internet can offer a better value proposition than other media (i.e. propensity to
purchase online is high);
3. the product can be delivered over the Internet (it can be argued that this is not essential
for replacement, so it is not shown in the figure);
4. the product can be standardized (user does not usually need to view to purchase).
133
De Kare-Silver: high if these attributes are positive:

1. Product characteristics
2. Familiarity and confidence
3. Consumer attributes.
3. What opportunities may there be to vary the Price and Place components of the marketing
mix when delivering services through the Internet?
Refer to sections on Price and Place.
Price – often requires reduction to offer incentive to purchase online (with lower selling costs for
company). New pricing models can be adopted for digital products, for example, pay per use or
subscription.
Place – refers to disintermediation and reintermediation. In particular, use of new intermediaries

to promote and sell products. Also buy-side, sell-side and intermediary-based purchases.
4. What is a complementary Internet channel strategy and for which companies will this be
most appropriate?
This is where the product is not amenable to purchase online or the barriers to this route, such as
channel conflict, are too high. This situation will apply to companies who sell products, such as
a consultancy service or high value products that do not pass the tests outlined in Q2. The
complementary strategy will involve using the Internet as another channel to market, supporting
sales and service, but not as the main channel which will remain through distributors or sales
representatives.
5. What different aspects of e-marketing should be monitored as part of controlling

e-marketing? Name three examples of how technology can be used to assist monitoring.
The framework in Chapter 12 can be used here:
• channel promotion
• channel behaviour
• channel satisfaction
• channel outcomes
• channel profitability.
Three examples of monitoring are:
• site log file analysis (first two of the above)
• integration with sales order processing systems (outcomes)
• online surveys and focus groups (satisfaction).
134
6. Explain the strategic options available for a company currently selling the majority of its
products in a single country for product and marketplace positioning.
This question requires reference to the options of:
• current product, current market
• new product, current market
• current product, new market
• new product, new markets.
New markets can be a new segment or new geographic market. New products can be add-on or
digital services.
7. What do the concepts of reintermediation and disintermediation imply for the tactics a
company employs for the Promotion and Place elements of the marketing mix?
Reintermediation – The keyword is representation – assessing suitability of new intermediaries

for selling or promoting services.
Disintermediation – The keyword is channel conflict – assessing the risk of this against the
benefits of selling or supporting products direct.
8. Outline how the electronic medium requires different tactics for effective marketing
communications.
The 6Is is a suitable framework to answer this question:
• Interactivity (online communities, opt-in e-mail promotions, profiling)
• Intelligence (analysis of customer buyer behaviour through log files, etc.)
• Individualization (personalization, mass-customization, one-to-one marketing)
• Integration (integration of inbound and outbound communications)
• Industry restructuring (disintermediation, reintermediation, value networks)
• Independence of location (the role of place).
Tactics are shown in brackets.
Activity answers
Activity 8.1 Customer activity in the car market in your country

No answer supplied.
135
Activity 8.2 Competitor benchmarking

Q. You have been commissioned by a major company to evaluate the marketing effectiveness of
their online services in comparison with their competitors’. You have to present your
findings on their services and how they can be improved in a 10-minute PowerPoint
presentation.
Choose a B2C industry sector such as airlines, book retailers, book publishers, CDs or
clothing, or for B2B a sector such as oil companies, chemical companies or construction
industry companies.
Work individually or in groups to identify the type of information that should be available
from the website (and which parts of the site you will access it from) that will be useful in
terms of competitor benchmarking. Once your criteria have been developed, you should
then benchmark companies and summarize which you feel is making the best use of the
Internet medium.
Table 5.10 may also prove useful.
You should have identified the need to distinguish between benchmarking criteria that define
the company’s marketing performance in the industry and those that are specific to web
marketing as follows:
• Financial performance (available from About Us, Investor relations and electronic copies of
company reports). This information is also available from intermediary sites such as finance
information or share dealing sites such as Interactive Trader International (www.iii.com) or
Bloomberg (www.bloomberg.com) for major quoted companies.
• Marketplace performance – market share and sales trends and significantly the proportion of
sales achieved through the Internet. This may not be available directly on the website, but
may need to use other online sources. For example, new entrant to European aviation
easyJet (www.easyjet.com) has achieved over two-thirds of its sales via the website and
competitors need to respond to this.
• Business and revenue models (see Chapter 2) – do these differ from other marketplace
players’?
• Marketing communications techniques – is the customer value proposition of the site clear?
Does the site support all stages of the buying decision from customers who are unfamiliar
with the company, through to existing customers? Are special promotions used on a
monthly or periodic basic? Beyond the competitor’s site, how do they make use of
intermediary sites to promote and deliver their services?
• Services offered – what is offered beyond brochureware? Is online purchase possible, what
is the level of online customer support and how much technical information is available?
• Implementation of services – these are the practical features of site design that are described
in Chapter 12 such as aesthetics, ease-of-use, personalization, navigation and speed.
136
Activity 8.3 Integrating online and offline communications

Q. List communications between PC vendor and a home customer over the lifetime of a
product such as a PC. Include communications using both the Internet and traditional
media. Refer to channel swapping alternatives in the buying decision shown in Figure 8.19
to develop your answer.
This table shows the integration between the channels:
Examples of communications initiated by customer and company

Communication initiated by customer Communication initiated by company
Phone call to company Advert to generate awareness placed in
newspaper or PC magazine
Visit to website to review prices and Phone call or e-mail by courier company to
specification arrange delivery of PC
Phone call or e-commerce purchase of PC Traditional mail-out or e-mail after 1 year to
describe upgrade service
Support call to solve problem Traditional mail-out or e-mail after 3 years to
describe new product offers
Complaint about repair Call to arrange visit (from sub-contracted
company)
137
CHAPTER 9
Customer relationship management
Table of contents

Case studies 140
Exercises 147
Learning outcomes
• Outline different methods of acquiring customers via electronic media
• Evaluate different buyer behaviour amongst online customers
• Describe techniques for retaining customers and cross- and up-selling using new media.
Management issues
Customer relationship management involves these management issues:
• What are the practical success factors digital media need to make customer acquisition more
effective?
• What technologies can be used to build and maintain the online relationship?
• How do we deliver superior service quality to build and maintain relationships?
138
Chapter at a glance
Main topics
• What is e-CRM?
• Conversion marketing
• The online buying process
• Customer acquisition management
• Customer retention management
• Customer extension
• Technology solutions for CRM
Focus on…
• Marketing communications for customer acquisition including search engine marketing,

online PR, online partnerships, interactive advertising, e-mail marketing and social media
marketing.
• Social media and social CRM strategy
• Excelling in e-commerce service quality
Case studies
Case Study 9.1 Tesco.com increases product range and uses triggered communications to
support CRM.
This chapter examines practical, tactical issues in e-marketing using a CRM framework.
Suggested lectures that are generally independent and after first do not need to follow this
sequence:
1. Introduction to e-CRM. Base on first section using framework of acquisition, retention,

extension (Figure 9.1) and also include key concepts of permission marketing (Figure 9.2)
and online buyer behaviour (Figure 9.3 and Figure 9.4).
2. E-marketing communications. Examine the different techniques based on the focus on

marketing communications for customer acquisition (Figure 9.6).
139
3. Retention management – frameworks for maintaining customer relationships online through

web personalization, email marketing and communities.
4. Delivering online service quality – Focus on excelling on service quality.
Case studies
Note that there are 10 mini case studies on managing e-CRM in this chapter which can also be
referenced.
Case Study 9.1 Tesco.com increases product range and uses triggered
communications to support CRM
Question
Based on the case study and your own research on competitors, summarize the strategic
approaches which have helped Tesco.com achieve success online.
The strategic decisions covered in this chapter provide a useful framework for summarizing the
strategic approaches adopted by Tesco.com:
• Decision 1: Market and product development strategies.

Tesco has used the Internet to extend its market into new product markets, such as financial
services, white goods and DVD rentals. While these are promoted through the store, the
web provides a wider choice of products, more detailed information about products and a
method of purchase. The internet can also support entry into new geographical markets.
• Decision 2: Business and revenue model strategies.

New revenue sources are available through extending the product range online as explained
above, and also with new digital revenue streams such as those for music downloads and e-
Diets. Tesco also supports advertising on its site, of related product such as financial
services.
• Decision 3: Target market strategy.

Tesco.com has a broad market of customer types, so it is less relevant for them to use online
to selectively target these with communications. However, the article explains how Tesco
has used the web and e-mail to target more closely through targeting different lifecycle
groups – these are customers who are grouped according to their level of adoption of online
service. Tesco also uses the web to target specific requirements such as Diets and Financial
Services through search engine marketing.
• Decision 4: Positioning and differentiation strategy (including the marketing mix).

Tesco offers some unique online promotions and lower online prices for select products
such as financial services which could attract a percentage discount when purchased online.
It appears not to use the service elements of the mix for positioning beyond the slogan ‘You
Shop, We Drop’. But attention has been paid to improving the customer experience through
usability activities and reduction of download times.
140
The marketing mix which is covered in Chapter 8 is also suitable for assessing some of the
tactical elements of Tesco.com strategy.
• Product
• Price
• Place
• Promotion
• Process, People and Physical Evidence.
• Decision 5: Multi-channel distribution strategy.

This is straightforward. Tesco.com has taken the decision to distribute Internet orders via
stores, unlike some rivals such as Ocado (www.ocado.com) who have set up distribution
channels.
• Decision 6: Multi-channel communications strategy.

This is not referred to in the article – this describes the mix between online and offline
communications tools for driving visitors to the site. Offline communications in store and
through direct mail are clearly important for attracting visitors to the site.
• Decision 7: Online communications mix and budget.

Again, this is not mentioned, although the importance of e-mail marketing for customer
communications is apparent.
• Decision 8: Organizational capabilities (7S).

Tesco has achieved focus online by creating a separate ‘Tesco.com’ brand and a separate
division headed by Wade Gery.
Variations in online buyer behaviour and loyalty

Consumer behaviour should be the principal determinant of corporate e-commerce strategy.
While technology will improve, consumer loyalty, for example, is likely to differ significantly
between, say, online booksellers and providers of financial services. Two factors seem critical in
predicting behaviour and determining an appropriate e-commerce strategy.
First, what is the duration of the relationship between buyer and seller? That is, does the buyer
have a relationship with a favourite seller, in which they come to learn about each other, or does
the buyer search for a different electronic vendor for each interaction? The former suggests an
opportunity for tuning offerings; the latter precludes stable relationships.
Second, what is the scope of goods and services linking buyer and seller? Does the consumer
purchase a single good or service, or a bundle of related goods and services? The former
suggests the consumer searches for the provider of the best individual goods and services, while
the latter suggests a search for the best provider of a collection of goods and services.
141
Combining these indicates that different companies, in different industries, will find themselves
in one or more of four competitive landscapes.
Consumers buying products that can be described as opportunistic spot purchases exhibit no
loyalty; each purchase may be from a different vendor and there is no one-stop shopping. They
may buy a ticket from British Airways one day and United the next, and book their hotels
separately.
Opportunistic store markets occur when consumers exhibit no loyalty or relationship continuity,
to brands or stores. Unlike the spot market, however, they do use intermediaries to construct
bundles of goods. They may shop at Sainsbury one day and Tesco another; they may use
Amazon.com one day and Buy.com another.
Consumers buying in categories that may be described as loyal links exhibit continuity when
choosing vendors and service providers, but have no desire to have bundles prepared for them.
They may never leave home without their American Express cards, but see no reason for their
card issuer to be their insurance provider or financial planner.
Finally, consumers buying in categories that may be described as loyal chains will have
preferred providers. Additionally, they will count on these providers for a range of tightly
coupled offerings. They may work with a financial consultant at Merrill Lynch who helps pick
stocks, reminds them to draft a will and arranges guardians for their children, helps find a
lawyer and reviews their insurance. The integrated service is so effective they seldom consider
switching providers or taking the time to provide these things for themselves.
Each of these environments has a different competitive feel, requires a different strategy and use
of different assets. This is as true in the physical world, where companies understand it pretty
well, as it is in the dot-com world, where companies are struggling to develop profitable
strategies.
Note that no e-commerce company occupies just one quadrant. There are, for instance, loyal
link customers and companies may pursue them with loyal link strategies, but in reality some
customers may use a website for spot purchases and others may show great loyalty. The
challenge for companies is to guide the consumer to the behaviour matching the company’s
strategy; where this is not possible, companies should match the strategy to the customer’s
behaviour. The approach given here may help managers discover the forces that determine their
best strategy.
Competition in opportunistic spot markets is based on price, since there is little loyalty to
influence consumers’ decisions. This brutal competition is exacerbated by nearly perfect web-
based information. Thus, for standardized products such as the latest Harry Potter, we observe
both Amazon.com and BN.com selling at cost price. Where possible, companies try to soften
competition by creating quality differences and ensuring consumers are aware of them.
However, this branding must be based on real differences, since with nearly perfect information
it is difficult to deceive consumers. There is a limited role for intermediaries. They may reduce
risk in conducting transactions, but in most instances, consumers will buy from a set of trusted,
well-known manufacturers and service providers.
The Internet will be used for supply chain management and logistics to ensure the lowest cost
structure and the lowest prices. It will also support access to information on consumers, both
current and potential new accounts, to allow the most accurate setting of prices where
differential pricing is required. That means no applicant for insurance can be undercharged
142
based on inaccurate risk assessment and no applicant for a credit card can be given too good a
deal. In a market where no one can be overcharged without losing the account, there is little
margin for error and little opportunity to recover from undercharging anyone. The ability to
predict the profitability of a new customer, and so to determine a price to offer, is called
predictive pricing.
It is essential to recognize consumers exhibiting opportunistic spot market behaviour and to

develop an appropriate marketing and pricing strategy. For example, in markets that exhibit this
behaviour, buying market share is unwise since it can be acquired only temporarily; when prices
are raised to cover losses, customers will flee. Similarly, a policy of offering selected items
below cost as loss leaders to attract traffic will be unwise, because consumers may easily
purchase loss leaders from one site and the rest of their items elsewhere. Only time will tell
whether the market for books, CDs or DVDs exhibits this behaviour, so it is too early to assess
the validity of Amazon.com’s customer acquisition strategy or the promotional items of other
web retailers.
In the absence of consumer loyalty, competition in opportunistic store markets is again based on
price; however, it is the pricing of bundles rather than individual items that attracts consumers.
Unlike spot markets, there are opportunities for intermediaries to add value, through logistical
savings (shipping a box of books), or through assembly or integration (selling a package tour or
designing a digital-imaging platform where camera, printer and computer work together).
In this scenario, intermediaries enjoy power over manufacturers because consumers select
bundles with little attention to components. Thus, when filling an order for paper towels, a
grocer will use the product with the highest margins. This pursuit of margins, in the absence of
brand loyalty from customers, shifts economic power to intermediaries.
Manufacturers will attempt to use the web for branding, to create consumer awareness of
product differences and to weaken intermediaries’ power. While it is dangerous to antagonize
the existing channel in the opportunistic store scenario by trying to sell directly, branding offers
manufacturers the ability to counter some of the power of intermediaries. As in the spot markets,
manufacturers will also use the Internet to improve efficiency. Intermediaries will use the
Internet to create branding for their web stores, so weakening price competition. They will use
customer information, as manufacturers did in spot markets, for predictive pricing.
As in spot markets, no consumer can consistently be overcharged, so it is difficult to recover

from undercharging anyone. While loss leaders can work in these markets, since a customer
may fill a basket or obtain a bundle of services, there is little loyalty to assure repeat business;
thus, as in spot markets, buying market share is risky since there is no assurance that initial
losses can be recouped by overcharging for later purchases.
Of course there may be reasons to buy shares in a ‘scale-intensive’ industry where volume is
needed to bring down unit costs. Indeed, some aspects of online retailing, such as grocery
shopping, may be extremely scale-intensive, which could initially appear to justify buying
shares. However, without customer loyalty, the danger is that capital will be spent more on
training users to accept online shopping and less on training users to accept your online shop.
Competition in loyal link markets is based on retaining the best customers through a careful
blend of service and pricing. For the customer, relationship value and pricing improve over
time. For example, anecdotal evidence suggests that online PC seller Dell has succeeded in
creating loyal link behaviour in customers, many of whom have bought several generations of
computers from Dell.
143
In fact, no incumbent should ever lose desirable business to an attacker. If a less well-informed
competitor were to attempt to persuade a loyal customer to transfer his or her business, the
current supplier could decide whether or not to match the new offer. If the current supplier, with
its detailed knowledge, were to choose not to match the new offer, odds are that the new
supplier is making an offer that is too low. Successful attempts to get customers to switch in
loyal link markets probably represent pricing mistakes by the attacker. Relationship pricing and
value work to soften pure price competition in loyal link markets.
Buying market share will work under certain conditions, since it is possible to learn enough to
price effectively. However, buying market share is ineffective without loyalty, as online
brokerage firms are discovering; so it is critical to assess whether the company is operating in an
opportunistic spot or loyal link market.
Using loss leaders in a link market will be unrewarding; offering online banking below cost to
gain credit card business is unlikely to succeed in a link market, where customers will pick the
best hotel and the best air service, or the best online banking and the best credit offers,
independently.
Systems will be used for branding and attracting customers and to support relationship pricing
and relationship service to keep the best accounts. These markets may appear to have only a
limited role for intermediaries; however, intermediaries enjoy an advantage in controlling
customer information and may end up owning customer relationships.
Competition in loyal chain markets, as in loyal link markets, is based on attracting and retaining
the best customers and, as in loyal link, relationship value and relationship pricing improve over
time. However, in chain markets that are composed of a tightly coupled set of links, pricing to
individual customers and the value they receive are determined by a bundle of goods and
services.
Taking the earlier example of the digital-imaging platform, it may not be necessary to replace
all components when upgrading. However, if buying a higher-resolution camera and a faster
laptop, it is helpful to determine if the new computer and the old printer are compatible,
otherwise the customer may experience an unpleasant surprise while picking and choosing
components in a spot or link fashion. If the previous chain supplier is used to update the
components, unpleasant surprises are likely to be avoided, since his vendor can be relied upon
to provide components that are compatible with those bought earlier. Evidence suggests that
Amazon has succeeded in encouraging a degree of loyal chain behaviour from its best
customers, who value the book recommendations made to repeat buyers.
Loyal chain markets represent a power shift from producers to intermediaries. Online
intermediaries can reconfigure the virtual store to show loyal purchasers the brands they wish to
see; customers without a preference can be shown brands that earn the highest margins. Indeed,
it is a small step from this relationship-based presentation to demanding rebates from
manufacturers to ensure that their offerings will be shown to customers with no brand
preference. While physical stores charge a fee for preferred locations such as displays near
checkouts, they cannot reconfigure the store for each customer.
144
This shift in online power greatly increases the importance of branding for manufacturers,
because a powerful brand is the best to counter pressure from retailers. It also suggests that, to
the extent permitted by legislators, manufacturers should form consortia for web retailing. This
would avoid loss of control to retailers with significant information advantage. However, a
broad consortium is needed since online markets reward scope and breadth.
Intermediaries may effectively buy market share through pricing low, enabling them to pursue
informed relationship pricing over time. Likewise, they may use loss leaders to increase traffic
through their website, selling other items to consumers interested in a complete bundle.
Systems play many roles in chain markets. Intermediaries will use them for branding, to attract
customers, and for informed relationship pricing and service. Likewise, manufacturers will use
the Internet for branding, so limiting price pressure from online retailers. However, efficient
markets still place significant price pressure on retailers, assuring the role of systems for
logistics and other forms of cost control. Likewise, manufacturers and service providers will use
the web for their own cost control.
Conclusions
Three observations are true across all four competitive landscapes:
• Only differences between brands, and consumer awareness of them, can blunt pure price
competition in an efficient market.
• Cost control is important: efficient access to information makes it almost impossible to

overcharge.
• As online information makes markets more efficient, predictive pricing will be used in spot
and store markets, and relationship pricing in link and chain markets. Pricing strategies will
be limited by adverse publicity that companies receive from charging different prices for the
same goods.
The other conclusion that follows from these:
• The role of buying market share will vary. In opportunistic markets, buyers will leave when
you raise prices.
Similarly, the role of loss leaders will vary. In spot and link markets, consumers will pick off
loss leaders and do the rest of their shopping elsewhere. Once customer traffic has been
acquired, there is a chance to sell extra items.
Source: Behaviour is the key to web retailing strategy by Eric Clemons and Michael Row,
13 November 2000, The Financial Times, © Eric Clemons and Michael Row.
Questions
1. Summarize the characteristics of the four different types of customer behaviour by taking an
example from a single market such as the financial services industry.
145
Clemons and Row suggest that there will be four different types of behaviour exhibited by
customers of a company. First, there are opportunistic spot purchasers, who may purchase from
a different vendor each time, who exhibit no loyalty. Secondly, there are opportunistic store
markets where again loyalty is low, but they do use intermediaries to construct bundles of
goods. They may use one supermarket one time, and a different one on another occasion,
depending on prevailing offers. Thirdly, they identify customers who behave as loyal links.
These customers have preferred service providers, but do not wish them to provide all services.
For example, a customer may have banked with one bank all his or her life, but will look
elsewhere for what is seen as more specialist products such as insurance or investment
packages. Finally, customers buying in the loyal chain category will have preferred providers
for a range of products such as a single bank for a range of financial services.
2. How can companies respond to the needs indicated by these four different behaviours?
For opportunistic spot and opportunistic store categories, there is intense sensitivity to price and
service packages because of ease of accessing comparison information online. Companies will
need to monitor competitor prices closely, but by emphasizing service quality it may be possible
to change customer behaviour to loyal link. Finally, Clemons and Row suggest that competition
in loyal link and loyal chain markets should be based on retaining the best customers through a
careful blend of service and pricing.
Debate 9.1 Is permission marketing the future?
In the future, all marketing communications, regardless of media, will be permission-

based.
See also the debate in Chapter 4 which covers a similar topic.
• Likely to be required by law in all countries – phone and e-mail already have preference
services.
• Reduces marketing costs through targeting only receptive recipients.
• Reduces problem of message dilution when many messages are received.
• Direct mail is likely to remain opt-out since the direct marketing associations are strong
bodies against it.
• Some consumers and businesses find unsolicited messages a good way of learning about
services and products.
Debate 9.2 Will software replace ‘humanware’?
Some remote customer service contacts will always require personal, human interaction rather
than automated electronic responses.
146
• Research shows that over half of customers prefer it (e.g. see www.mori.com).
• Removing all choice would damage brands.
• For some problems a human is required to answer.
• Technology improvements, for example, Avatars on First Direct and Norwich Union.
• Can complement, for example, online chat and automated e-mail response.
Exercises
1. What are the goals of acquisition and retention in an online context?
Customer acquisition
Techniques used to gain new customers;
Obtain leads via e-mail, qualify via profiling and convert to sales.
Customer retention
Maintain relationships with existing customers through maintaining a dialogue via e-mail and
website.
2. Outline the differences between permission marketing and interruption marketing including
reference to the terms ‘opt-in’ and ‘opt-out’.
Permission marketing
Customers agree (opt-in) to be involved in an organization’s marketing activities usually as a

result of an incentive.
Interruption marketing
Marketing communications that disrupt customers’ activities, for example, telesales call, and is
not explicitly opt-in.
3. Summarize the main types of online marketing communications for traffic building.
• Search engine registration
• Link building
• Banner advertising and sponsorship
147
• PR
• E-mail
• Affiliate marketing.
4. Explain why mixed-mode buying needs to be understood by those managing an e-commerce

site.
Many buying decisions are complex – they are not only made online, but using a combination of
online and offline. To influence the decision, companies need to be active both online and
offline in influencing a range of mixed-mode buying scenarios.
5. Explain a range of techniques for attracting repeat visits to a website.
• Direct e-mail with incentive/offer;
• Personalization.
• Community/news.
• Competitions and promotions.
6. What is the difference between personalization and mass customization?
Personalization is generally considered to be one-to-one marketing where the customer selects

their choices. Mass-customization also involves tailoring, but from a limited number of options.
There is overlap between the two concepts.
7. How can an e-commerce site be used to achieve extension in CRM?
Customer extension
Techniques to encourage customers to increase their involvement with an organization.
See Question 5.
8. What are the management issues in managing data and applications integration in CRM?
• Cost of integration;
• Disruption to service during integration;
• Data transfer from legacy to new systems;
Single vendor or multi-vendor sourcing.
148

1. On what basis should marketing managers decide on the communications mix for an e-
commerce site?
This question also requires reference to the previous Chapter (6Is) section (p443), since a useful
start is to summarize the difference between new and traditional media. Deciding on the mix
should then discuss details of strengths and weaknesses of offline and online equivalents –
recommending the best techniques and then justifying their effectiveness. The balance in
expenditure between online and offline should be discussed. Finally, the sequence of
communications – continuous vs campaign-based should be discussed. Discussion of the
creative and execution of campaigns is not required by this question.
2. Evaluate the current communications mix for an online e-tailer and make recommendations
for future communications to achieve customer acquisition and retention.
This question requires assessment of online and offline communications. A period of at least a
month is required for students to subscribe to an online service and then evaluate it. The
following online techniques can be evaluated:
• Site design (see Chapter 11), how is brand proposition communicated, how is the site used
as a tool for acquisition and retention.
• Capability to generate loyalty through fulfilment notification, customer service, community

and e-mail marketing.
• Assess PR using news source such as Moreover.
• Use of link building – assess search engine registration, links in and contra deals. Suitability
of targeting other sites.
Can also compare these to competitors in sector.
Recommendations can be structured around the areas of analysis above or acquisition, retention
and extension.
3. Show how an understanding of the online buying process can be used to revise marketing
communications.
This analysis can be based around simple models of the buying decision referencing their
accuracy. Students should refer to the following:
• Techniques that can be used to drive a prospect through the buying process
• The techniques in an acquisition, retention, extension context
• The importance of mixed-mode buying
• Data on B2B/B2C online participation in the buying process.
Recommendations can follow similar headings to Q1.
149
4. Explain, using examples, typical differences between a traffic-building campaign for a B2B
and a B2C company.
Questions should probably refer more specifically, for example, to a low value, simple buying
decision product. Differences should centre on:
• Different nature of the buying process for B2B
• Different nature of the decision-making unit for B2B
• Perception of risk and reward of online buying (this can be demonstrated through data about
levels of purchasing for B2B and B2C products).
5. Examine the relationship between customer satisfaction, loyalty and sales in relation to a
pure-play e-commerce site.
Issues which can be referenced include:
• Average cost of acquisition for pure-play is high often due to offline promotion such as TV.
Is this the best approach or can a more organic approach be used with a smaller growth rate.
• How can retention be enhanced to achieve profitability? Combination of service quality and
effective promotion.
• How are different elements of the mix varied in order to achieve profitable loyalty?
6. Examine the benefits and disadvantages of personalization, community building and direct
e-mail. For an organization of your choice recommend a suitable balance between these e-
marketing tools.
Students should devise a table to summarize the advantages before tackling this question, the
table can then act as a summary. Benefits and disadvantages should be considered from both
customer and company perspectives.
The balance recommended will be constrained by the cost and effectiveness of each technique.
In general, the effectiveness/cost ratio will be highest for e-mail, then community, then
personalization.
7. Assess whether a multi-vendor or single (limited number) vendor strategy is best for the
implementation of e-CRM systems.
Referring to the previous Boots case study can help in answering this question. Issues to
consider are:
• Importance of seamless data integration (single vendor) against best of breed features
(multi-vendor)
• Cost
• Support
150
• Implementation
• Integration with existing systems
• Fitness for purpose and function, for example, SFA, managing inbound and outbound
communications.
8. Recommend a social CRM data and application architecture for a B2C company that
provides integration with related legacy systems.
To answer this question students should refer to Figure 9.22 and to Chapter 3. To start this
question the constraints listed in Q7 should be listed.
1. Explain the concept of mixed-mode buying with reference to a pureplay e-commerce
bookseller.
Mixed-mode buying
The process by which the customer changes between online and offline channels during the
buying process.
One scenario is customer sees a company advertised on TV, visits website to decide required
title(s) and then purchases over the phone using a credit card.
2. You are the e-commerce manager for a B2C site. Write an explanation to be included in a
report to the managing director of why a permission marketing approach is required.
Permission marketing
Customers agree (opt-in) to be involved in an organization’s marketing activities, usually as a

result of an incentive.
Required since
• it is consistent with the culture of the media (anti-SPAM);
• it captures information about the customer to profile them and then contact them to continue
a dialogue;
• it is required by law in some countries.
3. What different types of searching behaviour are exhibited by online users and what are the
implications for someone responsible for traffic building on a site?
Two main types are
• directed searching – structured searching using search engines – so registration on most-

popular search engines and techniques to boost position in listing is important;
151
• undirected searching – typically based on links; so link-building campaign is important.
4. With reference to customer acquisition and retention, explain two goals for each required
by an e-commerce site manager.
• Acquisition – must target correct segment(s); must be able to profile leads to help
conversion of lead to customer. Overall numbers in segment is one goal, achieving
conversion rate is another goal.
• Retention – rate of customers selected for retention.
5. Outline four different methods of building website traffic.
• Online – search engine registration
• Online – link building/reciprocal links
• Offline – ads placed on TV or print
• Online/offline – PR media mentions.
6. Explain three factors that will influence the balance of online and offline website promotion
for an organization.
• Cost of acquisition for online vs offline
• Effectiveness of acquisition
• Targeting possible
• Combined efficiency (number targeted prospects acquired/cost).
7. How can an e-commerce site be used to inform new product development?
Feedback from online surveys;
• Interest in particular content from log files
• Online focus groups discussing new product options
• Post-sales e-mails concerning product faults.
8. What is a legacy system and what is its relevance to CRM?
A legacy system is an existing system which is not compatible with current CRM systems. It
does not offer the functionality or data content required today. It may have some data, perhaps
from a transaction processing system, that needs to be integrated with CRM systems.
152
Activity answers
Activity 9.1 Understanding the range of social media marketing platforms

Q. Visit the Conversation Prism (www.conversationprism.com) or the Smart Insights Digital
Marketing Radar (http://bit.ly/smartradar) and identify the types of social media sites you
and your colleagues use. How do you think the popularity of tools would differ for different
types of B2B and B2C sites? Discuss how businesses should decide on the most important to
invest in to achieve their goals.
153
CHAPTER 10
Change management
Table of contents

Case studies 156
Exercises 163
Learning outcomes
• Identify the different types of change that need to be managed for e-commerce
• Develop an outline plan for implementing e-commerce change
• Describe alternative approaches to organizational structure resulting from organizational

change.
Management issues
• What are the success factors in managing change?
• Should we change organizational structure in response to e-business? If so, what are the
options?
• How do we manage the human aspects of the implementation of organizational change?
• How do we share knowledge between staff in the light of high staff turnover and rapid
changes in market conditions?
154
Chapter at a glance
Main topics
• The challenges of e-business transformation
• Different types of change in business
• Planning change
• Human resource requirements
• Revising organizational structures
• Approaches to managing change
• Risk management
Focus on…
• Knowledge management
Case studies
• 10.1 Process management: making complex business simpler
• 10.2 Using Enterprise 2.0 tools to support knowledge management at Janssen-Cilag

Australia
Managing the change associated with the introduction of any information system is one of the
keys to successful implementation. The adoption of e-business is a significant change to any
organization, so managing the associated change is even more important to success. For this
reason, an entire chapter is devoted to this topic. The aim of this chapter is to look at a range of
issues involved in managing change from technical through organizational to human. The
technical issues of change are covered in more detail in Chapters 11 and 12.
Suggested approach:
• The topic of change and its scope can be introduced using Figure 10.1 and Figure 10.2.
Success factors are illustrated at the base of Figure 10.1: communication, education and
training could be added to these boxes. Students can be prompted for different aspects of
change. Students can be asked about some of the main challenges and then these can be
compared to Figure 10.3.
155
• Different scales of change from BPR to BPI and BPA are introduced in the slide deck.
Tables 10.1/10.2 are a good device to introduce these. Ask for examples of each.
• Change is put in the context of the systems development lifecycle and prototyping in Figure
10.6. Common challenges in managing development are highlighted in the preceding
Figures 10.4 and 10.5.
• Human resource requirements are introduced by the complex structure required for a large
company in Figure 10.8. The key resources required in a smaller organization can be
discussed with students (i.e. managing Reach/Promotion, site content and analytics and
customer relationship management through e-mail marketing).
• Organizational structure change is illustrated well by the diagrams of Figures 10.9 and
10.10.
• The human dimension of change is introduced well by Table 10.5 suitability of different
types of cultural orientation to change is indicated by the framework on p561.
• Knowledge management is a separate topic, although receiving significant investment in

large organizations is less important than in smaller organizations and is not widely
understood by students. The Focus On section gives a basic introduction of the differences
between information management and some of the tools that can be used to manage it. This
is a suitable topic for more detailed investigation in an assignment that identifies differences
between traditional information management and approaches adopted.
• Risk management is the final topic. It is useful to get students to think about the potential
problems with implementing e-business.
Case studies
Case Study 10.1 Process management: making complex business simpler
Questions
1. How does the article suggest that business thinking and practice has evolved since the
exhortations for business process re-engineering in the 1990s?
Many of the toolsets are similar as indicated by this quote:
‘…tools for business process modelling, workflow management, process monitoring, enterprise
application integration and managing organizational change, all of which greatly help
information to flow through organizations by coordinating and sometimes supplementing
companies’ key enterprise software packages, such as application suites supplied by SAP,
Oracle and Siebel’.
However, these tools are now available in standard packages such as those mentioned, which
was not the case in the early 1990s.
156
2. Summarize the benefits for BPM discussed in the article.
An example from the article:
‘BPM has obvious advantages. Remodelled processes are usually more effective than their
predecessors, generating immediate cost savings and competitive advantages. MSB
International, an agency supplying workers on temporary contracts to companies, used BPM
tools from Metastorm to revamp its contract processing. Previously, each new contract took an
hour of a salesperson’s time to process after it was agreed. Now the work takes 5 minutes and is
far less prone to error’.
‘Just as importantly, BPM can help businesses change processes more quickly, perhaps with
only minor changes to workflow rules, which minimizes maintenance costs. “Hardly a week
goes by when we don’t change our business processes”, says Mr Marston. The board recently
changed some authorization procedures, and that took about 10 minutes to implement. It sounds
small, but in the old days, that would have taken a week’.
Alignment of technology with process is another example of BPM.
3. Discuss the need for a concept such as BPM when all new information systems and e-
business initiatives are ultimately driven by process improvement.
It is a useful label for the skills and tools required for change management associated with
deploying new working practices and technologies. However, it could be argued that these are
simply a part of IS strategy and implementation. The label is perhaps useful in distinguishing
between the change to business processes and the technologies.
Supplementary question
The problems with BPM are indicated by the quotes at the end of the article.
Nevertheless, BPM is no walkover. As a complex set of technologies that do not always work
together easily, it requires great effort and discipline to implement. ‘The hardest part is
understanding the business processes’, warns Mr Marston. ‘Initially, we tried to analyze
everything about each process, but either the analysis was wrong, or the business had changed
by the time it was implemented. So now we evolve our processes continually’.
A big danger is that over-enthusiastic companies may use BPM to create too many new business
processes, says David Stephenson, European managing director of supply chain specialist
Yantra. ‘You can create a proliferation of business processes, and the simplification of your
business processes gets lost as a result. You have to keep a tight control over the design
process’, Mr Stephenson warns.
BPM technologies are also not as sophisticated as some vendors claim. ‘Many people are going
to be sucked into an idea that sounds very seductive until they get into the detail’, warns Rakesh
Kumar, a vice president of technology research at analyst Meta Group. ‘Integration between
technologies is a critical problem. Even if you have the technology problems solved, mapping
internal business processes to core IT processes is another problem’.
Gartner, the IT consultancy, said in a research note in December 2002 that corporate satisfaction
with BPM is already high and is continuing to rise – making it a rarity in the IT world. Gartner
urged clients to adopt BPM, predicting that it would deliver them a 10–15 per cent return on
157
their investment over the next 2 years. BPM ‘will hold the key to creating new revenue
opportunities and shortening product creation processes’, it added.
Nevertheless, BPM is no panacea. Businesses must educate their staff and trading partners
carefully about the changes it will bring to the business, or resistance to change – whether
conscious or not – will emerge.
Case Study 10.2 Using Enterprise 2.0 tools to support knowledge

management at Janssen-Cilag Australia
Questions
1. What does this case study suggest, are the main challenges for different stages of
introducing a wiki or other Enterprise 2.0 approaches in a large organization?
The stages are summarized by the subheadings in the article, that is,
• Requirements gathering – need to consult widely, given the culture of this organization
• Pitching to business – the selling of the solution focused on simplicity and not being too
restrictive
• Selection of tool – requirements were ease of editing, hierarchy of pages and search
• Implementation – sign-on and location of other users in an e-directory
• Launch and user training – just 5 minutes training
• Adoption, statistics and business impact – this shows the value of having tracking of activity
levels
• Content ownership model
• Keeping momentum and next steps – the challenged is adoption across all parts of the
business.
2. Which solutions does Nathan Wallace describe as being effective for overcoming these
problems?
The solutions are also indicated through the section headings for the case study.
158
Managing global change at Guinness
Programme aims
In 1997, Guinness embarked on a 3-year programme of business transformation referred to as

the Integrated Business Programme (IBP). This change would impact on 10,000 employees in
five areas of the £2.2 billion business – Ireland, the United Kingdom, Europe, the United States
and the Global Support division – and across product lines including the largest, Guinness and
Harp lager, Kilkenny ale and Irish cider.
The IBP was intended to support the company’s strategic aim to grow the business following
the merger with Grand Metropolitan in 1991. It was also combined with rectifying the
millennium bug. The IBP involved redesigning common business processes and the information
systems that supported them. To achieve an integrated international supply chain and to replace
inefficient activities was the main aim. Reducing stock levels would enable it to reduce costs
and make better use of its assets. Global reporting on its activities would also become possible.
Reduced costs are possible by rationalizing the supply chain and reducing the number of
suppliers, and moving to guided sourcing, especially over the Internet, where things like
electronic catalogues and global negotiation become feasible. Guided sourcing, which ‘everyone
has to use’, according to Roy Jakes, Guinness finance director, saves money by cutting out
expensive, off-contract maverick purchasing, and this is one example of the kind of tighter
rigour that now applies across the company. Such is the way the new system works that no
supplier can deliver if they cannot quote an order number. This number has to be entered into
the system in an authorized fashion.
According to Roy Jakes, who was the sponsor of IBP, both cultural and organizational changes
were needed since the businesses operating globally were very different in character. Each
Guinness site had been working as a separate business unit.
Julia Vowler, the author of the case study, notes that there is great difficulty in successfully
implementing global change. She puts the failure rate as being as high as 75 per cent. This failure
rate is not usually due to the processes, but rather with problems in the implementation of the
underlying system. Lack of communication with the staff about what is occurring is also a common
error. The impact of the change programme on the business as a whole is also underestimated.
Programme structure and organizational changes
A project team was drawn out of all divisions of the global business, with some of the best
people in each area selected. This enabled important decisions about the programme to be taken
quickly. According to Jakes, ‘Communication was key during this period and, indeed, it still is.
It was essential to get buy-in from everyone across the organization for a project like this right
from the start. Leadership from the top was excellent and really helped in building awareness of
what was going on at a time of great cultural change and nervousness’.
The toughest challenge was breaking down local cultures, according to Jakes: ‘wading through
politics and inter-regional suspicion required positive leadership from the managing director. It
wasn’t painless’. On the approach used he says: ‘We had to sufficiently educate and
159
communicate what was coming. People don’t believe change is happening until it arrives.
Internal public relations has been very important throughout the project, and we used lots of
different ways to communicate what we were doing. We generally tried to make it fun – you’ve
got to use all the levers you can to make a project like this work’.
The organizational architecture Guinness has selected is a shared-services model, whereby core
functions, most notably finance, are carried out by a dedicated department that services all the
separate business divisions. The processes within the shared-services centres, based in London
and Dublin, include consolidation of financial accounting and reporting, online access to up-to-
date information, as well as the centralized operation of accounts payable and accounts
receivable. The IS department has also become more centralized with a single department
operating out of London and Dublin.
IS implementation
Like the processes, the IS within Guinness was also different in the existing business units. Each
of the five divisions had its own IT department. However, before the programme there had been
some standardization of applications with Microsoft Office applications and e-mail. Other
applications were quite mixed. In Ireland, for example, there were legacy applications, including
an in-house sales order-processing system and packages for finance and human resources, and
Europe had locally purchased packages. Guinness in the United Kingdom had implemented
SAP R/3 over the 2 years prior to the IBP, and this was now selected as the core enterprise
resource planning (ERP) platform for the globalized company. Jakes says: ‘It was excellent to
have had the UK as a prototype for R/3 because you do get hurt putting in ERP. So we’d
already got the scars and learned the lessons’. Of course, the downside of having used SAP in
the United Kingdom was that other divisions might regard the extension of R/3 out of the
United Kingdom with suspicion. This problem was reduced since the UK system was not rolled
out without changes; it was upgraded in line with the agreed business process transformation.
The implementer for SAP R/3 was Druid. The supplier centred on five processes: finance, sales
and operations planning, procurement, customer order fulfilment and product supply. In terms
of different types of IS applications, the solution included workflow, data warehousing and
advanced supply chain planning solutions and integration of some legacy systems as well. Jakes
says: ‘around 80 per cent of the corporate back office goes on R/3 – all the finances, all order
processing, all the production ordering, stores and logistics. We use Manugistics for production
planning. It takes the data out of R/3, produces the work plan and feeds it back to R/3’. It has
not been possible to use SAP as a single supplier. Jakes says ‘our MIS is still being built: SAP
R/3 is feeding our SQL Server data warehouse, which has both Brio and Essbase front-ends to
give us a consistent picture of production, finance and sales reporting’.
A benefit of this integrated approach for customers is integration of order-processing activities

across Guinness’s businesses. The new process enables greater control over its assets such as
kegs of beer – to ensure better traceability of products and ultimately, improve customer
satisfaction and quality management.
Some 2500 people (out of 10,000) now use the system, but there are some difficulties with use
of the system. Jakes says: ‘not everyone has found the system user-friendly. For occasional
users it’s not the most friendly. For them, using workflow or, increasingly, new Internet front-
ends, is more palatable’.
160
The IBP doctrine has not been applied regardless. Some regional differences or localization also
make sense. At this stage the Far East and African operations have remained separate. Since, in
Ireland, most pubs are still owner-managed rather than owned by big chains, a different sales
order-processing system is used from the United Kingdom one, where the brewer just takes in
orders from the major wholesalers and then distributes the beer to their pubs.
Project history
1997
• Guinness merges with Grand Metropolitan to form Diageo
1998
• February: IBP launched
1999
• January: First go-live of base line SAP R/3 across Guinness in the United Kingdom
• May: Roll-out of IBP within the United Kingdom
• July: IBP extended to sites in Ireland
• November: Customer Order Fulfilment (Cof) went live in both the United Kingdom and
Ireland. IBP rolled out in Northern Ireland
2000
• Further roll-out of Cof in the United States and Guinness Ireland Group.
Source: Feature by Julia Vowler, Computer Weekly, 27 July 2000, 20–21.
Questions
1. Outline the main cultural and organizational problems associated with change that are
described in the case.
• Breaking down local cultures and inter-regional suspicions
• Staff not accepting change until it is actually happening
• Not mentioned specifically would be fear of job loss, or change of role and loss of power.
2. What actions were taken to overcome resistance to organizational change at Guinness?
• Project team to manage change
• Leadership from the top to build awareness
161
• Education and communication – but trying to make it fun (unclear how!)
• Shared-services centres, for example, for finance.
3. Outline the technical solution adopted by Guinness. To what extent was it possible to source
from a single supplier?
• Centralization of IS including standardization of software at Office level (Microsoft) and

enterprise level (SAP R/3)
• Piloting of SAP using prototyping in the United Kingdom
• Move to single supplier for some Office and enterprise applications, although other more
specialized software not mentioned in the article may be required, for example, CRM
software.
Debate 10.1 Organizing for e-business
The introduction of a separate e-business function is necessary in large organizations to

implement e-business effectively.
This is similar to the discussions in Chapter 5 about the need for a distinct e-business manager.
• Having a unit will ensure that e-business is planned with clear objectives and strategies –
this is less likely if it is subsumed in another department
• Suitable skills can be recruited into the department
• Emphasizes the importance of e-business for change – acts as a catalyst
• Can achieve a balanced view of where e-business investment is made
• Can help disseminate best practice.
• May be best incorporated into IS department – lower costs;
• May only be a short-term need – does it warrant the overhead of setting up the department?
Debate 10.2 Knowledge management
‘Knowledge management is as likely, if not more so, to act as a process of managing

people or information than as a practice attuned to facilitating knowledge creation’.
162
• For knowledge management (KM) to be successful it does require changes to processes

(and the people involved in operating them)
• KM also involves disseminating information
• KM tends to be about capturing existing knowledge rather than creating new knowledge –
this is a less important goal.
• An opportunity is missed if KM is not used as a way of gaining additional information
• KM will fail if it is seen by staff as a way of managing and controlling them rather than
facilitating the exchange of information.
Exercises
1. Summarize the main types of change that need to be managed during introduction of
e-business.
• Business level change – new business processes
• Technological change – new systems
• Organizational structure change
• Organizational culture change
• Organizational strategy change
• People change – new roles and working practices.
2. What approaches must managers take to achieve change management successfully?
• Support from senior management
• Education – explain why the system is required by the business and its impact on staff
• Involvement –involve employees in specification and testing
• Training – explain new procedures and operation of software
• Risk management – assessing problems and putting solutions in place.
3. Outline the main stages of a sell-side e-commerce implementation.
• Initiation
163
• Analysis/market research
• Specification of business objectives and application requirements
• Design of solution including selecting implementation platform
• Integrate different applications and build interface
• Migrate data about customers and products to the system
• Test
• System live
• Maintenance.
4. Explain the role of prototyping in developing a sell-side e-commerce solution.
Prototyping
Prototyping is an iterative process where website users suggest modifications before further
prototypes and the live version of the site is developed.
The main benefits are as follows:
• It prevents major design or functional errors being made during the construction of the
‘website’ that may be costly and time consuming to fix once the site becomes live and may
also damage the brand. Such errors will hopefully be identified early on and then corrected.
• It involves the team responsible for the website and ideally, the potential audience of the
website, in proactively shaping the ‘website’. This should result in a site that more closely
meets the needs of the users.
The iterative approach is intended to be rapid and a site can be produced in a period of months
or weeks.
5. Describe four different approaches to retaining staff.
Various elements of a benefits package
• Increase remuneration
• Training and reskilling
• Share options
• Pensions, etc.
6. What alternative approaches are there to structuring e-commerce within an organization?

1. A separate operating company. Example: Prudential and Egg (www.egg.com).
164
2. A separate business unit with independent budgets. Example: RS Components Internet

Trading Company (www.rswww.com)
3. A separate committee or department manages and coordinates e-commerce. Example,
Derbyshire Building Society (www.derbyshire.co.uk).
4. No formal structure for e-commerce. Examples: Many small businesses and the Retail
and Engineering Company.
7. Which type of organizational culture is most amenable to e-business related change?
The four types of culture described in the text are as follows:

1. Survival (outward-looking, flexible) – the external environment plays a significant role
(an open system) in governing company strategy. The company will likely be driven by
customer demands and will be an innovator. It may have a relatively flat structure.
2. Productivity (outward-looking, ordered) – interfaces with the external environment are
well structured and the company is typically sales-driven and is likely to have a
hierarchical structure.
3. Human relations (inward-looking, flexible) – this is the organization as family, with
interpersonal relations more important than reporting channels, a flatter structure and
staff development and empowerment are thought of important by managers.
4. Stability (inward-looking, ordered) – the environment is essentially ignored with
managers concentrating on internal efficiency and again managed through a hierarchical
structure.
Of these, 1 and 3 are the preferred approaches.
8. What are some of the risks of e-business change, and how can they be managed?
See table (above in Activity 10.5 answer) for a suggested solution.

1. Write an essay on approaches to managing e-business change.
Suggested approach:
• Introduction to scale of change – is it on a project basis for a single process, or across the
whole organization as in the case of Guinness?
• Identify the change levers and drivers
• Options for organizational structure change
• Role of IS architecture to support change (Chapter 3)
• External perspective – managing changes in links with partners – value networks (Chapters
5 and 6).
165
2. ‘Total outsourcing of e-business operations is the best method to overcome the skills
shortage’. Discuss.
One approach to this question is:
• Define outsourcing.
• Briefly review history of outsourcing across last 10 years – its benefits and disadvantages.
• List the different aspects of e-business operations that can be outsourced and discuss
whether it is appropriate to outsource each one (similar to Table 10.2, but this focuses on
sell-side e-commerce).
• Use cases to illustrate outsourcing of all options.
• Draw conclusions (typically outsourcing of strategy and fulfilment/customer contact causes

lack of focus, so selective outsourcing is the best approach).
3. Contrast the project management stages involved with sell-side and buy-side e-commerce
implementations (referring to Chapters 11 and 12 will help with this question).
Issues to be discussed:
• This is a question about the systems development cycle – brief review of purpose and main
stages as introduction.
• Encourages students to think about common stages and their relevance to buy-side and sell-
side e-commerce.
• Differences on sell-side is role of marketing in researching best solution and communicating

benefits of solution.
• Difference on buy-side is the need to integrate across supply chain, so potentially larger
project impacting more departments.
4. ‘High turnover of technical staff is a fact of life in a buoyant job market and there is little
that can be done to reduce turnover’. Discuss.
Original Case Study 10.2 (Netdecisions) provides useful background. Note how this case has
become dated with the decline in the e-commerce sector meaning that employee retention is not
now such a major issue. The question prompts students to discuss methods of employee
retention mentioned in the case.
5. Develop a change management plan for a company you are familiar with.
This is dependent on the situation chosen, which could be a large-scale e-business change or
smaller-scale change introduced in one part of the business. For the question, it should be
assumed that the objectives and strategy have already been identified. The plan should include:
• Project objectives
166
• Project plan (Gantt)
• Changes options: structure, process, individual roles
• Risk assessment and solutions
• Communications plan (education, training).
6. You are the HR manager at a new-media design agency and are evaluating the use of
overseas contract workers to help on projects. Write a report summarizing the feasibility of
this approach.
The following issues can be considered:
• Cost (research using articles on this topic)
• Control (how is quality control maintained at a distance?)
• Liaison (can meetings occur remotely via video-conferencing or will meetings be required
to define requirements and prototype developments?).
7. Write a report on how the knowledge within a company can be better managed. Refer to
particular technologies and procedures for managing explicit and tacit knowledge.
Approaches should include assessment of the following for the current situation, and then a
discussion of how they can be transformed:
• How is operational, tactical and strategic information transferred vertically within the
organization, and how is it transformed into knowledge?
• How is information transferred horizontally within an organization (between departments)?
• Use of information systems to manage and share information, for example, business
intelligence systems, EIS, portals.
• Procedures for encapsulating and disseminating knowledge.
8. Assess the merits of virtualization in an organization of your choice.
In this context virtualization refers to outsourcing or forming teams for a one-off project basis.
Suggested structure:
• Definition, benefits, disadvantages
• Assessment of organizational functions or processes suitable for virtualization
• Risk/reward for each of these
• Recommendation and justification.
167
1. Explain what prototyping is and why it may be used on an e-commerce implementation.
Prototyping
Prototyping is an iterative process where website users suggest modifications before further
prototypes and the live version of the site is developed.
The main benefits are as follows:
• It prevents major design or functional errors being made during the construction of the
‘website’ that may be costly and time consuming to fix once the site becomes live and may
also damage the brand. Such errors will hopefully be identified early on and then corrected.
• It involves the team responsible for the web site and ideally the potential audience of the
website in proactively shaping the ‘website’. This should result in a site that more closely
meets the needs of the users.
• The iterative approach is intended to be rapid and a site can be produced in a period of
months or weeks.
2. Summarize the main human-resource requirements for an e-commerce implementation.
• Project manager
• Marketing or brand manager
• Business analysts (for requirements)
• Systems architect (designer)
• Graphic designer
• Database administrator
• Tester
• Content developer.
3. A company has implemented a brochureware site without any changes to managerial or

organizational structure. They are now seeking to achieve one-third of their revenues via
the website. What changes to managerial and organizational structure would you suggest?
Options are required to give focus to achieve this dramatic change:
• Separate e-commerce department with separate budget
• Partner with, or acquire existing dot-com company
168
• Create new standalone company with separate financing.
For all options, staff from existing business units will need to be co-opted to ensure integration
with the main line of business.
4. Explain how knowledge management differs from information management.
Data is transformed into information to add value, but it still requires experience or intelligence
to perform the analysis and interpretation to be of value. Knowledge management involves
disseminating this experience throughout or between organizations.
5. Explain the concept of the virtual organization. What are the advantages over a traditional
organization?
A virtual organization has no clear physical boundaries. It operates through control of resources
from a number of organizations, using information systems to coordinate and share information.
Possible advantages are:
• Lower start-up costs
• Selects best of breed providers, for example, in cost or quality
• More responsive – can be created for a short-term goal, for example, market opportunity.
6. Name four approaches a company can take to increase retention of technical staff.
Various elements of a benefits package:
• Remuneration
• Training and reskilling
• Share options
• Pensions, etc.
7. Prioritize, with justification, your recommendations for outsourcing these functions: e-

commerce strategy, e-commerce hosting, e-commerce content updating.
• Hosting – this is low risk outsourcing since customer service quality can be maintained
through service level agreements. Knowledge of business is not required by contractor.
• Content updating – knowledge of business area is required by contractor.
• Strategy – intimate knowledge of business area is required by contractor.
8. You are project manager of an e-procurement implementation. How would you maximize
acceptance of the new system among staff?
• Support from senior management.
169
• Education – explain why the system is required by the business and its impact on staff.
• Involvement –involve employees in specification and testing.
• Training – explain new procedures and operation of software.
Activity answers
Activity 10.1 Managing change at a B2C company

Q. Speculate how the introduction of changes by a CEO or managing director such as those
illustrated by the top four boxes of Figure 10.1 would affect different employees at a B2C
company. Imagine you are each of the following people. What would your reaction be on a
professional and a personal level? What would be your role in affecting change?
o Marketing manager
o Warehouse manager
o HR manager
o IS manager
o Employee in call centre
• Marketing Manager – the marketing managers are likely to welcome e-business-led change
in a professional capacity since it potentially gives them the opportunity to develop a new
channel to market, which could help increase turnover. On a personal level, they may be
worried about whether they have time to manage change and whether they or their staff
have the appropriate skills. They may also be concerned as to whether the senior managers
are prepared to ‘walk the talk’ as well as ‘talking the talk’. They are also uncertain where
the responsibility for e-business lies – is it with the CEO, the IS manager or themselves?
• Warehouse Manager – the warehouse managers may imagine that this change will not affect
them much, and that it is ‘business as usual’.
• HR Manager – the HR managers will be worried about recruiting staff and educating staff
about the change. It is going to mean a lot more work for them.
• IS Manager – the IS managers may see e-business as increasing power and budget, but like
the marketing manager, they may be concerned as to whether the CEO will ‘put the money
where their mouth is’. They will also be concerned with reskilling, but this may be a way of
helping to retain staff, some of whom have recently left for dot-com companies.
• Employee in call centre – the employees in the call centre may feel they are unaffected by
this change, but in fact their role could change since they may have to field e-mail and
phone queries related to the website about which they may have limited knowledge.
170
Activity 10.2 Options for outsourcing different e-business activities

Q. A B2C company is trying to decide which of its sell-side e-business activities it should
outsource. Select a single supplier (single tick for each function) that you think can best
deliver each of these services indicated in Table 10.3. Justify your decision.
1. Strategy – management consultant. These organizations have an established reputation

in strategic consultancy and many are thought leaders in implementing e-business.
2. Design – new media agency. These are start-up companies who specialize in e-
commerce and e-business design. They tend to offer all the skills in Table 10.1 other
than infrastructure.
3. Content development – new media agency. This is the ‘bread and butter’ of the media
agency.
4. Online promotion – new media agency. Also the ‘bread and butter’ of the media
agency.
5. Offline promotion – traditional marketing agency. New media agencies tend to have
less experience in traditional communications channels, so an established company may
be best here.
6. Infrastructure – ISP or traditional IT supplier. This is the clear choice for this activity,
although larger companies may want to retain this facility in-house.
Activity 10.3 Which is the best organization structure for e-commerce?
Activity
1. Match the four types of companies and situations to the structures (a) to (d) in Figure 10.9.
Figure 10.9 Summary of alternative organizational structures for e-commerce suggested in

Parsons et al. (1996).
(a) A separate operating company. Example: Prudential and Egg (www.egg.com).
(b) A separate business unit with independent budgets. Example: RS Components Internet
Trading Company (www.rswww.com).
(c) A separate committee or department manages and coordinates e-commerce. Example:

Derbyshire Building Society (www.derbyshire.co.uk).
(d) No formal structure for e-commerce. Examples: many small businesses and the Retail and
Engineering Company.
The organization structures match as follows:

(a) 4. No formal structure for e-commerce.
(b) 3. A separate committee or department manages and coordinates e-commerce.
171
(c) 2. A separate business unit with independent budgets.

(d) 1. A separate operating company.
2. Under which circumstances would each structure be appropriate?
3. Summarize the advantages and disadvantages of each approach.
Answers 2 and 3. Some of the main advantages and disadvantages are summarized in Table
10.4. You will identify many more!
Activity 10.4 Changing the culture for e-business

Q. Review the four general categories of organizational cultural orientation summarized by
Boddy et al. (2001) and take each as characterizing four different companies and then
suggest which is most appropriate for e-business. State whether you think they are most
likely to occur in a small or a larger organization.
• Survival (outward-looking, flexible) – this organization is likely to be responsive and will

have a ‘thriving on chaos’ mentality that will fit in well with the dynamic e-business
environment. There could be problems in efficient updating of web content and services and
there could also be problems with the efficiency of customer service such as through
responding to e-mail enquiries. Small–medium start-up. Staff responsive to change.
• Productivity (outward-looking, ordered) – this company is arguably best placed to meet e-

business. Existing interfaces with the environment such as links with suppliers and
customers can perhaps be most readily transferred into electronic links. The only problem
may be that a hierarchical structure makes decision-making and implementation slow with
lack of creativity in response to customer needs. The company may not be as responsive as
some of its competitors. For example, established medium-to-large company. Staff is less
responsive to change.
• Human relations (inward-looking, flexible) – this company is well placed to communicate

well with customers and understand their needs from e-business. The lack of well-defined
control structures may cause problems for implementation as for the survival orientation.
For example, small-to-medium company. Staff is responsive to change.
• Stability (inward-looking, ordered) – it is difficult to imagine how this company has

survived pre-e-business. It will be slow to respond to the e-business challenge, perhaps
waiting for others in its sector to ‘test the water’. Once it does decide to react it should be
able to implement e-business quite well, in a similar manner to the productivity orientation.
For example, medium-to-large company. Staff is very unresponsive to change.
Activity 10.5 E-business risk management

Q. Review this chapter with reference to Chapters 4 and 5 and produce a grid with four
columns describing the risk for a company with which you are familiar, or for a typical B2C
company, assessing its probability on a scale of 0 (no risk) to 10 (very high risk), its impact
from a scale of 0 (no impact) to 10 (catastrophic) and possible solutions.
172
Table below provides a model answer for risk assessment.
Risk assessment for an e-business implementation project

Risk Probability Impact Solution
Insufficient senior 5 7 Education/training/lobbying
management by e-business manager to
commitment achieve buy-in
High staff turnover/key 6 5 Use monetary incentives
staff leave and improve working
environment
Project milestones not 8 6 Appoint experienced
met, overrun budget project manager and
provide support and
resources needed.
Manager will perform risk
management such as this
Problems with new 8 8 Allow sufficient time for
technology delaying volume, performance
implementation (bugs, testing
speed, compatibility)
Staff resistance to 4 4 Education, training,
change identification of change
facilitators amongst staff
Problem with 6 8 Tackle these issues early
integrating with on, identify one contact
partner’s systems point/manager for each of
(e.g. customers or partnerships
suppliers)
New system fails after 2 9 See solution to delayed
changeover (too slow implementation
or too many crashes)
173
CHAPTER 11
Analysis and design
Table of contents

Case studies 176
Additional activity 181
Exercises 185
Learning outcomes
• Summarize approaches for analyzing requirements for e-business systems
• Identify key elements of approaches to improve the interface design and security design of
e-commerce systems.
Management issues
Analysis and design of e-business systems raises these issues for management:
• What are the critical success factors for analysis and design of e-business systems?
• What is the balance between requirements for usable and secure systems and the costs of
designing them in this manner?
174
Chapter at a glance
Main topics
• Analysis for e-business
• Process modelling
• Data modelling
• Design for e-business
Focus on…
• User-centred site design
• Security design for e-business
Case studies
• 11.1 Dabs.com refines its web store
• 11.2 Building an e-business fortress
This chapter is structured according to different aspects of e-business analysis and design, each
of which can be covered as a single lecture. The analysis sections are as follows:
• Analysis for e-business – this introduces different types of analysis emphasizing the
importance of analyzing information flows (use the quote off slide 4) and the workflows
that make up business processes (slide 5).
• Process modelling (p582) – Table 11.1 on p583 illustrates the way in which a business
process can be broken down into a series of activities and work items. The different forms
of flow process charts described on p585 can both be constructed in seminars/tutorials by
students to illustrate how process analysis occurs.
• Data modelling (p592) – this briefly reviews entity relationship modelling which is a well-
known technique. The example of Figure 11.5 can be used as part of a tutorial (see
additional tutorial below).
The design sections:
• Architectural design (p594) – this should be used in conjunction with Chapter 3, for
example, Figure 3.1. The diagrams and Case Study 11.1 stress the importance of integrating
different applications from different vendors and different data sources. This issue is also
highlighted in the additional case study below.
175
• User-centred design (p596) – this topic is popular with students on practical e-commerce
courses – essentially interface design. Everyone has their own opinions on this but here, a
structured approach based on academic theory is suggested. The use-case analysis method
that arose out of object-oriented techniques works well in case studies.
• Activity 11.3 and 11.4 and Case Study 11.1 can be used for tutorials or as an assignment to
reinforce these points.
• Security design (p624) – this is clearly important and involves terms relevant to managers,
but could be set as a reading assignment rather than covered in face-to-face teaching.
Case studies
Case Study 11.1 Dabs.com refines its web store

1. The management of Dabs.com has invested in several major upgrades to its online presence
in order to improve the online customer experience. Assess the reasons for the need to
invest in site upgrades by referring to the dabs.com example. To what extent do you think
major, regular site upgrades are inevitable?
In keeping with the theme of this chapter, this question is about managing the online customer
experience and prompts students to think about how often this needs to be addressed.
This can be approached through the classic arguments for and against regular frequent upgrades.
Arguments in favour of regular upgrades, many of which are mentioned in the case include:
• Changes in new web standards enabling more sophisticated interfaces – for example, the
mover from basic HTML to dynamic HTML to AJAX (Asynchronous Java and XHTML).
• Changes in product offerings and partnerships.
• Changes in branding.
• Changes in design styles.
• Changes in access device, for example, mobile and web PDAs.
• Changes in legislation, for example, Accessibility laws such as the Disability and
Discrimination Act.
• Need to increase conversion rates to sale indicated by web analytics and usability studies.
Arguments against:
• Consumer behaviour remains similar (actually as design styles change, consumer behaviour
also differs).
176
• Cost! So the argument concerns the frequency of major upgrade, although the above
arguments for suggest the need for a flexible architecture and content management system
to enable changes between upgrades.
2. Compare the quality of the online customer experience of dabs.com by visiting the site and
those of its competitors such as www.ebuyer.com and www.euroffice.com. Explain the
categories of criteria you have used to make your assessment.
Students should be advised to develop different personas and scenarios as described in the
chapter (e.g. new customer, existing customer, browsing customer against directed customer
with a product in mind).
Typical benchmarking criteria that impact the experience, which the students can evaluate,
include the following:
• Ease of locating the site through search engines.
• Usability – number of clicks to find product, ease of navigating to product, ease of purchase
once selected.
• Accessibility – compliance with laws.
• Marketing messaging for persuasion marketing – clarity of online value proposition and
establishing credibility of site.
• Branding and visual appeal.
• Site performance – can test by using a service like www.siteconfidence.co.uk.
• Support for problems.
Case Study 11.2 Building an e-business fortress

Q. Summarize the change in security model needed to protect corporate assets.
A key concept is authentication – identifying users are who they say they are.
Another concept is encryption of data using cryptography that cannot be readily broken without
the relevant key.
Enterprise rights management of documents is a further approach, which means that documents
cannot be readily accessed outside an application.
Customer-oriented website design

The case summarizes guidance on producing effective web services from Patricia Seybold, a
well-known, US-based consultant.
177
The problem with information technology projects, says Patty Seybold, is that they can make
companies self-obsessed. So much time is spent streamlining and automating that the poor
customer ends up being forgotten.
‘You redesign your customer acquisition process or your inventory management process but
you do so from the inside out. Even if you think you are doing it for the benefit of the customer
it is your business process that is being streamlined’, says the technology consultant and author
of Customers.com, the 1998 business best seller.
This inward focus may help explain one of the enduring mysteries of corporate America: how
can so many companies have spent so much on ‘customer relationship management’ computer
systems, with so little to show for it?
CRM systems deal with the ‘customer-facing’ elements of any business – sales, marketing,
customer service – which over the past few years have been the biggest component of IT
spending by US companies.
Yet the day-to-day life of US consumers remains blighted by maddening telephone-answering

systems, impossible-to-navigate internet sites and customer service representatives who appear
to have wandered in from the street.
There are notable – and noble – exceptions. Companies such as South-West Airlines and
Nordstrom, the department store, regularly trounce their peers in surveys of customer
satisfaction. But aggregate measures, such as the customer satisfaction index compiled by the
University of Michigan, show that US consumers are less happy than before the CRM spending
binge started in the late 1990s.
Ms Seybold says: ‘It is partly a question of the values and culture within an organization. It
doesn’t matter how much CRM technology you’ve got if the senior people are interested only in
budgets and forecasts and don’t want to talk about things that [affect] the customer’.
Customers.com popularized one of the big ideas of the dot-com era: that the Internet had
changed the balance of power between companies and their customers. The key to success in
this environment, it argued, was to make your company ‘easy to do business with’: by setting up
Internet sites and telephone systems that made it possible for customers to serve themselves;
CRM systems that remembered customer preferences, pet hates and peccadilloes; and systems
that served up accurate information on product availability, delivery times and order status.
Needless to say, the technology industry lapped it up. Ms Seybold became the patron saint of
CRM software vendors, the high priestess of the customer revolution. Her arguments were used
to justify multi-million-dollar technology investments that seem to have failed, in aggregate, to
make life any easier for consumers. The reason is that investment in technology was not
matched by a broader rethink about how companies set their priorities.
‘Most companies have not even attempted to redesign the company from the customer’s
perspective’, says Ms Seybold. ‘They have made the systems investment without also looking at
their organizational design, remuneration policies and training, or the metrics they monitor’.
One company that came close to taking the holistic approach that Ms Seybold advocates was
Hewlett-Packard, the computer and printer group now in the process of integrating Compaq,
which it acquired this year.
178
Carly Fiorina, HP’s chief executive, had introduced a range of initiatives before the Compaq
deal – including a new organizational structure, a new compensation policy for executives and
an elaborate new measure of ‘total customer experience’ – aimed at making the group more
focused on customers.
The question now is whether the huge internal effort required to integrate Compaq will mean a
return to the old, inward-looking mindset.
Ms Seybold has a number of prescriptions for companies that have tried and failed to improve
customer satisfaction. Notably, none of them involves paying large sums of money to CRM
software vendors.
Her first piece of advice is to appoint someone to be responsible for ‘the total customer
experience’.
‘It needs to be someone senior – at executive vice president or at least vice president level –
who has been at the company for a long time and who has credibility’, she says. ‘They need a
combination of strategic vision and detailed, operational experience’.
Second, she says, figure out what customers really care about and ‘start monitoring the hell out
of it’.
This is easier said than done, of course. The methodology used by Patricia Seybold Group, her
Boston-based consulting firm, is ‘customer scenarios’ – a way of asking customers to map out
how they would like to do business with you.
She explains: ‘For each customer segment you will usually find that there are three to six
scenarios that really matter. When you map these out it usually turns out that there are three or
four things within your organization that are broken. Maybe the product information isn’t
accurate or detailed enough, or you don’t have a clear enough view of your inventory to tell
them whether an item is in stock’.
Third, you should give your customers direct access to your business.
Examples include internet banking systems that let you see, in real time, the transactions taking
place in your accounts; and the tracking system that lets customers of Federal Express, the
delivery service, know where a package is on its way from Biloxi to Bhutan.
Giving customers a direct view into your business in this way need not require a ‘big bang’
investment in new systems. Ms Seybold says: ‘Some of the best examples of this I’ve seen have
been achieved using duct tape and WD40’.
New software standards such as XML, a system of text tags that describes the contents of
electronic documents and can be read by any computer, promise to make this easier. In theory,
XML and related ‘web services’ standards will let computers talk to computers – within or
across corporate boundaries – without human intervention.
‘One of the things that companies are missing about web services is that you can use the
technology to deal with some of the things that really annoy customers’, she says.
179
Unlike the advice of the 20-something hucksters who rose to prominence alongside
Ms Seybold in the late 1990s, her words carry weight. Before the publication of Customers.com
she spent 20 years advising companies on IT.
When she started in the late 1970s, the personal computer was still a research concept, client-
server architecture did not exist and the internet was nothing more than an academic curiosity.
In those days the objects of her analysis were the word processors and other ‘office automation
machines’, as they were quaintly known, that preceded the PC revolution.
So what technologies does she believe will have the next big impact on companies?
Web services, if used correctly, is one. Another is wireless broadband, such as the 802.11b
standard, often called ‘wi-fi’, for beaming data around at high speed without the use of cables.
In her latest missive to clients, Ms Seybold predicts that wireless broadband will spark the next
wave of corporate investment in IT. Within 3 years, she writes, companies will have to offer
wireless broadband access to data if they want to retain the best employees. Within 5 years,
hotels and airlines will have to offer the same facility to attract a business clientele.
This is a bold prediction at a time when corporate IT investment is in its biggest slump for
20 years. The current environment of caution and fear does not encourage companies to place
big bets on emerging technologies such as wireless broadband. The danger, as ever, is that
companies will turn inwards, looking for solutions within their internal business processes.
Says Ms Seybold: ‘What you really want to do in a down economy is love your existing
customers to death. Again, there is a danger of focusing on internal processes – how do we get
more of these customers, how do we cross-sell to them? – when the next step should be to make
it easy for customers to do business with us’.
Source: Interview with Patty Seybold, Financial Times; 22 July 2002. © Financial Times.
Questions
1. Explain the reasons that CRM systems may fail the customer according to the article.
Some of the reasons given include:
• Lack of internal focus – focus is instead on increasing efficiency of process.
• Focus of CRM on cost efficiencies which affects the customer through: ‘maddening
telephone-answering systems, impossible-to-navigate internet sites and customer service
representatives who appear to have wandered in from the street’.
• Lack of interest of senior management about the impact of service on customers.
• Lack of redesign of processes to accompany introduction of new technology.
• ‘Railroading’ customers along the ‘customer self-service’ route – some customers will
prefer to talk to a real person.
180
2. What approaches does Patricia Seybold advocate to overcome these problems?
The approaches should counteract the problems mentioned above. The Seybold approach is
described as ‘holistic’ and covering the ‘total customer experience’. This means improving
service, which covers all aspects of the buying process and all customer touch points. Further
guidelines are as follows:
• Have a senior sponsor who has experience of strategy and practical operational service
delivery for this change.
• Identify customer scenarios for different segments and then improve the delivery of the
service associated with these experiences.
• Specific technologies which she predicts may improve service are XML tagging of documents
and wireless broadband.
Additional activity
This is a practical activity for undergraduates, relating ERD design to creation of a database.
It is based on Figure 11.5 on p593.
Scenario
The business-to-consumer company (B2C), a kitchenware retailer, wants to set up an
e-commerce site, but first wants to produce a prototype in Microsoft Access.
The data analysis has been performed and is shown in the expanded entity relationship diagram
below.
Key
* Primary key
+ secondary key
Customer places
1 one-to-many
•Customer id *
Order hdr
•Title
•Order id * relationship
•First name
•Last name •Order date M
•Address line 1 •Dispatch date
•Address line 2 •Total amount
contains Product
•City •Shipping cost •Product id *
•Post/Zip code •Order credit •Short
card number description
contains
•County
•Password •Customer id + •Long
•User id description
•E-mail •Picture
•Registration •Size
date •Category
•Manufacturer
Order line id+
•Line id * •Standard price
•Order id+ •Number in stock
•Quantity •Reorder level
•Price •Next available
•Product id + date
181
Instructions
1. Start Microsoft Access.
2. A dialog box will pop up; choose ‘create a New Database/blank access database’.
3. Choose a filename, for example, B2C (.mdb will be added automatically) and press
Save/OK.
4. The next box you see with the name of your database at the top, is the heart of creating
and managing the database. First we will create a database table.
NB. You should create the four tables above. Here we will just describe the process for the first
one, customer.
Check the Tables Tab is selected at the top of the box and then choose New.
5. You will be presented with a list of different ways of designing/creating the table.
NB. Choose ‘Design View’.
6. You will now see the Design View for the table. Complete as shown in the diagram
below:
You do not need to type in anything for the General/Lookup part at the bottom – this is for
validation.
7. Before you save the table design you need to set the primary key so it is set next to
customer id as shown above.
182
To do this
NB. Click on the Customer id row then press the key icon on the toolbar or choose Edit,
primary key.
8. Now save the table by choosing File Close. You will be prompted ‘do you want to save
the design of Table 1’?, choose Yes and…
NB. Choose the name of the entity for the table name. In this case, Customer.
9. Now we can populate the database with example data. Make up three rows of sample
data for each table (and around two products per order for order line). To add data,
select the table and choose Open and then add the data. You should see something like
this:
10. Now repeat the process for the other three tables as shown in the table designs below.
NB 1. Remember to create/mark a primary key for each table.
NB 2. Ensure all primary and secondary keys have the same data type – Number.
NB 3. When creating sample data ensure that the data in Primary and secondary keys matches.
For example, a customer id in the order header table (e.g. 3) must have a corresponding identical
number in the customer table customer id field (e.g. 3).
Order header
Order line
183
Product
Source: Microsoft product screenshots reprinted with permission from Microsoft Corporation.
Debate 11.1 E-business vs ERP architectures
Designing an appropriate architecture for e-business is effectively the same as the

architecture for enterprise resource planning systems.
• ERP is a subset of e-business – so many core elements are the same
• Large-scale systems involving all parts of a business.
• ERP is a subset of e-business – so some elements not covered, for example, administrative
workflow, knowledge management.
• ERP systems were not traditionally based on web and Internet standards (but have moved
towards them).
• ERP systems have tended to focus on internal processes rather than partner-facing
processes.
Debate 11.2 Whither website design?
Website design is too complex, and too important, to be left to marketers and IT staff
untrained in its principles. Specialist usability professionals and psychologists should
be present in every large e-commerce team.
• Graphic design is usually undertaken by specialists, why should website design be different?
• While some elements of usability are straightforward to understand, specialist training can
give better results as for any profession.
184
• It could be dangerous to give the usability experts and psychologists too much control – input
from IT on technical issues and marketers on business goals is essential.
• However, specialists do probably have a role to play in the team of a large organization.
Exercises
1. What are the risks if analysis and design are not completed adequately?
For an e-commerce service:
• poor user interface;
• wrong type of customer services (content and data);
• slow performance;
• business processes inefficient;
• poor security.
2. Distinguish between process analysis and data analysis.
Process analysis reviews the sequence and speed of events in a business transaction, such as
ordering or customer service. Data analysis reviews the data requirements and structure needed
to support this process.
3. What are workflow analysis and workflow management systems?
Workflow Management
Workflow Management (WFM) is the automation of information flows and provides tools for
processing the information according to a set of procedural rules.
4. What are legacy data and what are the options for their incorporation into an e-commerce
system?
Legacy data is typically from ageing financial, order entry and accounting systems. This old
data is often not integrated and it is difficult to get a single view of customer or financial data.
It is incorporated into e-commerce systems using middleware or enterprise application integration.
5. What are the four requirements of a secure e-commerce site?

1. Authentication (customer needs to avoid fraud from customer, alternatively customer
needs to check reputable company).
2. Privacy and confidentiality (main aspect is to protect customer privacy).
185
3. Integrity (applies equally to both).

4. Non-repudiability (required by company).
6. Explain the concepts of digital keys and digital signatures and how they relate.
Digital certificates (keys) consist of keys made up of large numbers that are used to uniquely
identify individuals.
Digital signatures is a method of identifying individuals or companies using public key

encryption.
Digital certificates are used to encrypt digital signatures to achieve identification of individuals.
7. Explain the notation used for use-case analysis.
Figure 11.8 shows the notation for actors (people) and use cases (activities in a sequence).
8. Summarize the characteristics of a usable website according to Jakob Nielsen

(www.useit.com).
• Customer orientation
• Site navigation and structure
• Page design
• Content design.

1. Write a plan for the analysis and design of an e-commerce site, recommending which
aspects of process and data analysis should be conducted and explaining how they should
be integrated.
The plan should contain the main elements of this chapter. Students can also refer to Figure 10.2
and 10.3 to assist with this. The main stages are:
• Process analysis (e.g. task breakdown, flow process chart)
• Data analysis (e.g. ERD modelling and data mapping)
• Application architecture and data integration
• Interface design (use-case and storyboarding, requirements analysis occurs here)
• Security design.
The question about integration prompts students to discuss the sequence of activities and how
they relate to each other.
186
2. Write an essay on the significance of workflow systems to e-business, illustrating your

answer with examples of organizations of your choice.
Suggested approach:
• Definition of e-business, workflow systems
• Review of how workflow supports different sell-side and buy-side processes
• Review of where workflow is not involved.
3. Write a report summarizing the characteristics of a website with good usability.
This should be based on the section on user-centred design (p621). Concepts to include are as
follows:
• User-centred design
• Use-case analysis
• Customer orientation (Seybold guidelines and ‘four familiarities’)
• Elements of site design (site design and structure, navigation, page design and content
design).
4. How can the concept of customer orientation be translated into e-commerce site design?
This uses sources and concepts similar to the previous question, but prompts the student to make
the link with customer orientation and design.
5. Assess the success of e-tailers in designing secure e-commerce systems.
Students could take a particular sector, for example, banks, grocery or books and then evaluate
their systems against the criteria on p671:
• Authentication
• Privacy and confidentiality
• Integrity
• Non-repudiability
• Availability.
How well they implement (or the relevance of) different aspects of security could then be
reviewed:
For example:
• Encryption
187
• Digital certificates
• SSL
• SET
• Payment systems.
1. Summarize the purpose of process analysis.
Process
• Part of a system that has a clearly defined purpose or objective and clearly defined inputs
and outputs.
• Workflows helps manage business processes by ensuring that tasks are prioritized to be
performed:
as soon as possible;
by the right people;
in the right order.
Analysis is intended to identify the main processes and their components and then inefficiencies
in workflow that give rise to higher costs or longer cycle times. Example – an ordering process
which requires rekeying of data.
2. What is meant by ‘user-centred design’?
User-centred design
Design based on optimizing the user experience according to all factors, including the user
interface which affect this.
It requires design services and content based on careful analysis of user needs from the full
range of different types of audience of a site.
3. Explain the concept of task analysis with reference to a customer placing an order online.
Task analysis
Identification of different tasks, their sequence and how they are broken down.
The overall task is ‘place order’, but this is broken down into stages such as browse catalogue,
select products and make payment. These can be broken down further, for example, make
payment can be broken down into: calculate tax, enter credit details and confirm payment. Task
analysis can be used (in conjunction with use-case analysis) to identify and then the interface
requirements of a system.
188
4. Explain the stages involved in use-case analysis with reference to a customer placing an
order online.
Use-case
It is the sequence of transactions between an actor and a system that support the activities of the
actor.
Refer to Figure 11.10 for the specific example.
5. Describe the stages of data modelling with reference to a database for an e-procurement
system.
1. Identify entities (product, supplier, purchase order, invoice, payment)
2. Identify attributes of entities (fields)
3. Normalize to tables which minimize redundancy of information.
6. Outline the different types of services that need to be provided by different servers on an e-
commerce site based on the three-tier client–server system.
• Web server. Manages http requests from client and acts as a passive broker to other servers.
Returns or serves web pages.
• Merchant server. This is the main location of the application logic and integrates the entire
application by making requests to the other server components.
• Personalization server. Provides tailored content – may be part of commerce server

functionality.
• Payment commerce server. Manages payment systems and secure transactions.
• Catalogue server. A document management server used to display detailed product

information and technical specifications.
• CRM server. Stores information on all customer contacts.
• ERP server. Required for information on stock availability and pricing from the customer.
Will also need to be accessed for sales order processing and histories. Logistics for
distribution will also be arranged through the ERP server.
7. How do the attributes of a secure e-commerce site differ from customer and company
viewpoints?
This requires reviewing the following:
• Authentication (customer needs to avoid fraud from customer, alternatively customer needs
to check reputable company);
• Privacy and confidentiality (main aspect is to protect customer privacy);
• Integrity (applies equally to both);
189
• Non-repudiability (required by company);
• Availability (required for good customer service).
8. Explain the relationship between analysis, design and implementation for an e-commerce
site.
These are high-level activities that need to occur in the creation of a site, in this sequence:
• Analysis – identify requirements, for example, user interface, process, data requirements.
• Design – architecture, data structures, interface, security.
• Implementation – interface creation, application integration, data migration and testing.
Although the three occur in this, general sequence prototyping (Chapter 10) requires that they
are repeated iteratively through the project.
Activity answers
Activity 11.1 The consequences of poor analysis and design

Q. Form a focus group and discuss your own experiences of online purchasing. What have
been your problems and frustrations? Refer to a particular example such as purchasing a
book – what are your expectations? Alternatively, visit GetSatisfaction.com to see the types
of complaints about different brands.
Let us take the approach of looking at expectations for buying a book online. Those, where
Analysis and Design are important are marked with (A&D). It can be seen that analysis and
design are important for most of these requirements:
1. Easy to find what you are looking for by searching or browsing. (A&D)
2. Site easy to use, pages fast to download with no bugs. (A&D)
3. Price, product specification and availability information on site to be correct. (A&D)
4. Specification of date, time and delivery to be possible. (A&D)
5. E-mail notification when order placed and then dispatched. (A&D)
6. Personal data remains personal and private and security is not compromised. (A&D)
7. Verification of address for high-value orders.
8. Delivery on time.
9. Returns policy enabling straightforward return or replacement.
10. Effective e-mail or phone-based customer support for when any of the expectations
above are not met! This means traceability through databases, someone who knows
your order status and can solve your problems (A&D).
190
Activity 11.2 Transforming invoice processing at a B2B company

Q. As a business analyst you have to produce a more efficient way of working. You should
restructure the workflow by filling in a blank table. You should also write down
assumptions about changed roles and give details of new software needed to support the
new workflow. You can assume each member of staff has access to a networked PC and the
MD has access to a notebook with fax/modem that they use twice daily.
It is apparent from Table 11.2 that there are many inefficiencies in the company. These include
separate people performing tasks that could be performed by one individual and unnecessary
steps. Another problem is that the Managing Director is often out of the office, so authorization
by him takes as long as 2 days on an average. It can be seen that each time a new person is
involved, there is a delay while the item is transported via the manual mail system and then
waits in their in-tray; the process chart symbols for processing, transportation and delay
repeat again and again. Such is the extent of this problem that the total time for the whole
process is nearly 90 hours, but with staff working 9 through 5 this would stretch to over
10 working days.
A suggestion for improving the workflow is shown in Table 11.3. An important change is in the
role of the clerks, they have been empowered by giving them the responsibility to perform tasks
such as assigning an invoice to an account number – this was originally the job of the cost
accountant. Steps such as returning the invoice to the first payable clerk and that of the file clerk
are then removed.
Software needed
For such an application a full functioned workflow system is probably unnecessary, rather, a
forms-enabled e-mail system can be used to route information from one person to the next. So,
the first payable clerk will pass a scanned copy of the invoice to the Managing Director (MD) as
an e-mail attachment, which can be accessed remotely via modem when the MD is mobile.
Using forms-enabled workflow has two key benefits, first it will drastically reduce the time for
the transportation stages and secondly it will reduce the time while the item is waiting in the in-
tray – an item that needs prompt action can be immediately notified as urgent. Through making
all these changes the total time has been reduced from nearly 90 hours to just over 20 hours
although the efficiency is still low due to time awaiting processing when an item is in the
worklist.
191
CHAPTER 12
E-business service implementation and

optimization
Table of contents

Case studies 194
Exercises 199
Learning outcomes
• Produce a plan to minimize the risks involved with the launch phase of an e-business
application
• Define a process for the effective optimization of an e-business system
• Create a plan to measure and improve the effectiveness of sell-side e-business applications
using web analytics tools.
Management issues
Implementation and optimization of e-business systems raises these issues for management:
• What actions can we take to minimize the risks of implementation?
• How do we select the most appropriate systems?
• How do we achieve transition from previous systems to a new e-business system?
• What techniques are available to measure and optimize our services?
192
Chapter at a glance
Main topics
• Alternatives for acquiring e-business systems
• Development of web-based content and services
• Testing
• Changeover
• Content management and maintenance
Focus on...
• Web analytics: measuring and improving performance of e-business services
Case studies
12.1 Learning from Amazon’s culture of metrics
This chapter is intended to highlight some of the practical issues in implementing e-business
solutions. For this reason, a basic introduction to HTML coding is given. A basic knowledge of
HTML coding can be used by students to assist them in building simple websites that give a
practical expression to an assignment based on applying the principles of user interface design
outlined in the previous chapter (p596). Topics:
• Context – Figure 12.1 places implementation in the context of the systems development
lifecycle. Implementation (labelled as development and testing) occurs in parallel with
analysis and design as part of prototyping.
• Acquiring e-business systems – this briefly reviews the alternatives for systems and stresses
that integration or tailoring of off-the-shelf components is the most common approach.
• Development of web-based content. The Focus On HTML section has been reduced due to
requests from lecturers. A new section on SEO ranking factors has been introduced (details
in slides 7 and 8).
• Testing – this is a relatively short section since testing e-commerce systems uses a similar
approach to traditional BIS. Table 12.1 can be used to illustrate some of the tests. Students
can be prompted for these different aspects that require testing.
193
• Changeover – again similar issues to traditional BIS, although the results of system failure
are more damaging to business.
• Content management – this is a new issue, so is covered in more detail. A full lecture should
be spent on this topic. It is a rich source of discussion amongst mature students who have
experience of this. Figures 12.3 and 12.4 can be used to compare procedures with student’s
own organizations.
• Measurement – this is becoming increasingly important as companies want to assess their

return on investment in e-business. For companies such as easyJet, for whom a high
proportion of revenue and customer service occurs online, it is important. Figures 12.6 and
12.8 can help in discussing the types of issues that need to be measured.
Case studies
Case Study 12.1 Learning from Amazon’s culture of metrics
Questions
1. By referring to the case study, Amazon’s website for your country and your experience of
Amazon offline communications, evaluate how well Amazon communicates its core
proposition and promotional offers.
Worldwide, the proposition is summarized by the well-known brand-identity, which features

‘from A to Z’ suggesting the range of products and breadth within categories. Amazon used to
refer to itself as the ‘World’s largest bookstore’.
In the article, this sentence gives an idea of the different aspects of the custom value proposition
to watch out for:
‘It believes the main competitive factors in its market segments include “selection, price,
availability, convenience, information, discovery, brand recognition, personalized services,
accessibility, customer service, reliability, speed of fulfilment, ease of use and ability to adapt to
changing conditions, as well as our customers’ overall experience and trust in transactions with
us and facilitated by us on behalf of third-party sellers”.’
Browsing Amazon will show the different proposition explained in your region.
For Amazon US, the proposition is clearest – the listing in Google states:
Amazon.com Books: New and used textbooks, biographies, children’s ...
‘Online shopping from the earth’s biggest selection of books, magazines, music, DVDs, videos,
electronics, computers, software, apparel and accessories, shoes’ and for books:
Amazon.com: Online Shopping for Electronics, Apparel, Computers ...
Online shopping for millions of new and used books on thousands of topics at everyday low
prices.
194
The fulfillment proposition in different countries will revolve around the minimum order for
free delivery. Discounting for different books will also vary according to their popularity.
2. Using the case study, characterize Amazon’s approach to marketing communications.
With reference to the six e-communications tools described in Figure 9.6 (p499), probably the
key techniques are search engine marketing, affiliate marketing and partnerships with non-
competitive transactional websites.
From this respect Amazon’s approach is selective, using the techniques that are most cost-
effective. The other facet is the use of automation to enable specific advertising through the
natural and paid listings of the search engines. Testing of the best approach is important to make
these ads work.
The communications approach is described in the extract towards the end of the case starting:
‘Online advertising techniques include paid search marketing, interactive ads on portals, e-mail
campaigns and search engine optimization’.
The affiliate and search engine marketing approach are described earlier in the article.
3. Explain what distinguishes Amazon in its uses of technology for competitive advantage.
The following are characteristic of Amazon’s use of technology:
• use of in-house technologies for personalization;
• early adopter – rapid adoption of new techniques, for example, Jeff Bezos has talked about
the merits of Web 2.0;
• extensive testing and optimization to find the best approach;
• avoidance of monolithic projects, with focused teams tackling specific issues;
• infrastructure scalable to deal with rapidly increasing demand;
• approaches developed for one product must be extensible to others.
4. How does the Amazon ‘culture of metrics’ differ from that in other organizations from your
experience?
This question asks students to reflect on their own experiences. From the case, the following are
characteristic of Amazon’s approach:
• passionately driven from the top by Jeff Bezos;
• importance of metrics in governing all marketing and technology activities;
• arguments about the best marketing approach are often based on tests rather than those who
shout the loudest: ‘Data trumps intuition’;
• accepted wisdom is not accepted – tests are re-run since the approach may vary through
time.
195
Selection of content management systems

This case reviews the significance of CMS to the modern organization and briefly reviews
factors which are important in their selection.
Just a few years ago, the market for packaged content management systems (CMS) was
negligible: the only real option for web managers was to build a CMS from scratch.
Things are different now. Estimates by IDC, the analyst group, suggest that the market for
content and document management applications could be worth $4 billion by 2004 in Europe
alone. And with companies such as Microsoft now offering content management products,
businesses can weigh the benefits of an off-the-shelf solution against in-house development.
The choice, however, is far from clear cut. As Greg Peters, chief executive of Vignette, the
content management company, points out, the most potent competitor to his company is often
the customer’s in-house development team.
An in-house content management system retains some significant advantages over bought-in
solutions. Cost is certainly an issue. A licence for a content management server application can
cost more than $50,000, while an in-house system built using open-source tools, running on an
existing database, can cost significantly less.
‘Building a bespoke content management system can be much more cost-effective’, says Peter
Ahearn, a management consultant with PA Consulting’s IT division. ‘We have built content
management solutions based on XML and SQL or Oracle databases. Even if you buy a
packaged solution, there are installation costs: you have to configure the workflow and design
templates, and transfer data to the new system’.
Public sector organizations in particular are attracted by the low licensing costs of an open-
source-based content management system. Further savings come from running the system on
existing databases and servers.
Bespoke solutions also appeal to smaller organizations, where the upfront cost of content
management packages are out of proportion to the amount of time staff spend on website
maintenance. Complexity is also an issue, especially for staff who are not full-time web
managers. ‘The other advantage of a bespoke system is that we can put in the exact functionality
a client needs’, says Mr Ahearn.
Against this, content management vendors argue that their systems offer greater functionality
and are better placed to cope with the demands of large organizations.
‘Bespoke systems and open-source software offer companies flexibility and freedom’, says
Hilda Tingle, a senior strategy consultant at Dimension Data, the IT systems company.
However, she says bought-in systems scale better: ‘For large organizations with thousands of
users, a bespoke system will not always be the best option’.
The vendors argue that bought-in systems benefit from continuous development, making it
easier for users to add extra functionality. Last year, according to Mr. Peters, Vignette spent
$63 m on research and development. ‘Our customers are buying into that as much as the product
itself’, he says. ‘In-house developers would not be able to keep pace with that’.
196
The packaged software companies too say that an off-the-shelf solution should be quicker and
cheaper to roll out. ‘An integrated solution such as ours should be 30–50 per cent quicker to
deploy than building a similar system from component parts’, says Mr Peters. ‘We have had
sites where the system has paid for itself in a couple of months’. As an example, he cites
Diageo, the international drinks company, which developed five portal sites in 6 weeks.
Businesses that see their websites as a core part of their business do seem keener to pay an
initial premium for functionality and development speed. ‘Content management has become
mission-critical’, says Martin Braun, chief executive of Interwoven, the US content
management software company. ‘People do say that their business is unique and that a packaged
solution could not possibly meet their needs, but that is rarely true’.
Mr Braun argues that over the lifetime of a CMS, a package could be the cheaper option. He
points to savings from more efficient workflows that reduce the amount of time staff spend on
maintaining the website, and from enabling non-technical staff in departments such as
marketing or product development to carry out updates without reference to IT managers.
Nor should web managers overlook the cost of maintaining an in-house content management
system. Online stockbroker E-trade, an Interwoven client, had 20 people maintaining its in-
house content management system; the packaged solution eliminated much of that work.
‘Lately, we have had CIOs who have had to cut staff (when) looking to cut projects. At this
point they often decide it is time to look at CM packages’, says Mr Braun. ‘After all, we have
250 engineers looking after our code’.
At the same time, web managers are understandably cautious about relinquishing control over
such a core part of their operations. Even for non-web companies, online content management is
a far from trivial task. At house.co.uk, the home services website run by UK utility company
Centrica, as much as 10 per cent of the site is changed every week. A core team of four editors
maintains the site. As Mark Inskip, marketing manager for house.co.uk admits, maintaining the
site would be much more difficult without dedicated content management tools.
House.co.uk has the advantage of being built from scratch, although Accenture, the systems
integrator, had to link the site to Centrica’s existing customer databases. The site is built around
BroadVision for e-commerce and Interwoven’s Teamsite for content management.
For Centrica, online content approval, an audit trail and the ability for non-specialists to review
web pages as they would appear on the site, are all benefits of the content management system.
But then Centrica can spread the cost of its system across a range of intranet and websites.
Unfortunately for companies with smaller web operations, packaged content management is
probably still too complex and costly. Interwoven suggests that a site needs between 30,000 and
40,000 files to justify Teamsite; Vignette also conceded that small businesses are not its target
market.
For smaller companies, the decision to buy a content management package now or to use in-
house tools may well depend on their ambitions for their sites. If they are confident of growth,
investment in a packaged solution could well be justified.
Source: Strong arguments on both sides, by Stephen Pritchard, Financial Times, 3 July 2002.
© Financial Times.
197
Questions
1. Outline the arguments for and against purchase of a content management system for small,
medium and large organizations.
This is similar to the following question, but specifically looks at size.
Small – off-the-shelf hosted externally is probably the only option due to cost.
Medium – similar to small, but could manage internal system or use open-source CMS.
Large – all options possible, but packaged solution is probably most cost-effective – see detailed
arguments below.
2. Review the arguments for and against a company purchasing its own ‘off-the-shelf’
packaged content management system and developing its own ‘tailored solution’.
For purchase:
• wide range of choice;
• wide range of features built-in with continuous development of new features;
• quicker to deploy in basic form, for example, Diageo implemented five portal sites
in 6 weeks;
• range of hosting options – internal or third party;
• cost lower than external for initial purchase and upgrading as Internet technology
changes;
• generally scale better for large numbers of users.
Against purchase:
• May not meet requirements for creation and updating process or display exactly;
• initial and ongoing costs. However, modification of an open-source CMS such as
Zope (www.zope.org) may give the best balance between cost and flexibility. Such
systems have been used by large organizations such as NATO.
Debate 12.1 Control of web content
Website content organization and standards for page design and copy must be centrally
controlled to achieve consistency across any organization, regardless of size.
• can damage brand if there are errors and inconsistencies;
• less easy for customers to navigate between different product areas if uncontrolled;
• more cost-effective if same design templates are used across site.
198
• can destroy creativity and initiative if these appear too tightly controlled;
• content may not accommodate different audiences so well if control is inflexible.
Exercises
1. Summarize how the activities involved with implementation and maintenance relate to
analysis and design activities in previous chapters.
Figure 12.1 on p650 explains this. For a prototyping approach, analysis precedes design which
precedes implementation and maintenance. However, these are repeated consecutively in the
iterative approach of prototyping.
2. What are the risks of launching a new e-commerce site if implementation is not conducted
effectively?
• Low conversion rate to outcomes, high attrition rate (due to inadequate testing of design)
• low repeat visits (due to inadequate testing of design)
• data errors
• errors and site downtime
• security breaches.
3. Distinguish between static and dynamic content and methods of achieving them.
Static web content
It is a web page view that is identical every time it is loaded. This is typically achieved through
static HTML.
Dynamic web content
It is a web page view that varies according to user preferences or environment constraints. This
is typically achieved through dynamic access of databases according to user requirements.
4. What are the objectives of testing? How do these relate to an e-commerce site?
• Identify errors in requirements analysis, for example, poor interface design, wrong
information or services available.
• Identify technical errors (bugs), for example, financial transactions.
199
5. Summarize the advantages and disadvantages of the different changeover methods.
Advantages and disadvantages of the different methods of implementation

Method Main advantages Main disadvantages
1. Immediate cutover Rapid, lowest cost High risk. Major disruption if

serious errors with system
Straight from old system to
new system on a single date
2. Parallel running Lower risk than immediate Slower and higher cost than
cutover immediate cutover
Old system and new system
run side-by-side for a period
3. Phased implementation Good compromise between Difficult to achieve
methods 1 and 2 technically due to
Different modules of the
interdependencies between
system are introduced
modules
sequentially
4. Pilot system Essential for multinational or Has to be used in
national rollouts combination with the other
Trial implementation occurs
methods
before widespread
deployment
6. What are the issues for managers of content management?
• Frequency of update or event that prompts update
• Checking quality of update (review process)
• Tools used for update.
7. What are the main elements of an e-commerce site measurement plan?
The framework described in the text is as follows:
• Channel promotion
• Channel behaviour
• Channel satisfaction
• Channel outcomes
• Channel profitability.
8. What are the elements of a budget for an e-commerce site enhancement?
Tangible business benefits:

1. Reduced costs
2. Increased revenue.
200
Intangible business benefits:

1. Faster time to market
2. Improved customer satisfaction/brand equity.
Tangible costs:
1. Physical costs
2. Planning costs
3. Implementation costs including staff, hardware and software
4. Operational costs including staff, hardware and software.

1. Write a report to a manager recommending particular techniques that should or should not
be implemented on an e-commerce site. Examples may include frames, Flash or Shockwave
plug-ins, JavaScript, Java and active server pages.
This is a straightforward question that requires more research on relevant sites such as
www.internet.com and www.webdeveloper.com. For each technique the following issues can be
discussed:
• Cost
• User experience
• Performance
• Technical skills required
• Compatibility – cross-platform/cross-browser support.
2. Develop a plan for measuring the marketing effectiveness of an e-commerce site.
This question should be structured around the Focus On section (p673) and the different
components of Figure 12.11, that is,
• Channel promotion
• Channel behaviour
• Channel satisfaction
• Channel outcomes
• Channel profitability.
201
3. Discuss the balance of using a website and traditional methods for marketing research.
Key issues to be included are:
• Cost of techniques
• Responsiveness (speed)
• Bias – is the sample representative?
• Integration of technique in mixed-mode buying
• Different types of marketing research, for example, customer (market) research – main focus,
competitor and environmental data.
4. Choose an example of a simple brochureware website. Develop an implementation plan for

this site, recommending development techniques that will be used to enhance the site.
Implementation issues include:
• Interface designs
• Authoring package
• Hosting location
• Review and testing
• Performance measurement
• Content management (updates).
1. You are developing a testing plan for an e-commerce site. Outline five key aspects of the site
you would test.
• Customer orientation/relevance of content and services
• Usability
• Performance
• Accuracy of content
• Errors of links or other options.
2. Data migration is often overlooked in implementation planning. Explain what data

migration is and explain when it may need to occur for creation of an e-commerce site for
an existing business.
202
Data migration is the transfer of data from old systems to new systems. It will need to occur to
transfer the following from old to new system:
• Customer account details
• Product pricing and availability
• Product description.
3. Analyze the advantages and disadvantages of a soft versus hard website launch.
A soft launch has the advantage of identifying problems without exposing them to a large
number of visitors who, as a consequence, may not use the service in future. The disadvantage
is that time to market is increased.
4. Explain the following terms and suggest which is the most useful in measuring the
effectiveness of a website.
(a) Hit
Recorded for each graphic or text file requested from a web server. It is not a reliable measure
for the number of people viewing a page (least useful).
(b) Page impression
A more reliable measure than a hit denoting one person viewing one page.
(c) Site visit
Recorded each time a single visitor uses the site (most useful).
5. Why are conversion and attrition rates important in evaluating the performance of an
e-commerce site?
Conversion rate
It is the percentage of site visitors that perform a particular action such as making a purchase.
This is dependent on the site design and effectiveness of its marketing communications.
Companies will be looking to increase this.
Attrition rate
It is the percentage of site visitors that are lost at each stage of making an online purchase.This
is the inverse of conversion rate and is also dependent on the site design and effectiveness of its
marketing communications. Companies will be looking to decrease this.
6. Suggest three key measures that indicate the contribution of an e-commerce site to overall
business performance for a company with online and offline presence.
• Internet contribution (direct) – percentage of online sales;
203
• internet contribution (indirect) – percentage of sales influenced by site;
• reach of site – percentage of market achieved by site.
Activity answers
Activity 12.1 Selecting applications software for a small business

To aid understanding of the different factors to assess, when selecting applications software and
their relative importance.
A start-up office supplies business which specializes in supply of printers is reviewing its
alternatives for different types of e-business system. Form groups with each group selecting one
type of e-business service from the list below and then discussing the importance of the nine
criteria for selecting software described above. A ranked list of the criteria in order of
importance should be produced. These can be put on a whiteboard, with one type of software in
each column to assess the commonality in requirements.
E-business service types:
1. Customer relationship management application.
2. Supply chain management application.
3. Employee management system.
4. Web analytics software (see later in chapter).
Issues that could be referenced for each of these applications include:
• reliability – must be accurate;
• security – must be available only to staff with ‘need to know’;
• support – once committed, do not want supplier to change;
• functionality – similar for many suppliers so less important. Ability to tailor is important;
• ease of use – less important since specialist staff will use;
• extensibility – can it be added to – will it interface with other systems through an

Application Programming Interface (API);
• scalability – will it be able to support more users or more demand (performance);
• cost.
204
Activity 12.2 Understanding e-commerce and e-business

1. Identify the variables which will determine the choice of changeover method.
Table lists the main variables – Table 12.2, p664.
2. Which changeover alternative would you recommend for a B2B company if it introduces a
new intranet-based virtual helpdesk?
This activity is intended to show that it is often not a clear-cut decision on which changeover
method to use, and each of the methods may be used in the course of the whole project. For
example:
• During prototyping there is likely to be the use of piloting in one area of the company, for a
single country.
• During the project, even if it involves piloting there is going to be a phased implementation
with some modules available before others. Here, the static content of the intranet, or
perhaps the address book system will be implemented before the virtual helpdesk.
• Parallel running occurs during all testing phases, since the old system will still be running
with the new nearly complete, but not handling live data. Here, it is likely that initially,
perhaps for a month there will be a fallback situation with parallel running of the previous
manual method of answering queries.
• At some point in all projects, there is a decision to move entirely to the new system, with
the parallel and phased approach. This will only occur once the development team is
confident in the use of the software.
3. Justify your answer by analyzing in a table the degree of risk, from high to low for each
factor across each approach.
The following table also assigns a risk for each variable.
Differences between changeover techniques

Variables Direct (cutover) Parallel Phased Pilot
1. Cost Lowest Highest Medium–High Medium

2. Time Fastest Slowest Intermediate Intermediate
3. Quality of new Highest risk of Potentially best, Still has Better than
system after errors since do not elements of direct, not as
changeover change to new direct – certain as
system until although whole with parallel
satisfied with its system may
performance not fail, parts
can
4. Impact on Minimal unless Could reduce Can still have Limits effect
customers major errors service if staff are problems in to one release
encountered confused about new modules into the live
which system customer
environment
205
Variables Direct (cutover) Parallel Phased Pilot
5. Impact on Lowest More work Lower risk than Helps

employees required to run direct employee
systems in buy-in since
parallel, but does know system
give confidence is tested
about new
system
6. Technical May be only May require two Not always —
issues practical method separate possible to
if systems are hardware integrate two
very different platforms and systems
operating
systems to be run
in parallel
Activity 12.3 Optimizing the content review process at a B2C company

Q. The extract below and Figure 12.3 illustrate a problem of updating encountered by a B2C
company. How can they solve this problem?
In one word, the answer is empowerment. The only way to increase the speed of the process is
to involve fewer staff and this means training them in the skills required for update. In this case,
the brand manager knows their product sector best, so they have to write the copy and it is best
if they have the sole responsibility for creation and review. An additional check by the legal
department may be necessary for certain types of changes. Of course we need to set up different
reviewing processes according to the size of the changes made.
Activity 12.4 Creating a measurement plan for a B2C company

Q. This activity acts as a summary to this section on e-business measurement. Review Table
12.11 and assess the frequency with which metrics in each of the following categories
should be reported for a sell-side e-commerce site and acted upon. For each column, place
an R in the column for the frequency with which you think the data should be recorded.
The following are suggested, but the main issue is for a management team to agree to what
applies to them.
• Promotion – monthly
• Behaviour – daily
• Satisfaction – monthly for customer service aspects, daily for performance aspects
• Outcomes – daily or weekly
• Profitability – weekly or monthly.
206

Introduction To E-Business and E-Commerce: 5 © Marketing Insights Limited 2012

Uploaded by

Copyright:

Available Formats

You might also like

Introduction To E-Business and E-Commerce: 5 © Marketing Insights Limited 2012

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Introduction To E-Business and E-Commerce: 5 © Marketing Insights Limited 2012

Uploaded by

Copyright:

Available Formats

CHAPTER 1

Introduction to e-business and e-commerce

After completing this chapter the reader should be able to:

• Outline the ongoing business challenges of managing e-business and e-commerce in an

The issues for managers raised in this chapter include:

• How do we evaluate our current e-business capabilities?

• The impact of the electronic communications on traditional businesses

• What is the difference between e-commerce and e-business?

• Business adoption of digital technologies for e-commerce and e-business

• E-business risks and barriers to business adoption

• 1.1 A short history of Facebook

• 1.2 North West Supplies extends its reach online

• 1.3 eBay – the world’s largest e-business

Suggested teaching and learning approaches

The opportunities of e-business innovation

The challenges of managing e-business innovation

• Managing across multiple sites and with different partners

• Reviewing the return on investment of new initiatives

• Specialist skills to manage these facilities.

Can also review transactional risks using a ‘blank slide’:

• Poor site availability or performance

• Products unavailable although advertised

• Poor experience or service – negative reviews.

1. Transactional e-commerce site.

2. Services-oriented relationship-building website.

3. Brand building site.

4. Portal or media site.

Business adoption of digital technologies for e-commerce and e-business

• Case Study 1.2 highlights benefits for SME organizations.

E-business risks and barriers to e-business adoption

Drivers of consumer Internet adoption

Case Study 1.1 A short history of Facebook

1. As an investor in a social network such as Facebook, which financial and customer-related

A basic answer will provide

• Understanding of financial metrics. Revenue, costs, growth.

• Clear framework of different metrics types – efficiency vs effectiveness.

Typical risks are:

• Ad revenue limited because of difficulty of engaging audience in ads.

• Major privacy problem as with Beacon.

• Intellectual Property Rights.

• Technical problems with scalability leading to performance problems and increased

• Technical problems. Testing programme focusing on load testing.

• New entrants – developing proposition to lock-in existing users, forming partnerships to

Opportunities referred to in case study:

• Increase average order value – increase cross-selling

• Sell products to existing customers – increase cross-selling

• Increase range of stock sold.

• Managing fulfillment – quality of experience and service is important to repeat business.

Case Study 1.3 eBay – the world's largest e-business

It is best to divide this question into two parts.

1. How the characteristics of digital media have supported eBay’s growth.

• Change from a one-to-many communication model to one-to-one or many-to-many

See section starting on p43 for more details on these characteristics.

2. How strategic decisions have supported growth.

Additional case study

Encouraging SME adoption of sell-side e-commerce

Another example of an e-commerce site dedicated to SMEs is B2B.com, set up by Barclays

4. What is Mondus? How does it facilitate trade amongst SMEs?