Management of Information Systems and Services

Chapter - 2,3

E-Business Markets and Strategic Frameworks for IS

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Contents
• Internet Business Models
• Virtual market-space
• Components Make Up a Market Space
• Marketspace vs Marketplace
• Characteristics of market space
• Objectives of market space
• Advantages of market space
• E-business strategy
• E-business value chain
• E-business models
• Electronic data interchange (EDI)
• Unique Features of E-commerce Technology
• Limitations of E-Commerce
• Mobile Commerce
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Internet Technology and the Digital Firm
• The Internet
oRapidly becoming infrastructure of choice
oUniversal, easy-to-use set of technologies and standards
oWeb sites available 24/7
oExtended distribution channels
oReduced transaction costs
oReduced network and coordination costs
• New Business Models and Value Propositions
oRichness: depth and detail of information
oReach: how many people a business can connect with; how many products
offered those people
oInternet allows much richer communication with farther reach 3
Internet Business Models
• Virtual storefront: Sells physical products directly to consumers or businesses.
• Information broker: Provides product pricing and availability information; generates
revenue from advertising or directing buyers to sellers.
• Transaction Broker: Processes online sales transactions for fee.
• Online Marketplace: Provides digital environment where buyers and sellers meet
• Content Provider: Provides digital content, such as news; revenue from fees or
advertising sales
• Online Service Provider: Provides connectivity; revenue from fees, advertising, or
marketing information
• Virtual Community: Provides online meeting place for people of similar interests
• Portal: Provides initial point of entry to the Web, along with specialized content and
services
• Syndicator: aggregates content or applications to resell as package to third-party Web
sites 4
Virtual market-space
• The new virtual business opportunities are created by e-commerce.
• World-wide economy is increasingly based on information and intangible value.
• This evolution causes virtual forms of market-space.
• Virtual market-place
oThe platform to bring together supply and demand as well as technology and
economic requirements to optimize selling process.
• Market space
oOnline retailer that allows other businesses to sell their products on a virtual
platform.
oPhysical boundaries are not a concern opens up a whole new world of marketing
opportunities.
• Virtual market tries to minimize transportation costs, that is, customers can navigate the
markets to find goods they want to buy.
• All kinds of virtual market-space should be focused on customers. 5
Components Make Up a Market Space
• Buyers
oThe power rests with the buyer.
oThere are so many potential buyers searching the internet for products and services in the
virtual market space.
• Sellers
oThe market space would not exist without sellers.
oSellers are actively involved in marketing their businesses to attract both old and new
customers to their online stores.
• Intermediaries
oThese provide various services on the web.
oThis can include setting up the infrastructure of market spaces, matching buyers and sellers,
and assisting them in completing the transaction.
• Products
oThe products available at online market spaces are only limited by your imagination.
oBut you cannot interact with the physical goods.
oIf you have ever browsed an e-commerce site such as eBay, you know the product range is
extensive and spread across a variety of industries.
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Components Make Up a Market Space(cont.…)
• Back-end
oThis is a crucial part of the successful functioning of any online store.
oThese include activities such as order fulfillment, packaging payment
processing, delivery, inventory management, and more.
• Infrastructure
oThe core of it all.These include networks, hardware, and software.
• Front-end
oThis is how you interact with the market space.
oIt includes the processes such as the cart, catalog, sellers portal, payment
gateway, and search engine.
• Support services
oAnother crucial part of any virtual marketplace.
oThese include certification to ensure security and other trust services.
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Marketspace vs Marketplace
• A traditional marketplace has a physical location.
• buyers and sellers meet face to face and create conversations around the products or
services.
• The customers are given a chance to ask questions and physically see and feel the
products before deciding to make a purchase.
• In contrast, the market space has no physical boundaries.
• It is an online platform where customers can browse the catalog with your offerings
and make purchases over the internet through an online payment portal.
• There is much less interaction between the buyer and seller.
• Market space is a great platform.
• Here companies can sell their products over the internet using computers,
smartphones, or tablets.
• It is a convenient way for shoppers to search for what they want from the comfort
of their homes. 8
Characteristics of market space
•The transactions that take place in the market space
occurs via online media or internet
•There is no face-to-face transaction as the electronic
media does not offer any such option
•An interested party can find information in the market
space about the available products and not anything
about the products
•There are no actual showrooms or physical stores. These
are replaced by the internet and computers that enable
the option of buying
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Objectives of market space
•Establishing brand awareness through the
market space
•Selling a product or a service in the market
space
•Providing product support
•Offering customer service via the market space

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Advantages of market space
• Selling much faster pace because as soon as uploading starts, the buyers start
going through and buying the products and services
• The cost of products is very less compared with the value of products in physical
stores ,save additional expenses like stocking costs, maintenance of physical
stores and transportation costs
• Convenient for the consumers as they do not have to travel from one market
place to another in search of the products they require
• Does not need rent nor does it require the physical presence of the employees
• Shopping very easy with a single click of the mouse
• As the internet is available almost everywhere, there is no such problem as
inaccessible
• Marketspace can attract high traffic that includes millions of customers 11
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E-business strategy
• What is strategy?
odetermining the purpose and aims of an organization.
oThe determination of the basic long-term goals and objectives of an
enterprise.
oProvides a long-term plan for the development of the organization
oDefines how we will meet our objectives
oSets allocation of resources to meet goals
oSelects preferred strategic option to compete within a market
othe future direction and actions of an organization or part of an
organization.
oThe strategy needs to be understood and supported by management at all
levels throughout the organization.
oThe CEO must be able to communicate the strategic vision to other
managers.
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Strategy(cont…)
• There are four critical success factors relating to the implementation
of strategy.These are that:
✓The strategy is translated into implemented action and guidelines
that form the daily activities of staff within the organization;
✓The strategy must be reflected in the way the firm is organized
and structured;
✓The strategy must be reflected in the culture and values of the
organization;
✓The managers must direct and control all actions and outcomes
relating to the implementation of strategy.
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E-business strategy
• IT and risk management need to be clearly defined, aligned and supported by
all levels of management and knowledge shared throughout the organization.
• Internal and external electronic communications can support and influence
corporate strategy.
• An essential part of any e-business strategy is consideration of how
information systems strategy supports change.
• Competitive advantage comes not from technology, but from how information is
collected stored, analyzed and applied.
• An established aspect of information systems strategy development is the
focus of IS strategy on business impact or alignment.
• A top-down approach is used to review how information systems can be used
to directly support a defined business strategy.
Management issues
• How does e-business strategy differ from
traditional business strategy?

• How should we integrate e-business strategy

with existing business and IS strategy?

• How should we evaluate our investment

priorities and returns from e-business?
Figure Elements of strategic objective setting for the e-business 17
Different forms of organizational strategy
• Organizations have different levels of strategy, particularly for larger or global
organizations.
• Corporate strategy :- concerned with the overall purpose and scope of the
organization.
• Business unit strategy :- defines how to compete successfully in a particular market
and operational strategies which are concerned with achieving corporate and business
unit strategies.
• Functional strategies :- describe how the corporate and business unit strategies will be
operationalized in different functional areas or business processes.
• Functional or process strategies refer to marketing, supply chain management, human
resources, finance and information systems strategies.
• Where does e-business strategy fit?
• We can observe that there is a tendency for e-business strategy to be incorporated within
the functional strategies, for example within a marketing plan or logistics plan, or as part
of information systems (IS) strategy.
• A danger with this approach is that e-business strategy may not be recognized at a higher
level within organizational planning.
Fig. Different forms of organizational strategy
Fig. Relationship between e-business strategy and other strategies
Strategic planning tools
1. SWOT(Strengths, weaknesses, opportunities and threats) analysis:
oA methodology that surveys external opportunities and threats and relates
them to internal strengths and weaknesses
oRelatively simple yet powerful tool that can help organizations analyses their
internal resources in terms of strengths and weaknesses and match them
against the external environment in terms of opportunities and threats.
oSWOT related to corporate, marketing, supply chain and information
systems, or a separate SWOT can be performed for each.
• Greatest value when it is used not only to analyses the current situation, but
also as a tool to formulate strategies.
• This format of SWOT is recommended over a typical four-box SWOT since
it can be used to develop strategies to counter the threats and take advantage
of the opportunities and can then be built into the e-business strategy.
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Fig. SWOT analysis
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Strategic planning tools (cont.)
2. Competitor analysis grid:
oA strategic planning tool that highlights points of differentiation between
competitors and the target firm
3. Scenario planning:
oA strategic planning methodology that generates plausible alternative futures
to help decision makers identify actions that can be taken today to ensure
success in the future.
4. Balanced scorecard:
oAn adaptive tool that assesses organizational progress toward strategic goals
by measuring performance in a number of different areas
5. Return on investment (ROI):
oA ratio of required costs and perceived benefits of a project or an application
Elements of strategic objective setting for the e-business
• Defining and communicating an organization’s strategic objectives is a
key element of any strategy process model since
1. The strategy definition and implementation elements of strategy
must be directed at how best to achieve the objectives,
2. The overall success of e-business strategy will be assessed by
comparing actual results against objectives and taking action to
improve strategy and
3. Clear, realistic objectives help communicate the goals and
significance of an e-business initiative to employees and partners.
• Note that objective setting typically takes place in parallel with
strategic analysis, defining a vision and strategy for e-business as part
of an iterative process.
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E-business value chain
• A value chain is a concept describing the full chain of a business's activities
in the creation of a product or service -from the initial reception of
materials all the way through its delivery to market, and everything in
between.
• The model can be divided a value chain into primary and support
activities.
• The primary activities directly add value to the final product and include
inbound and outbound logistics, operations, marketing and sales, and
service.
• Support activities indirectly add value to the end product by providing
support for the successful execution of the primary activities.
• Support activities include the firm’s infrastructure, human resource
management (HRM), technological development and procurement.
• The internet has had a transforming effect on each of the activities
comprising the value chain.
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How do value chains work?

• The value chain framework helps organizations identify their

own business functions into primary and secondary activities.

• Analyzing these value chain activities, subactivities and the

relationships between them helps organizations understand
them as a system of interrelated functions.
E-business value chain

Fig. The value chain model 27

E-business value chain(Primary activities)
• Inbound logistics:-
o activities associated with acquiring, storing and disseminating inputs.
o The internet can add value by providing a control and monitoring facility to maximize the efficiency and speed of the
process.
• Operations:-
o activities associated with transforming inputs into the final product.
o including manufacturing, packaging, assembly, testing for quality, and printing
o automated with applications software used for quality control.
• Outbound logistics:-
o activities associated with collecting, storing and distributing the product to wholesalers, retailers or direct to
customers.
o An extranet facilitates communications between the manufacturer and wholesalers, distributors or retailers.
• Marketing and sales:-
o activities associated with promoting and selling the product or service.
o The internet can play an important role in the marketing process.
o The internet allows firms to use customer relationship management (CRM)
• Service:-
o activities associated with providing pre or after-sales service to increase or maintain the value of the product. 28
o The internet provides an effective means of communication between organizations and customers.
E-business value chain (Support activities)
• Procurement:-
orelates to the purchasing of resources required to turn inputs into outputs.
oE-procurement reduces costs by automating orders and transactions.
• Technology development:-
otechnological support mechanism for developing new products, improving
processes and monitoring performance.
• Human resource management:-
oConcerned with attracting and recruiting people with the correct combination
of skills, capabilities, values and attitudes that will add value to the
organization.
oinvolves the continuous development of staff in the form of training, education
and appraisal.
• Infrastructure:-
orefers to the planning, finance, technology and information systems, and
general management.
osupports all the value chain activities.
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Issues in implementing e-business and IOS strategies
• Cyber security and avoiding ecommerce fraud
• Targeting the right customers
• Converting visitors into paying customers
• Meeting customers’ high expectations
• Offering high quality customer service and support
• Creating customer loyalty
• Competitive prices and shipping
• Avoiding cart abandonment
• Finding the right return and refund policies
• Choosing the right tech partners 30
E-business models
• Before developing any type of strategy, a management team needs to agree the process they
will follow for generating and then implementing the strategy.
• A strategy process model: provides a framework that gives a logical sequence to follow
to ensure inclusion of all key activities of e-business strategy development.
• It also ensures that e-business strategy can be evolved as part of a process of continuous
improvement.
• An e-business model is the adaptation of an organization's business model to the internet
economy.
• A business model is adopted by an organization as a framework for maximizing value in this
new economy.
• E-business models utilize the benefits of electronic communications to achieve these value-
adding processes.
• There are many examples of business models designed for the internet.
• E-business models can be linked to e-business markets. 31
E-business models(cont.….)
• The e-business models relating to e-business markets can be summarized as:
oBusiness-to-Consumer (B2C): e-shops, e-malls, e-auctions, buyer aggregators,
infomediaries, classifieds, portaling, manufacturer model, subscription;
oBusiness-to-Business (B2B): e-auctions, infomediaries, e-procurement, e-
distribution, portaling, e-marketing, trading communities, third-party marketplaces,
collaboration platforms, value chain integrators, value chain service providers, affiliates;
oConsumer-to-Consumer (C2C): e-auctions, virtual communities.

Fig. A framework for e-business markets

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Strategic Uses of Information Technology
• How can business managers use investments in information technology to support a firm’s competitive
strategies?
• Many companies are using Internet technologies as the foundation for competitive strategies strategies.

Fig. A summary of how IT can be

used to implement competitive strategies.

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Using Information Technology for Strategic Advantage
• Organizations may view and use information technology in many ways.
• If a company emphasized strategic business uses of information technology, its management would
view IT as a major competitive differentiator.
• Information technology plays a major role in reengineering most business processes.
• The speed, information-processing capabilities, and connectivity of computers and Internet
technologies can substantially increase the efficiency of business processes, as well as
communications and collaboration among the people responsible for their operation and
management.
BPR –
oA fundamental rethinking and radical redesign of business processes to achieve dramatic
improvements in cost, quality, speed, and service.
oCombines a strategy of promoting business innovation with a strategy of making major
improvements to business processes.
oOrganizational redesign approaches are an important enabler of reengineering, along with the use
of information technology.
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E-commerce and the Internet
• Key concepts in e-commerce
• Digital goods
oGoods that can be delivered over a digital network
oE.g. Music tracks, video, software, newspapers, books
oCost of producing first unit almost entire cost of product: marginal
cost of 2nd unit is about zero
oCosts of delivery over the Internet very low
oMarketing costs remain the same; pricing highly variable
oIndustries with digital goods are undergoing revolutionary changes
(publishers, record labels, etc.)
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E-commerce and the Internet(cont…)
• E-commerce today:
• Use of the Internet and Web to transact business; digitally
enabled transactions
• Began in 1995 and grew exponentially, still growing even in
a recession
• Companies that survived the dot-com bubble burst and now
thrive
• E-commerce revolution is still in its early stages

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E-commerce and the Internet(cont…)
The benefits of disintermediation to the consumer

The typical distribution channel has several intermediary layers, each of which
adds to the final cost of a product, such as a sweater. Removing layers lowers the
final cost to the consumer.
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E-commerce and the Internet(cont…)
• Types of e-commerce
oBusiness-to-consumer (B2C)
➢Electronic commerce involves retailing products and services to individual
shoppers.

oBusiness-to-business (B2B)
➢Electronic commerce involves sales of goods and services among businesses.

oConsumer-to-consumer (C2C)
➢Electronic commerce involves consumers selling directly to consumers.

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E-commerce and the Internet(cont…)
• E-commerce marketing
oInternet provides marketers with new ways of identifying
and communicating with customers
oLong tail marketing: Ability to reach a large audience
inexpensively
oBehavioral targeting: Tracking online behavior of individuals
on thousands of Web sites
oAdvertising formats include search engine marketing, display
ads, rich media, and e-mail
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E-commerce and the Internet(cont…)
• Business-to-business e-commerce
• Electronic data interchange (EDI)
oComputer-to-computer exchange of standard transactions
such as invoices, purchase orders
oMajor industries have EDI standards that define structure
and information fields of electronic documents for that
industry
oMore companies increasingly moving away from private
networks to Internet for linking to other firms
oE.g. Procurement: Businesses can now use Internet to
locate most low-cost supplier, search online catalogs of
supplier products, negotiate with suppliers, place orders,
etc.
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ELECTRONIC DATA INTERCHANGE (EDI)

o Companies use EDI to automate transactions for B2B e-commerce and continuous
inventory replenishment.
o Suppliers can automatically send data about shipments to purchasing firms.
o The purchasing firms can use EDI to provide production and inventory requirements and
payment data to suppliers.

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Eight Unique Features of E-commerce Technology and Their Business Significance

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Limitations of EC

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Mobile Commerce
•Mobile commerce (m-commerce, m-business)
oAny business activity conducted over a wireless
telecommunications network

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