Management

Information Systems,
10/e
Raymond McLeod and George
Schell

2007 by Prentice Hall

Management Information Systems, 10/e R

aymond McLeod and George Schell

Chapter 3
Using Information Technology
to Engage in Electronic
Commerce
2007 by Prentice Hall

Management Information Systems, 10/e R

aymond McLeod and George Schell

Learning Objectives
Recognize

the importance and advantages of

electronic commerce.
Understand how electronic commerce is
being blended into everyday business
processes.
Understand the difference between businessto-business electronic commerce and
business-to-commerce electronic commerce.
Be familiar with examples of good businessto-business electronic commerce and
business-to-consumer electronic commerce.
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Learning Objectives (Contd)

Know

the role that Interorganizational

systems, the Internet, and the world Wide
Web play in electronic commerce.
Know what factors influence the adoption of
Interorganizational systems.
Recognize the movement from electronic
data interchange to various Web-standard
data exchange practices.
Understand why many firms choose to have
both a virtual store and a physical store.
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Electronic Commerce
Electronic

Commerce (Ecommerce) refers to a business

transaction that uses network access,
computer-based systems, and a Web
browser interface.
Business-to-consumer (B2C) refers
to transactions between a business
and the final consumer of the product.
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E-commerce (Contd)
Business-to-business

(B2B) refers
to transactions between businesses in
which neither one is the final
consumer.
Electronic Government (E-gov)
refers to transactions between a
government agency and typically a
citizen.
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E-commerce (Contd)
Main

benefits to firms:

Improved customer service before, during,

and after the sale.
Improved relationships with suppliers and
the financial community.
Increased economic return on stockholder
and owner investments.

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E-commerce (Contd)
Main

constraints to firms:

High costs.
Security concerns.
Immature or unavailable software.
Scope

of E-commerce

WWW.CENSUS.GOV
Link to the E-stats Web page to find the
most current e-commerce figures.
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Table 3.1 E-commerce Sales

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Business Intelligence
Business

Intelligence (BI) is the activity

of gathering information about the elements
in the environment that interacts with the
firm.
External databases are commercial
databases that, usually for a fee, provide
information and analyses on virtually any
subject. WWW.LEISNEXIS.COM,
WWW.DIALOG.COM, WWW.GXS.COM,
WWW.THOMASNET.COM
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Business Intelligence (Contd)

Firms

use these databases to gather BI

because it is faster and less expensive
than trying to research a wide array of
information sources.
Government databases offer a wide
range of topics for researchers in
many fields. WWW.LOC.GOV,
WWW.CENSUS.GOV, WWW.BLS.GOV
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Business Intelligence (Contd)

Firms

are more inclined to initiate their

own external searches for market
intelligence.
Search engines are the most popular
means for people to obtain information
available from the Web.

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Business Intelligence (Contd)

Search

engine is a special computer

program that asks a user for a word or group
of words to be found. WWW.GOOGLE.COM,
WWW.YAHOO.COM, WWW.MSN.COM,
WWW.ASKJEEVES.COM
Searches the content of web sites on the
Internet to see if the word or words are on
any Web sites.
Makes it possible to scan large volumes of
information quickly, easily, and thoroughly.
2007 by Prentice H
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Figure 3.1 Search Engines

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E-commerce Strategy &

Interorganizational Systems
Interorganizational

system (IOS) is the

strategy in which a firm is linked with
transmissions of electronic data with other
firms so that all of the firms work together
as a coordinated unit, achieving benefits
that each could not achieve alone.
Participating firms are called trading partners,
business partners, or a business alliance.

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E-commerce Strategy & IOS

(Contd)
E-commerce

is fundamental to IOSs.
Electronic data interchange (EDI)
is a means for achieving an IOS; a
subset.
E-commerce and EDI are the highways
of IOSs.
Extranets are another alternative.
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IOS Benefits
Comparative

Efficiency is obtained
by the IOS because the trading
partners can produce their goods and
services with greater efficiency and
provide their goods and services at
lower costs to their customers. (price
advantage over competitors)

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Comparative Efficiency
Improvements
Internal

efficiency within the firms own

operations.
Gather & analyze data quickly.
Make decisions faster.

Interorganizational

efficiency gained by
working with other firms.

Offer more products and services.

Serve more customers.
Shift certain work to suppliers or customers.
Gather environmental data more easily.

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IOS Benefits
Bargaining

Power is the ability of a

firm to resolve disagreements with its
suppliers and customers to its own
advantage

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Bargaining Power
Improvements
Unique

product features enable firms to

offer better service to their customers in the
form of easier ordering, quicker shipments,
and faster response times to requests for
information.
This better service becomes a feature of the
firms products, making them more
appealing that similar products offered by
competitors.
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Bargaining Power
Improvements
Reduced

search-related costs can reduce

the firms shopping cost that its customers
incur in searching for a supplier, identifying
alternative products, and getting the lowest
price.
The firm is a customer of its suppliers, the
firm can realize the same shopping-cost
reductions when ordering from its suppliers.

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Bargaining Power
Improvements (Contd)
Increased

switching costs is when a firm

makes it more expensive, in cost and/or
convenience, for customers to switch to a
competitor.
Providing customers with such information
resources as hardware, software, and data
communications channels that would have
to be replaced if products were purchased
from another firm.
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IOS
Vendor

stock replenishment is a special

type of IOS in that the customer trusts the
supplier enough to allow the supplier to
access its computer-based inventory
system.
The supplier initiates the replenishment
process by electronically monitoring the
firms inventory levels.
Wal-Mart uses the IOS strategy extensively.
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EDI
EDI

consists of direct computer-tocomputer transmissions of data in a

machine-readable, structured format.
Older technology, but majority of B2B
commerce use.
Enables data to be transmitted and
received without rekeying.
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EDI (Contd)
Equipment

(communications lines,
hardware, etc.) and support services
provided by telephone companies
(AT&T, MCI, et. al.)
Value-added network (VAN) is when
the services that operate and manage
the communications line (circuit) are
provided in addition to the line itself.
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EDI (Contd)
EDI

is the dominant implementation of

an IOS.
More that 2/3rd of e-commerce is
conducted using EDI compared to other
alternatives.
More costly 5,000-30,000 per year with a
single vendor or customer
More bulky than newer IOS systems

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Extranet
Extranets

enable the sharing of sensitive

computer-based information with other firms
using information technology over the
internet.
Used in collaboration with trusted suppliers
and large customers.
Security and privacy are serious concerns,
so extranets are generally secured behind a
firewall and use encryption such as PGP.
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Extranet (Contd)
Firewall

permits only authorized users

to access the firms information.
Extranets allow for the same type of
data exchange as EDI.
Extranets incorporate the common
protocols and communication
networks of the Internet which results
in a great cost savings (EDI is costly to
use).
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IOS Adoption Influences

Proactive

and reactive business partners

Adoption influences
Competitive pressures (HIGH, firm is reactive in
adopting IOS, usually EDI)
Exercised power (powerful firm is proactive in
adopting/demanding IOS)
Internal need (firms see participation as a way to
improve)
Top management support (ALWAYS influences the
decision)

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Figure 3.2 IOS Adoption

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IOS Benefits
Direct

benefits

Reduced data entry errors

Lower costs
Increased operational efficiency

Indirect

benefits

Increased ability to compete

Improved relationships with trading partners
Better customer service

2007 by Prentice H
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Figure 3.3 IOS Direct & Indirect

Benefits

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B2C Strategies for Ecommerce

Important

to understand B2C Strategies

More products and services are becoming

available for digital delivery.
More consumers are overcoming their reluctance
to purchase using the Web.
Higher communication speeds in homes has
made delivery of digital products practical.
Fear of information theft has been replaced with
acceptance.

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Digital Products
Entertainment

songs, albums, movies, etc.

WWW.SONY.COM
Computer programs & updates virus
protection software, tax software, etc.
Services WWW.LENDINGTREE.COM
Can be consumed as soon as they are
downloaded
Purchasers incur a substantial cost of the
transaction in terms of computer cost,
online connection fees, storage media, and
so on.
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Physical Products
Must

be transported to the consumer.

Shipment has to be arranged.
Traditional delivery methods are slow.
Faster delivery time options are costly.
Mail/shipping companies offers
services such as online tracking that
allows more information and control
over delivery.
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Virtual vs. Hybrid Sales

Virtual

sales are those made by a firm that

does not operate a physical storefront.
Customer cant enter and purchase the product.

Hybrid

sales occur when firms have both a

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

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Virtual Sales Challenges

Provide

necessary product information

without overwhelming the customer.
Communicating image files from the
web site to the customers computer
can take time.
Payment over the Internet has suffered
bad press credit card fraud.
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Hybrid Sales
Most

firms had storefronts before sales

over the Internet were possible.
Necessary to their business plans.
Stores act as showcases for products.
Convenience of shopping over the
Web.
B2C sales means less inventory at its
store; more sales floor space.
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Virtual Sales (Contd)

Limit

images displayed response time,

WWW.OFFICEDEPOT.COM.
Secure data transfer of credit card
information.
VeriSign
PayPal

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The Next Step for Ecommerce

Mobile

commerce (m-commerce) is the

use of cell phones and personal digital
assistants (PDAs) to engage in wireless ecommerce.
Third generation (3G)
telecommunications is data-capable
wireless technologies.
Europe purchased 3G licenses in 2000; U.S.
in 2004.
$40 billion per year global industry by 2009.
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M-commerce
Early

applications included news

services, financial information
alert/transactions, and banking.
Movie ticket purchases, parking
payments, etc. gaining acceptance.
Japan is 1st country to have a 3G
carrier (almost all Japanese have a cell
phone).
U.S. only about 40% have cell phone.
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The Next Step (Contd)

Wireless

Internet Hot spots are created

using a wired connection (for high
communications speed) and then broadcast
via a wireless access point to an area
approx. 100 meters, Starbucks.
Business-class wireless computing
would provide fast wireless communication
everywhere over the same communications
carrier as cell phones, Verizon.
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Using the Internet

The

origin of the Internet can be traced

to 1969, when the U.S. government
established a network called ARPANET.
ARPANET demonstrated that it was
possible for a person to request and
receive data over a complex network
that included many computers and
network connections.
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World Wide Web

World

Wide Web (WWW) efforts began in

1989 when Tim Berners-Lee came up with a
idea for physicists to communicate.
Hypertext - electronic documents that are
linked together.
Physicists would be able to click on words or
phrases displayed on their computer screens
and retrieve the hypertext.

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WWW (Contd)
Hypertext

became a reality in 1992.

Hypermedia is to transmit multimedia
consisting of text, graphics, audio, and video
over the WWW.
WWW (Web) is information accessible via
the Internet whereby hypermedia
documents (computer files) are stored and
then retrieved by means of a unique
addressing scheme.
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WWW Terms
Web

site collection of Web pages.

Hypertext link pointer (text or a graphic)
used to access hypertext stored at a
Website.
Web page hypermedia file stored at a
unique Website address.
Home page first page of a Web site.
Browser software designed to find and
read files on the Internet written in
hypertext markup language (HTTP)
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WWW Terms (Contd)

Uniform resource locator (URL) unique

address of a Web page.
Protocol set of standards that govern
communication of data (HTTP, FTP, URL).
Domain name address of the website where a
Web page is stored.
Path certain directory/subdirectory and file at the
Website.
File Transfer Protocol (FTP) users can copy files
onto their computers from any web site.

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Figure 3.5 WWW Terminology

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Understanding the Difference

Internet

is a global communications
network that connects millions of
computers.
Provides the network architecture.

Web

is a collection of computers acting as

content servers that host documents
formatted to enable viewing of text,
graphics, and audio as well as allowing
linkages to other documents on the Web.
Provides the method for storing and retrieving its
documents.

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Cyberspace & the

Information Superhighway
Cyberspace1

a society that had

become a slave to technology.
Information Superhighway
describes a positive force that gives
everyone access to the wealth of
information that exists in modern
society.
1

Term coined in 1984, author William Gibson Neuromancer

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Internet Standards
Internet

Society (1992) promotes

commercial internet use.
Internet Engineering Task force
(IETF) responsible for Internet
standards.
World Wide Web Consortium
(W3C) responsible for Web standards.
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E-commerce & Hospital

Supply Chain Management

Hospitals conduct most of their purchases online.

Only 5 % benefit compared to manual purchasing.

Hospitals can use a standard protocol such as the

Internet to replace EDI.
Global Healthcare Exchange (WWW.GHX.COM) help
hospitals implement clinical commercial exchange
Hospitals have hundreds, sometimes thousands, of
vendors, the savings is substantial.

Speed and ease of connection to a new vendor for

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

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Business Applications of the

Internet

Retailing Operations

Most of the large retail chains have established a Web

presence.
Retailers make their home pages directly accessible
through the Web.

Virtual mall combine with other stores in a

collection sites.
Retailing organizations changing the face of Web
information.
WWW.AUTOBYTEL.COM
WWW.AMAZON.COM

Over 70% of Internet users make a yearly online

purchase.

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Suggestions for Successful

Internet Use

Make sure your Web site is robust.

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

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Future Impact of the Internet

on Business
E-commerce

is growing in the U.S. and

worldwide (15% annually past 5
years).
3G and even faster 4G phone service.
Increase use of cellular phones for
purchases.

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