Information Systems:

Creating Business Value

John Wiley & Sons, Inc.
Mark Huber, Craig Piercy, and
Patrick McKeown

Copyright 2007 John Wiley & Sons, Inc.

Chapter 7:
E-Commerce for Consumers
and Organizations

Copyright 2007 John Wiley & Sons, Inc.

What We Will Cover:
• E-Commerce: An Overview
• The E-Commerce Difference
• E-Commerce for Consumers
• E-Commerce Between Organizations

Copyright 2007 John Wiley & Sons, Inc.

 Student ROI (Return on Investment)
Your investment of time and effort in this course will result in
your being able to answer these questions:
1. What is e-commerce and how is it a part of today’s
economy?
2. How does e-commerce make a difference to businesses
and consumers?
3. How does e-commerce allow businesses to create value
for their consumers?
4. How do businesses use e-commerce to enhance the
products and services that they trade with business
partners, as well as to improve their supply chain
efficiency?
Copyright 2007 John Wiley & Sons, Inc.
What is e-commerce?
• E-commerce is the use of information systems,
technologies, and computer networks to carry out
transactions in order to create or support the creation of
business value.

• Note that we do not say “to buy and sell over the
Internet” in our definition – why?

Copyright 2007 John Wiley & Sons, Inc.

E-commerce (cont.)
Uneven penetration into areas of commerce
– Travel Industry versus Retail Clothing Industry
(clothing is trending upward)
– Most people think of e-commerce as electronic
shopping over the WWW or Business to Consumer
e-commerce (B2C - transactions in hundreds of
millions of dollars)
– However, Business to Business e-commerce (B2B)
transactions are valued in trillions of dollars!

Copyright 2007 John Wiley & Sons, Inc.

Types of E-Commerce
Transactions
Transaction Description Example Web sites
Business-to- www.landsend.com,
consumer (B2C) www.overstock.com,
www.amazon.com
Business-to-business www.manheim.com,
(B2B) www.boeing.com
Business-to- www.irs.gov,
government (B2G) www.fedbizopps.gov,
App.mt.gov/bustax
Consumer-to- www.irs.gov/individuals,
government (B2G) express.hsmv.state.fl.us
Consumer-to- www.ebay.com,
consumer (C2G) auctions.yahoo.com

Copyright 2007 John Wiley & Sons, Inc.

E-Commerce and Products:
Physical and Electronic
• Products can be divided into two primary categories: __________and
__________.
• Physical products include ….

• Electronic products ….

• E-commerce companies must have ________ - ________ ________

to handle order fulfillment and to handle returns for physical goods,
• Companies experienced in order fulfillment and returns have tended
to be successful in dealing with physical goods using E-commerce.
– Examples -

Copyright 2007 John Wiley & Sons, Inc.

Types of E-Commerce Transactions and
Associated Goods
Transaction Example Physical Example Electronic Goods
Goods

B2C

B2B

B2G

C2G

C2C

Copyright 2007 John Wiley & Sons, Inc.

Purchase of Physical Goods

Copyright 2007 John Wiley & Sons, Inc.

Purchase of Electronic Products

Copyright 2007 John Wiley & Sons, Inc.

 The “E-Commerce Difference”
• The use of computer networks, especially the Internet, to
carry out transactions between a variety of buyers and
sellers is creating a tangible “e-commerce difference” in our
economy, especially with regard to
–
–
–
• Over 1 billion potential customers around the world in the
marketspace due to increasing Internet access.
• Universal standards make it work the same way no matter
where in the world you might be.

Copyright 2007 John Wiley & Sons, Inc.

Impact of E-commerce
Technologies on Business

Copyright 2007 John Wiley & Sons, Inc.

E-Commerce Differences
• Innovative uses of the Internet have produced global
competition with sellers being able to reach any potential
buyer in the world.
• This is true for both the large retailers and for those
selling in niche market.
• Technology has increased information density—the
quality and quantity of information about products and
services.
• Customers can obtain product guides, reviews, and
prices from a myriad of Web sites creating business
challenges.

Copyright 2007 John Wiley & Sons, Inc.

Mass Customization and Personalization
• One response to information density is to create
business value based on a customization-oriented
approach to e-commerce.
• Two approaches to customization are: mass
customization and personalization.
• Mass customization -

• Personalization -

Copyright 2007 John Wiley & Sons, Inc.

E-commerce and Competition
• E-commerce is having a dramatic effect on
competition between organizations in a
number of ways including:
–
–
–
–
–

Copyright 2007 John Wiley & Sons, Inc.

Business and E-commerce Strategy
•E-commerce has changed business strategy.
•A strategy is a broad-based formula for how a business is
going to compete, what its goals should be, and what plans
and policies will be needed to carry out those goals.1

Michael Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.
1

Copyright 2007 John Wiley & Sons, Inc.

E-commerce Strategy
• An e-commerce strategy is a …

•
• To build an e-commerce strategy requires two view of an
organization’s strategy: what is wants to do (conceptual) and how it
will do it (technology strategy).

• One strategy being used by many companies is customer

relationship management which enables them to create to one-to-
one marketing experience for their customers.

• Other e-commerce strategies include virtual showrooms, increased

channel choices, wider component choice, and use of mobile
technology.

• Mobile commerce is …

Copyright 2007 John Wiley & Sons, Inc.

Benefits and Limitations of B2C E-commerce for
Consumers1
Benefits Limitations

Some but not all of these were taken from E. Turban, et. al., Electronic Commerce: A Managerial Prospective 2002,
1

Prentice-Hall: Upper Saddle River, NJ, pp. 26-28.

Copyright 2007 John Wiley & Sons, Inc.
Benefits and Limitations of B2C E-commerce for
Businesses1
Benefits Limitations

Copyright 2007 John Wiley & Sons, Inc.

E-commerce Business Models
• A business model defines how a company will
meet the needs of its customers while making a
profit.
• An e-commerce business model is a …

• The next three slides list and give examples of

e-commerce business models (Source: adapted
from Michael Rappa,
http://digitalenterprise.org/models/models.ht
ml
.
Copyright 2007 John Wiley & Sons, Inc.
E-commerce Business Models (cont.)1
Business Description Examples Comments
Model

Brokerage Brokers bring There are many types of

buyers and sellers brokerage models in all
together for a fee. types of e-commerce.

Advertising An extension of the There are many different

traditional media types of advertising, but all
broadcasting model depend on a large volume
in which ads appear of viewer traffic.
on Web sites.
Merchant Sell products, both Commonly referred to as
physical and e-tailers, merchants can
electronic, to use pure e-commerce or a
consumers combination (click and
mortar).

Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

1

Copyright 2007 John Wiley & Sons, Inc.

E-commerce Business Models (cont.)1
Business Description Examples Comments
Model
Manufacturer Make and sell Products can be
Direct products directly purchased (PCs),
to customer leased (servers), or
licensed (software).
Affiliate Affiliate Web sites Can also include
are paid a fee banner ad exchange
when purchases between affiliated sites
come through as well as revenue-
them. sharing.
Community Based on user Revenue is generated
loyalty because of through sale of ancillary
high investment of products or voluntary
time and emotion. contributions

1
Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.
Copyright 2007 John Wiley & Sons, Inc.
E-commerce Business Models (cont.)1
Business Description Examples Comments
Model
Subscription Users are charged Subscription may be
fee to subscribe to for premium services;
service to service advertising model may
or information be combined with this
source model
Infomediary Provides data on Usually aimed at
consumers and helping businesses
consumption rather than consumers
habits
Coopetitive Enable Usually aimed at
competitors to individuals or small
cooperate on a businesses that cannot
Web site attract customers to
their own Web site.
Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.
1

Copyright 2007 John Wiley & Sons, Inc.

E-commerce Web site Purpose
•The purpose of an e-commerce website is another way
to understand businesses’ e-commerce business
models.
•No matter how good the business model, it will not
generate a profit if not associated with a Web site that
brings in customers or at least visitors.
•There are eight commonly accepted types of Web
sites: portal, search engine, Browse or search and buy,
sales support, information service, auction, travel, and
special interest or services.
•A number of these match up with multiple business
models.

Copyright 2007 John Wiley & Sons, Inc.

Web Sites Classified By Purpose
Web Site Type Purpose Example Business Model

Portal A gateway to many Advertising,

other Web sites Affiliate
Search Engine Finds Web sites that Advertising,
contain a word or Affiliate,
phrase Infomediary
Browse or Sell goods and Merchant,
search and buy services Infomediary,
Manufacturer
Direct, Coopetitive
Sales Support To provide Community,
information on a Infomediary
product before or
after the sale
Copyright 2007 John Wiley & Sons, Inc.
 Web Sites Classified By Purpose
(Cont.)
Web Site Type Purpose Example Business Model

Information To provide news, Subscription,

Service information, Community,
commentary, and so on. Affiliate
Auction Facilitate sales between Brokerage
third parties
Travel Sell travel tickets and Merchant,
tours Brokerage,
Coopetitive
Special Interest Provide information, Community,
or Services product sales and Merchant,
support, and contacts Affiliate,
between visitors Infomediary,
Advertising
Copyright 2007 John Wiley & Sons, Inc.
B2B e-commerce: E-Commerce
Between Organizations
• Doing business with other organizations (B2B) is by far
larger than with consumers (B2C).
• It is also quite different in terms of the scope of the
purchases and the complexity involved in them—
especially in the decision making required to make a
purchase.
• For example, while you buy one PC, a company may buy
thousands.
• What are Interorganizational systems (IOS)?

Copyright 2007 John Wiley & Sons, Inc.

Comparing B2C to B2B
Process Individual Business Organization
Decision to Made based on own Made based on the organization’s needs
purchase needs which are a combination of many different
departmental and individual needs
Decision Made after own research Made through a systematic process that
where to buy into market involves considering what each vendor can
provide the organization in terms of setup,
networking, and so on.
Number of One Many
Items
Actual Buy computer online or in Buy computers only after significant
Purchase person with personal negotiations over price and terms with
credit card vendor
Payment Pay credit card bill with Pay by company check only after assuring
personal check that all computers have been delivered and
setup by vendor

Copyright 2007 John Wiley & Sons, Inc.

B2B Transactions
• B2B transactions can be divided into two types: spot
buying and strategic sourcing.
• What is spot buying?

• Companies often use spot buying to purchase

commodities, i.e., uniform in quality differing only in price
like gasoline, paper, and cleaning supplies.
• What is strategic sourcing?

• A company’s large-scale computer purchases often

result from strategic sourcing.

Copyright 2007 John Wiley & Sons, Inc.

B2B Business Models
• Strategic sourcing is often carried out through a one-to-one
business model, but company-centric and exchange models are
also used.
• In the one-to-one business model …

• In the company-centric business model …

• The single company dominates the market and controls the

information systems that supports the transactions. Electronic
data interchange (EDI) or an extranet is often used to link trading
partners.

• E-procurement is often the name for B2B e-commerce in the

many-to-one business model.
Copyright 2007 John Wiley & Sons, Inc.
Company Centric Business
Model

Copyright 2007 John Wiley & Sons, Inc.

Exchange Model
• In the exchange business model, many
companies use an exchange to buy and sell
from each other through spot-buying
transactions.

Copyright 2007 John Wiley & Sons, Inc.

Types of Exchanges
• Exchanges can be cooperative ventures among
the companies or it can be run by a larger
company that profits from the transactions.
• What is a vertical exchange?

• What is an horizontal exchange?

• From an e-commerce point-of-view, exchanges

are often Web sites that buyers and sellers post
their needs and offerings.
Copyright 2007 John Wiley & Sons, Inc.
Services in B2B E-Commerce
Just as services are an important part of B2C e-commerce, they are also an
important part of B2B e-commerce.

Service or Electronic Comments

Product
Software

Leasing

Travel

Copyright 2007 John Wiley & Sons, Inc.

Services in B2B E-Commerce (cont.)
Service or Comments
Electronic Product
Insurance

Banking

Stock trading

Financing

Copyright 2007 John Wiley & Sons, Inc.

Using B2B e-commerce and IOS to
Improve Supply Chain Efficiency
• What is a supply chain? 1

• Procurement is a big part of the supply chain

and using e-commerce for e-procurement has
resulted in money savings.

• To see why, we first need to understand the

traditional procurement process.

“An Introduction to Supply Chain Management”, Ram Ganeshan Terry P. Harrison,

1

http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html
Copyright 2007 John Wiley & Sons, Inc.
Traditional Procurement Process
In the traditional procurement process, there are
five steps involving three elements—purchase
order, invoice, and receipt of goods:
1. Purchase order (PO) to vendor
2. Goods to buyer along with bill of lading (BOL)
3. Upon receipt of goods and BOL, signed copy of
BOL returned to vendor and receipt of goods is filed
4. Vendor sends invoice to buyer
5. Buyer’s accounting department compares PO to
receipt of goods and invoice. If there is a match,
buyer pays the vendor.

Copyright 2007 John Wiley & Sons, Inc.

Traditional Procurement Process

Copyright 2007 John Wiley & Sons, Inc.

Interorganizational Systems (IOS)

• An interorganizational system (IOS) is a

networked information system used by two
or more separate organizations to perform a
joint business function.1

• Electronic Data Interchange (EDI)

• Extranets
Cash, J. I. Jr., F. W. McFarlan, J. L. McKenney, and L. M. Applegate. 1994.
1

Corporate information systems management: text and cases. 4th ed. Homewood, IL: Irwin, p. 339.
Copyright 2007 John Wiley & Sons, Inc.
Using E-commerce to Improve
the Procurement Process
• What is Electronic Data Interchange (EDI)?

• Even though often overshadowed by newer technology, EDI

remains the engine behind the majority of e-commerce
transactions worldwide. It is, however, too expensive for most
small businesses.

• What are extranets?

• An extranet can be thought of as two connected intranets.

Copyright 2007 John Wiley & Sons, Inc.

Extranets

Copyright 2007 John Wiley & Sons, Inc.

Comparing EDI and Extranets
EDI Extranet
Security

Cost

Flexibility

Trend

Copyright 2007 John Wiley & Sons, Inc.