Electronic Commerce (e-commerce)

Impact of e-commerce on organizations and the business

environment

• E-commerce is changing the way traditional business is conducted. How?

• Technology can help throughout the process including promotion, searching, selecting, negotiating, delivery and support.

• The “value chain” is being reconfigured.• Specifically e-commerce impacts can be seen

in each of the following:– Structure/Connections– Work routine– Communications– Marketing– Information Technology

Impact on Structure

• Supply Chain Integration (This is the integration of three or more organizations, so that for example, a retailer can signal a reorder to it’s wholesaler and it’s wholesaler’s supplier at the same time.) – Supply chain integration builds strong partnerships through collaborative

technology.• E Commerce helps in reducing problems in the flows of material, money,

and information• facilitating the restructuring of business activities and supply chains

Direct Sales—Elimination of the Middleman

• Decentralization( devolution, delegation)• Virtual Organizations (A Virtual Corporation is an electronically

supported temporary joint venture for a specific time-limited mission)• Business Model (EC introduces new business models and

automates business processes)

Impact on Work Routine

• International Business• 24 Hour / 365 Days• Faster Turnaround (Circle, rotate)

– There is cycle time reduction which refers to shortening the time it takes for a business to complete a productive activity from its beginning to end. It is extremely important for increasing productivity and competitiveness

• Increased Automation (Computerization)

Impact on Communication • International• Immediate Response• Indirect

Impact on Marketing

• Customer Characteristics– International– Direct Sales– Demographics (Refers to Tracking and analyzing data of a

selected population and getting characteristics that are used used in government, marketing or opinion research). They can be used to develop a marketing plan or strategy)

– Frequent Updates– More Public Information– Search Engines and Directory

Impact on IT

• More mission Critical (refers to any factor (equipment, process, procedure, software etc) which is crucial to the successful completion of an entire project), thus E commerce is a factor that leads to the crucial successful use of IT in organizations.

• More integration projects– Business chain integration– Off the shelf product integration (Buying off the shelf products to

perform common tasks). • eg you can integrate your website with another like google check out through

the off the shelf shopping cart.) Google checkout lets your customers buy items from you quickly and securely using a google username and password. Google check out lets you charge customers’ credit, track orders through your fulfillment process and receive order payments in your bank account. you can integrate your website with google checkout by including basic order information inside HTML forms on your web pages

– Database integration• Network and security

• Define the term business strategy(2 Marks)

• Discuss the four generic strategies for achieving a profitable business and show

• the impact of E- Commerce on these strategies. (8 Marks)

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IMPACTS OF E-COMMERCE ON THE BUSINESS ENVIROMENT

• The term business environment refers to the social, economic, legal, technological, and political actions that affect business activities.

• -Some of the areas of the business environment in which Internet and Web technologies have impacted include:

• Industry structure• Industry Value chains• Firm value chains• Business strategies

Industry Structure

• - This refers to the nature of the players in an industry and their relative bargaining power.

• -Industry structure is characterized by five forces:• Rivalry among existing competitors. (They compete in none price

dimensions like innovation, marketing etc) hence entry of new competitors.

• The threat of substitute products (Customers switch to alternatives)• Barriers to entry into the industry (eg patents (A set of exclusive rights

granted by a state to an inventor for a fixed period of time in exchange for a disclosure of an intervention.), rights etc

• Bargaining power of suppliers (the suppliers of raw materials, components and services to the firm can be a source of power over the firm. ) e.g charge excessively high prices for unique resources

• Bargaining power of buyers (the ability of customers to put the firm under pressure) eg Buyer price sensitivity, buyer information availability

• - E-commerce can affect the structure of industry based on the above 5 forces.

Industry Value Chains.• - Concerned with business operations at the industry level.• Definition: A Value Chain is the set of activities performed in an

industry or in a firm that transforms raw inputs into final products and services.

• - Each activity adds economic value to the final product hence the term value chain (an interconnected chain of value adding activities).

• - E- commerce technologies reduce the cost of information thus each of the key players ( suppliers, manufacturers, distributors, retailers, customers and transporters) have new opportunities to maximize the position by lowering costs and /or raising prices.

• - E.g. distributors can use highly efficient inventory management systems to monitor, the quality, location and status of inventory as well as the related shipping, receiving, picking and put away processes. , retailers may have CRM system, customers can easily search for products etc.

• -E-commerce technology also increase operational efficiency of the entire industry thus:

– Lowering prices and adding value to consumers – Giving industry competitive edge over alternatives.

Firm value chain• - Set of support activities a firm engages in to create final products from

raw inputs.• - Support activities are also developed to coordinate the production

process and contribute to overall operational efficiency• - Support activities include: Inbound logistics (The receiving and

warehousing of raw materials, and their distribution to manufacturing as they are required), Operations (the process of transforming inputs into finished products and services), outbound logistics (The warehousing and distribution of finished goods), sales and marketing (The identification of customer needs and the generation of sales) and after sales service (the support of customers after the products and services are sold to them).

• - Internet allows firms to Increase their operational efficiency and differentiate their products. E.g. through outsourcing (subcontracting a process, such as product design or manufacturing to a third party )of non-core activities, etc.

• - Firms can use Internet to more precisely coordinate the steps in the value chains and reduce their costs.

• - Firms can also use Internet to provide users with more differentiated and high value products.

Business Strategy

• Definition: A set of plans for achieving superior long-term returns on the capital invested in a business firm.

• -Helps in making profits in a competitive environment over the long term.

• -Four generic strategies for achieving a profitable business include:

• Differentiation• Costs• Scope• Focus

i) Differentiation• - How to make your products appear unique and distinguishable from those

of competitor• -Opposite is commoditization- no differences among products apart from

price.• - Differentiation may be achieved on the following ways:

– Create expectations among users about the experience of consuming the product– Adding features/enhancements to a generic product– Using Marketing to create a “brand” that stands for these features.

• - Differentiation features give the customer value proposition (or the sum total of benefits which a vendor promises that a customer will receive in return for the customer’s associated payment or any other value transfer).

• -Internet and Web, through personalization and customization, are a powerful differentiation tool.

• - By Leveraging ubiquitous nature of Internet, (Internet / Web technology is available everywhere – at home, workplace and elsewhere via mobile devices, anytime.- It liberates the market from being restricted to a physical space and makes it possible to shop from desktop, at a home, at work, even from your boda boda using mobile commerce) businesses can help differentiate products by allowing users to purchase anywhere, anytime.

• -Through Interactivity and richness- allows chatting, videos etc.

Costs

• -New and more efficient sets of business processes (sets of steps or procedures required to perform the various elements of the value chain) help reduce costs. Lower costs allow a business to charge customers a lower price.

Scope

• Which markets should a business compete in and what kind of activities is involved in such markets? This looks at the size and the composition of the market you intend to target.

• When targeting a broad market scope, differentiation strategy and low cost competency should be the main focus. E commerce can enable differentiation as discussed above.

Focus /Market segmentation./Niche strategy

• In this strategy, the firm concentrates on a select few target markets. Its hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market. Firms with a low market share are successful because they use market segmentation to focus on a small but profitable market niche