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Chapter 4

The Digital Firm: Electronic Business and Electronic Commerce

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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce OBJECTIVES

Analyze how Internet technology has changed value propositions and business models
Define electronic commerce and describe how it has changed consumer retailing and business-tobusiness transactions

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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce OBJECTIVES (Continued)

Compare the principal payment systems for electronic commerce Evaluate the role of Internet technology in facilitating management and coordination of internal and interorganizational business processes

Assess the challenges posed by electronic business and electronic commerce and management solutions
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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce

Corrugated Supplies Case

Challenge: trillions of product configurations, short lead times, many competitors Solution: Web extranet for order entry, customization, inventory, change orders, and shipping Demonstrates how IT and the Web coordinate the flow of information about orders, production, inventory and shipment Illustrates how systems in the digital firm connect demand, supply, and fulfillment to achieve operational excellence
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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Internet Technology and the Digital Firm

Information technology infrastructure: The Internet provides a universal and easy-to-use set of technologies and technology standards that can be adopted by all organizations.
Direct communication between trading partners: Disintermediation removes intermediate layers and streamlines processes.

4.5

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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Internet Technology and the Digital Firm (Continued)


Round the clock service: Web sites available to consumers 24 hours

Extended distribution channels: Outlets created for attracting customers who otherwise would not patronize a firm Reduced transaction costs: Costs of searching for buyers declines
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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

New Business Models and Value Propositions

Business Model:
Defines an enterprise Describes how the enterprise delivers a product or service

Shows how the enterprise creates wealth

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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

The Changing Economies of Information

Information asymmetry: One party in a transaction has more information than the other. The Internet decreases information asymmetry. Increases richness: The Internet increases the depth, detail, and scope of information.
Increases reach: The Internet increases the number of people who can be contacted efficiently.
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

The Changing Economics of Information

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Figure 4-1

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Internet Business Models

Virtual storefront: Sells goods or services online (Amazon.com)


Information broker: Provides information on products or services (Edmunds.com) Transaction broker: Provides online transaction facility (eTrade.com, Expedia.com) Online marketplace: Provides a trading platform for individuals and firms (eBay.com)
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS, ELECTRONIC COMMERCE, AND THE EMERGING DIGITAL FIRM

Internet Business Models (Continued)

Content provider: Creates revenue by providing content (WSJ.com, TheStreet.com)


Online service provider: Provides online services, including search service. (Google.com, Xdrive.com) Virtual community: Provides an online community to focused groups (Friendster.com, iVillage.com) Portal: Provides initial point of entry to Web, specialized content, services (Yahoo.com, MSN.com)
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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Categories of Electronic Commerce

Business-to-customer (B2C): Retailing of products and services directly to individual customers (Wal-Mart.com)
Business-to-business (B2B): Sales of goods and services to other businesses (Grainger.com, Ariba.com) Consumer-to-consumer (C2C): Individuals using the Web for private sales or exchange (eBay.com )
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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Business-To-Consumer

Advantages of E-commerce:
Customer-centered retailing: Closer and more personalized relationship with customers is possible Web sites: Provide a corporate-centered portal for the consumer to quickly find information on products, services, prices, orders

4.13

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Business-To-Consumer Advantages of E-Commerce: (Continued) Disintermediation: The elimination of organizations or business process layers responsible for certain intermediary steps in a value chain, reducing costs to the consumer Reintermediation: The shifting of the intermediary role in a value chain to a new source, adding additional value to the consumer
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

The Benefits of Disintermediation to the Consumer

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Figure 4-2

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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Interactive Marketing and Personalization Clickstream tracking tools: Collect data on customer activities at Web sites and store them in a log

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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Web Site Visitor Tracking

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Figure 4-3

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Web Personalization Create unique personalized Web pages for each customer Increased closeness to customer increases value to the customer, while reducing costs of interacting with the customer

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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Web Site Personalization

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Figure 4-4

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Collaborative filtering: Compares information gathered about a specific users behavior at a Web site to data about other customers with similar interests to predict what the user would like to see next. The software then makes recommendations to users based on their assumed interests.

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Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Customer self-service: The use of Web sites to provide customers with access to information and answers to questions Replacing human call center operators and clerks UPS.com: Customer tracking of packages Orbitz.com: Customer self-help for organizing and managing a trip Dell.com: My Order Status facility
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Business-to-Business Electronic Commerce: New Efficiencies and Relationships Electronic Data Interchange (EDI): Enables the computer-to-computer exchange between two organizations of standard transactions. Currently 80% of B2B e-commerce uses this system. EDI is being replaced by more powerful Webbased alternatives.

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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Net Marketplaces Four different types of Net Marketplaces:


Distributors: B2B online catalogs provide buyers with access to thousands of parts and other goods (Grainger.com) Procurement platforms: Platforms for purchasing goods and materials and also sourcing, negotiating with suppliers, paying for goods, and making delivery arrangements (Ariba.com)
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Net Marketplaces

Four different types of Net Marketplaces: (Continued)


Independent exchanges: Third-party Net marketplace that is primarily transaction-oriented and that connects many buyers and suppliers for spot purchasing (Freemarkets.com, GEPolymerland.com)

Industry consortia: Industry-owned Net marketplaces used primarily for long-term sourcing of direct inputs to production (ChemConnect.com)
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Electronic Data Interchange (EDI)

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Figure 4-5

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

Private Industrial Networks The largest Web-based form of B2B commerce

Private B2B extranets that focus on continuous business process coordination between a small group of companies for collaboration and supply chain management. Wal-Mart uses its own private network to coordinate more than 15,000 suppliers to its stores.
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

A Private Industrial Network

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Figure 4-6

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC COMMERCE

A Net Marketplace

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Figure 4-7

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM

Business Process Integration

The Internet and collaborative commerce:


Collaborative commerce: When firms use the Internet to cooperate closely in the development, production, and distribution of products and services GE Plastics maintains an Intranet where its customers (selected fabricators) can find information on product design and new developments.
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2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce ELECTRONIC BUSINESS AND THE DIGITAL FIRM

Collaborative Commerce

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Figure 4-9

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS

Management Opportunities:
The Internet provides firms with extraordinary opportunities to develop new products and services, new distribution channels, new avenues for marketing and sales, and even entirely new business models.

4.31

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS

Management Challenges:
Finding a successful Internet business model

Organizational change challenges


Trust, Security, and Privacy

4.32

2006 by Prentice Hall

Management Information Systems


Chapter 4 The Digital Firm: Electronic Business and Electronic Commerce MANGEMENT OPPORTUNITIES, CHALLENGES, AND SOLUTIONS

Solution Guidelines:
Determining how Internet technology can provide value for the business Managing business process changes Safeguarding security and privacy

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2006 by Prentice Hall