MIS SKRIPTA

CHAPTER 6: E-BUSINESS AND E-COMMERCE

THE BUSINESS PERFORMANCE CYCLE AND IT MODEL

OVERVIEW OF E-BUSINESS AND E-COMMERCE

Possible question: What is the difference between e-business and e-commerce?
Electronic commerce (EC or e-commerce) describes the process of:
1.
2.
3.
4.

Buying,
Selling,
Serving, or
Exchanging

products, services or information via computer networks, including the Internet.

The term commerce is viewed as describing only transactions conducted
between business partners, and therefore is considered narrow.
E-business refers to a broader definition of EC. It's not just the buying and
selling of goods and services, but also
-

Servicing customers
Collaborating with business partners
Conducting e-learning, and

Conducting electronic transactions

within an organization.
Others view e-business as the other than buying and selling activities on the
Internet, such as collaboration and intrabusiness activities.
FORMS OF ELECTRONIC COMMERCE
EC can take several forms, depending on the degree of digitization
(transformation from physical to digital involved).
The degree of digitization can relate to:
1. The product (service) sold,
2. The process, or
3. The delivery agent (or intermediary)
All of these elements can be either physical or digital. In traditional commerce all
three dimensions are physical. Purely physical organizations are referred to as
brick-and-mortar organizations.
In pure EC all dimensions are digital. Purely digital organizations are referred to
as pure-play organizations (virtual organizations).
All other combinations that include a mix of digital and physical dimensions are
considered to be partial EC. Partial EC organizations are referred to as clickand-mortar (click-and-brick) organizations. These organizations conduct
some e-commerce activities, yet their primary business is done in the physical
world.
WHY IS EC USED?
The basic idea of EC is to automate as many business processes as possible. A
process can be:
-

Order initiation,
Order fulfillment,
Procurement of material,
Manufacturing parts (production),
Delivery, or
Providing CRM

EC activities support selling, buying, and providing relationships, as well asthe

internal and external transactions involved.
TYPES OF E-COMMERCE TRANSACTIONS
There are two ways to classify e-commerce transactions. The broad classification
is as follows:
1. Business-to-business (B2B). In B2B transactions, both the sellers and
the buyers are business organizations. The vast majority of EC volume is of
this type.
2. Collaborative commerce (c-commerce). In c-commerce, business
partners collaborate (rather than buy or sell) electronically. Such
collaboration frequently occurs between and among business partners
along the supply chain. It also refers to the use of digital technologies that

3.

4.

5.

6.

7.

enable companies to collaboratively plan, design, develop, manage, and

research products, services, and innovative EC applications. It is also
referred to as e-collaborative. These activities differ from seling and
buying. It implies communication, information sharing, and collaborative
planning planning done electronically, using tools such as groupware and
sepcially designed EC collaboration tools. Major benefits arise from
collaborative relationships, including cost reduction, increased revenues,
and better customer retention. These benefits are the results of fewer
stockouts, less exception processing, reduced inventory throughout the
supply chain, lower materials costs, increased sales volume, and increased
competitive advantage. C-commerce activities are usually conducted
between and among supply chain partners, but they can theoretically be
conducted between and within organizations.
Business-to-consumers (B2C). In B2C, organizations are sellers and
individuals are buyers. B2C is also known as e-tailing or electronic
retailing.
Electronic retailing is the direct sale of the products and services through
electronic storefronts or electronic malls, usually designed around an
electronic catalog fromat and/or auctions. One of the most interesting
properties of e-tailing is the ability to offer customized products and
services to individual cutomers at a reasonable price and fairly fast. Many
sites offer product self-configuration from their B2C portals.
Consumer-to-consumer (C2C). In C2C, both buyer and seller are
individuals. C2C is conducted in several ways on the Internet, where the
best-known C2C activities are auctions. Most auctions are conducted by
intermediaries. Another way of conducting C2C on the interned is through
classified ads. The advantage of online classified ads over traditional ones
is the (inter)national audience that the internet offers. Personal services,
like lawyers, handy helpers, tax preparers, etc. are available on the
Internet as well, which is another form C2C commerce. Some are free,
some for a fee. But this type of C2C is risky because some degree of fraud
or crime could be involved. Finally, we have support services to C2C,
which are used to ensure that the products and services involved in C2C
transactions are of agreed quality, that payment for them is regular and
that no fraud is involved.
Business-to-business-to-consumers (B2B2C). In this case, a business
sells to a business, but delivers the product or service to an individual
customer.
Consumers-to-business (C2B). In C2B, consumers make known a
particular need for a product or service, and suppliers compete to provide
the product or servie to consumers.
Intrabusiness (intraorganizational) commerce. In this case, an
organization uses EC internally to improve its operations. A special case of
this is known as business-to-employees (B2E) EC, in which organization
delivers products or services to its employees. The company disseminates
information to employees over the company intranet, for example, as part
of their employee relationship management. Employees can manage their
benefit backages and take training classes electronically. In addition,
employees can use the corporate intranet to purchase discounted
corporate products and services, insurance, travel packages, and tickets to
events. They can also electronically order supplies and material needed for

their work. In addition to the intranet, companies also disseminate

information via wikis and blogs. There are two additional types of
intraorganizational e-commerce: among and between corporate employees
(E2E) and e-commerce between and among units within the business.
Intraorganizational e-commerce can be conducted between and among
corporate employees as well (E2E). Many large organizations allow
employees to post classified ads on the company intranet, through which
employees can buy and sell products and services from and to each other.
The service is especially popular in universities, where it was conducted
even before the commercialization of the Internet.
Large corporations frequently consist of independent units, or strategic
business units (SBUs), which sell or buy materials, products, and
services to or from each other. Transactions of this type can be easily
automated and performed over the intranet. An SBU can be either a seller
or a buyer. An example is company-owned dealerships, which buy goods
from the main company. This type of EC helps improve the internal supply
chain operations.
8. Government-to-citizens (G2C) and to others. In this case, a
government entity provides services to its citizens via EC technologies.
9. Government-to-government (G2G) government units engage in EC
with other government units
10.Government-to-business (G2B) government units engage in EC with
businesses.
The narrow classification, however, divides e-commerce transactions to only to
types:
1. B2C transactions
2. B2B transactions
This narrow classification will be important later in this script.
EC BUSINESS MODELS
1. Affiliate marketing. Vendors ask partners to place logos (or banners) on
partner's site. If customers click on the logo, go to vendor's site, and buy;
then vendor pays commissions to partners.
2. Bartering online. Intermediary administers online exchange of surplus
products and/or company receives points for its contribution, and the
points can be used to purchase other needed items.
3. Deep discounters. Company offers deep price discounts. Appeals to
customers who consider only price in their purchasing decision.
4. E-Classifieds. Presentation of items for sale at fixed prices.
5. Electronic marketplaces and exchanges. Transactions are conducted
efficiently (more information to buyers and sellers, less transaction cost) in
virtual marketplaces (private or public).
6. Electronic tendering system. Businesses conduct online tendering,
requesting quotes from suppliers. Used in B2B with a reverse auction
mechanism.
7. Find-the-best-price. Customers specify a need; an intermediary
compares providers and shows the lowest price. Customers must accept
the offer in a short time or may lose the deal.

8. Group purchasing (e-co-ops). Small buyers aggregate several demands

to get a large volume; then the buying group conducts tendering or
negotiates a low price.
9. Information brokers and matching services. Brokers proivde services
related to EC information, such as trust, content, matching buyers and
sellers, evaluating vendors and products.
10.
Membership. Only members can use the services provided,
including access to certain information, conducting trades, etc.
11.
Name-your-own-price. Customers decide how much they are
willing to pay. An intermediary tries to match a provider.
12.
Online auctions. Companies or individuals run auctions of various
types on the Internet. Fast and inexpensive way to sell or liquidate items.
13.
Online direct marketing. Manufacturers or retailers sell directly
online to customers. Very efficient for digital products and services. Can
allow for product or service customization.
14.
Product customization. Customers use the Internet to selfconfigure products or services. Sellers then price them and fulfill them
quickly (build-to-order).
15.
Supply-chain improvers. Organizations restructure supply chains
to hubs or other configurations. Increases collaboration, reduces delays,
and smoothes supply chain flows.
16.
Value-chain integrators. Integrators aggregate information and
package it for customers, vendors, or others in the supply chain.
17.
Value-chain service providers. Service provider offers specialized
services in supply chain operations such as providing logistics or payment
services.
18.
Viral marketing. Receivers of e-mail send the received or related
information about your product to their friends (word-of-mouth). (Be on the
watch for viruses).
SOCIAL COMMERCE
In today's world of Web 2.0. setting up a shop, phisical or online, and waiting for
customers to arrive may no longer be enough.
Instead, compaies must be proactive in finding ways to engage customers, build
relationships, and create communities.
The creation of the trend, known as social commerce on the Internet
today, is brought about by merging of Web 2.0. technologies, e-business
opporutnities and online communities.
What differentiaties social commerce from an ordinary e-business site is the
social elements involved. Social commerce is concerned with the creation of
places where people can collaborate online, solicit advice from trusted
individuals, and avail themselves of goods and services.
SCOPE OF E-COMMERCE
Scope or field of e-commerce can be described using the example of a greek
styled building. It consists of three different, but mutually dependant parts:

1. Foundation of the building represents the infrastrucutre of ecommerce, which includes hardware, software and networks, ranging
from browser to multimedia.
2. The 5 pillars of the building represent the five support areas of ecommerce, which include:
a. People (buyers, sellers, intermediaries, information system
spcialists, other employees and any external participants.
b. Public policy (determined by the government and by international
agreements, include for example legal policy and regulating issues
such as privacy protection and taxation)
c. Marketing and Advertising
d. Support services (ranging from payments to order fulfillment and
content creation)
e. Business partnerships (joint ventures, e-marketplaces, and business
partnerships, they occur especially throughout the supply chain).
3. The top (the roof) of the building represents electronic commerce
applications.
BENEFITS OF ELECTRONIC COMMERCE
The benefits provided by e-commerce can be divided into three broad categories:
benefits to organisations, benefits to customers and benefits to society.
Benefits of e-commerce to organisations are (SHEELA ED) TOTAL NUMBER: 8
-

Shortens or even eliminates marketing distribution channels, making

products cheaper and vendors' profits higher
Helps some small busineses compete against large companies
Enables companies to procure material and services from other countries
rapidly and at lower cost
Expands a company's selling and buying opportunities to national and
international markets
Lowers telecommunication costs because the Internet is much cheaper
than value-added networks (VANs)
Allows lower inventories by facilitating pull-type supply chain
management. This allows product customization and reduces inventory
costs.
Enables a very spcialized niche market
Decreases the cost of creating, processing, distributing, storing, and
retrieving digitizable products and services

Benefits of e-commerce to customers are (GAMMER EF) total number: 8

-

Gives customers more choices in selecting products and vendors

Allows customers to interact in electronic communities and to exchange
ideas and compare experiences
Makes it possible for people to work and study at home
Makes possible elctronic auctions that benefit buyers and sellers
Enables customers to get customized products or services, from PCs to
cars, at competitive prices
Retrieves relevant and detailed information in seconds
Frequently provides less expensive products and services by allowing
consumers to conduct quick online searches and comparisons

Enables customers to shop or make other transactions 24 hours a day,

from almost any location

Benefits of e-commerce to society are (FAEE) total number: 4

-

Facilitates delivery of public services, such as government entitlements,

reducing the cost of distribution and chance of fraud, and increasing the
quality of social services, police work, healthcare and education
Allows some merchandise to be sold at lower prices, thereby increasing
people's standard of living
Enables individuals to work at home and to do less traveling, resulting in
less road traffic, less energy use, and less air pollution
Enables people in developing countries and rural areas to enjoy products
and servcies that otherwise are not available. This includes opportunities
to learn professions and even earn college degrees, or to receive better
medical care

LIMITATIONS OF E-COMMERCE
Limitations of e-commerce can be divided into two categories: technological and
nontechnological limiations.
Technological limitations to e-commerce are (ELDIN'S) total number: 6
-

Expensive and/or inconvenient Internet accessibility for many would-be

users.
Lack of universally accepted standards for quality, security and reliability
Difficulties in integrating the Internet and EC applications and software
with some existing (especially legacy) applications and databases
Insufficient telecommunications bandwidth
Still-evolving software development tools

Nontechnological limitations of e-commerce are: (CLLAMPS) total number: 7

-

Customer resistance to changing from a real to a virtual store. Many pople

do not yet sufficiently trust paperless faceless transactions.
Lack of national and international government regulations and industry
standards
Lack of mature methodologies for measuring benefits of and justifying EC
An insufficient number (critical mass) of sellers and buyers exists for many
EC products and services
Many sellers and buyers waiting for EC to stabilize before they take part
Perception that EC is expensive and unsecured
Some unresolved legal issues

E-COMMERCE WIKI BLOG RELATIONSHIP

Blogs give the users of a Social Network the freedom to express their thoughts in
a free form basis and help in generation and discussion of topics.
A Wiki is a set of co-related pages on a particular subject and allow users to share
content. Wikis replace the complex document management systems and are very
easy to create and maintain

Both are very usefull if a e-business site wishes to become a social commerce
site, meaning that they want to engage with customers, maintaing the
established realtionships and create online communities.
TYPES OF EC MECHANISMS
There are 4 major types of EC mechanisms for buying and selling on the Internet:
1. Electronic markets a virual marketplace in which sellers and buyers
meet and conduct different types of transactions. The functions of emarket are the same as those of a physical marketplace, however thanks
to the tehcnology involved, these markets are more efficient, providing
more updated information about both buyers and sellers
2. Electronic catalogs they consist of a product database, directory and
search capabilities, and a presentation function. They are the backbone of
most e-commerce sites. For merchants, they advertise and promote
products and services. For customers, they provide information on
products and services.
3. Electronic auctions an auction is a competitive process in which either
a seller collects bids from buyers or a buyer collects bids from sellers. The
primary characteristic of auctions, whether offline or online, is that the
prices are determined dynamically by competitive bidding. For merchants,
e-auctions broaden the customer base and shorten the cycle time of the
auction, thereby generally increasing revenue. For customers, it gives
them a chance to bargain for lower prices and the convenience of not
having to travel to an auction site to attend the auction. They can also
find rare and collector's items online. Auctions are used in B2C, B2B, C2B,
C2C and e-government commerce, and they are becoming popular in
many countries.
4. Online (electronic) bartering the electronically supported exchange of
goods or services without a monetary transaction. Electronic bartering is
done through means of individual-to-individual bartering ads that appear in
some newsgroups, bulletin boards, and chat rooms.

TYPES OF AUCTIONS
There are several types of electronic auctions, each with its motives and
procedures. We will divide them into two major types: forward auctions and
reverse auctions
Forward auctions are auctions that sellers use as a selling channel to many
potential buyers. Usually, items are placed at a special site for auction, and
buyers will bid continuously for the items. The highest bidder wins the items.
Sellers and buyers can be either individuals or businesses.
There are two types of forward auctions: one is to liquidate existing inventory;
the other one is to increase marketing outreach and efficiency. Customers in the
first type seek the lowest price on widely available goods or servcies; customers
in the second type seek access to unique products or servcies.
Reverse auctions in r.a. there is one buyer, ususally an organization, that
wants to buy a product or a service. Here, a company that wants to buy items

places a request for quote (RFQ) on its Web iste or in a third-party bidding
marketplace. Once RFQs are posted, sellers (usually preapproved suppliers)
submit bids electronically. Such auctions attract large pools of willing sellers, who
can be manufacturers, distributors, or retailers. Suppliers are invited to submit
bids.
The reverse auction is the most common auction model for large purchases, in
terms of either quanities or price. Everything else being equal, the lowest-price
bidder wins the auction.
B2C SHOPPING MECHANISMS
There are two popular B2C shopping mechanisms online:
1. Electronic Storefronts individual online stores, each with its own
Internet address (URL), at which orders can be placed. They may be an
extension of physical stores or new businesses entirely, started by
entrepreneurs who saw a niche on the Web. They are used by both
retailers and manufacturers and they may sell to individuals (B2C) and/or
to organizations (B2B).
2. Electronic Malls (Cybermalls or e-malls) a collection of individual
shops (storefronts) under one Internet adress. The basic idea of a e-mall is
the same as that of a regular shopping mall- to provide a one-stop
shopping place that offers many products and servcies. Each cybermall
may include thousands of vendors
The role of E-commerce is even more important in the provision of services, like
banking, secruties trading, job market, travel services and real estate.
The factors that are critical for a successful delivery of a online service are: the
service is cheap, the waiting time is minimized, the service booking can be done
from anywhere and is convinient, and the service is adjustable to customers
individual need.
Electronic banking, also known as cyberbanking, includes various banking
activites conducted from home, a business, or on the road instead of at a
physical bank location. Electronic banking has capabilites ranging from paying
bills to applying for a loan. It saves time and is convinient for customers. For
banks, it offers an inexpensive alternative to branch banking, and a chance to
enlist remote customers. It alos provides a good foundation for international and
multiple-currency banking, which is critical for international trade.
Online securities trading is gaining on popularity because it is cheaper, and the
orders can be placed from anywhere, any time, even from your cell phone, and
there is no waiting on busy telephone lines. Furthermore, the chance of making
mistakes is small bacause online trading does away with oral communication of
orders. Investors can find a considerable amount of information regarding specific
companies or mutual funds in which to invest, on the Web.
The internet offers a promising environment for job seekers and for companeis
searching for hard-to-find employees. Thousands of comapnies and government
agencies advertise available positions, accept resumes, and take applications via
the Internet. The online job market is especially effective and active for

technology-oriented jobs. Describe the fucking rest, if you want, but I think there
is no need.
The Internet is an ideal place to plan, explore, and economically arrange almost
any trip. Online travel services allow you to purchase airline tickets, reserve hotel
rooms, and rent cars. Mos sites also offer a fare-tracker feature that sends you email messages about low-cost flights to your favorite destinations from your
home city.
Real estate transactions are ideal for e-commerce. You can view many properties
on the scree, and sort and organize properties according to your preferences and
decision criteria. In some locations, borkers allow the use of real estate databases
from inside their offices, but considerable information is now available on the
internet.
TYPES OF ELECTRONIC MALLS
There are two types of electronic malls:
1. Referall malls, in which you can't buy products or services, but instead you
are automatically transferred from the mall to a participating storefront
2. Regular malls, in which you can actually make a purchase. At this type of
mall, you might shop from several stores, buy you make only one purchase
transaction at the end; an electronic shopping cart enables you to gather
items from various vendors and pay for them all together in one
transaction. The mall organiser takes a commission from the sellers for this
service.

CUSTOMER SERVICE LIFE CYCLE

A organization in many cases tends to gain a competitive advantage by providing
superb customer service, which is part of the CRM. In e-commerce, customer
service becomes eveen more critical, since customers and merchants do not
meet face-to-face.
Customer service should be approached as a business life cycle process, with the
following four phases: (RAOR) total number: 4
1. Requirements. Assist the customer to determine needs by providing
photographs of a product, video presentations, textual descriptions,
articles or reviews, sound bites on a CD, or downloadable demonstration
files. Also, use intelligent agents to make requirments suggestions and
help in comparing other product/vendor attributes.
2. Acquisition. Help the customer acquire a product or service (online order
entry, negotiations, closing of sale, and delivery).
3. Ownership. Support the customer on an ongoing basis (interactive online
user groups, online technical support, FAQs and answers, resource
libraries, newsletters, and online renewal of subscriptions).
4. Retirement. Help the client dispose of a service or product (online resale,
classified ads.)
B2B SHOPPING MECHANISMS

In business-to-business (B2B) applications, the buyers, sellers and transactions

involve only organizations. B2B comprises about 85% of EC dollar valume. It
covers applications that enable an enterprise to form electronic relationships with
its distributors, resellers, suppliers, customers, and other partners. By using B2B,
organizations can restructure their supply chains and partner relationships.
The major models for B2B applications (mechansims) are:
1. Sell-side marketplaces organizations attempt to sell their products or
services to other organizations, electronically, from their own private emarketplace and/or from a third party site. The key mechanisms in the sellmodel are:
a. Electronic catalogs, that can be customized for each large buyer,
and
b. Forward auctions, from their own Web sites or third-party auction
site
The seller in this model can be either a manufacturer, a distributor or a
retailer. The seller uses EC to increase sales, reduce selling and advertising
expenditures, increase delivery speed, and reduce administrative costs.
The sell-side model is especially suitable to customization. It is especially
powerful for companies with superb reputations
2. Buy-side marketplaces a model in which organizations attempt to buy
needed products or services from other organizations electronically. A
major method of buying goods and services in the buy-side model is a
reverse autction. The buy-side model uses EC technology to steramline the
purchasing process in order to reduce the cost of items purchased, the
administrative cost of procurement and the purchasing cycle time.
Procurements using a third-party buy-side marketplace model are
especially popular for medium and small organizations.
3. Electronic (public) exchanges e-marketplaces in which there are many
sellers and many buyers (usually both businesses) and where entry is open
to all. They are frequently owned and operated by a third party. There are
four basic types of exchanges:
a. Vertical exchanges, for direct materials b. Vertical exchanges, for indirect materials
c. Horizontal exchanges
d. Functional exchanges
Vertical exchanges serve one industry and along the entire supply chain
(automotive, chemical). Horizontal exchanges serve many industreis that
use the same products or servcies (office supplies, cleaning materials)
E-PROCUREMENT AND MECHANISMS OF E-PROCUREMENT
E-procurement is defined as purchasing by using electronic support. It uses
reverse auctions as well two other popular mechanisms: group purchasing and
desktop purchasing.
Group purchasing the orders of many buyers are aggregated so that they
total to a large volume, in order to merit more seller attention and discount (to
take advantage of economies of scale). The aggregated order can then be placed
on a reverse auction, and a volume discount can be negotiated. Typically, the
orders of small buyers are aggregated by a third-party vendor. It is especially
popular in the health-care industry, and in education.

Desktop purchasing suppliers' gatalogs are aggregated into an internal

master catalog on the buyer's server, so that the company's purchasing agents
(or even end users) can shop more conveniently. Desktop purchsing is most
suitable for indirect maintenance, replacement, and operations items (MRO
items), such as office supplies. The term indirect refers to the fact that these
items are not inputs to manufacturing. In this mechanism, a company has many
suppliers, but the quantities it purchases from each one are relatively small. It is
most appropriate for government entities and large companies.
TYPES OF PUBLIC EXCHANGES
As previously noted, there are four major types of public exchanges:
1. Vertical exchanges for direct materials, the term direct refers to the
fact that these materials are inputs to manufacturing. These are B2B
marketplaces where direct materials are traded, usually in large quantities,
in an environment of long-term relationship known as systematic
outsourcing.
2. Vertical exchanges for indirect materials, the term indirect refers to
the fact that these materials are not inputs to manufacturing. There are
B2B marketplaces where indirect materials are usually purchased on an asneeded basis. Buyers and sellers may not even know each other. In such
vertical exchanges, prices are continually changing, based on the matching
of supply and demand. Auctions are usually used in this kind of
marketplace, sometimes done in private trading rooms.
3. Horizontal exchanges. These are many-to-many e-marketplaces for
indirect (MRO) materials, such as office supplies, light bulbs, and cleaning
materials used by any industry. The quantities traded are usually not very
large. Prices are fixed or negotiated in this systematic sourcing-type
exchange.
4. Functional exchanges. This is the marketpalce for needed services, such
as temporary help or extra space, which are traded on an as-needed basis
(spot soursing).
All four types of exchanges offer support services, ranging from payments to
logistics.
E-GOVERNMENT
E-government is the use of Internet technology and e-commerce to deliver
information and public services to citizens, business partners and suppliers of
government entities, and people who work in the public sector.
E-government offers a number of benefits: it improves the efficiency and
effectiveness of the functions of the government, including the delivery of public
services. It enables governments to be more transparent to citizens and
businesses by giving access to more of the information generated by
government.
E-government also offers greater opportunities for citizens to provide feedback to
government agencies and to participate in democratic institutions and processes.
As a result, e-government may facilitate fundamental changes in the
relationships between citizens and governments.

E-government transactions, as described earlier, can be divided into three major

categories:
1. G2C in this category, government agencies are increasingly using the
Internet to provide services to citizens. An example is electronic benefits
transfer (EBT), in which governments (usually state or national) transfer
benefits, such as Social Security and pension payments, directly to
recipients' bank accounts or to smart cards.
2. G2B in this type of transaction goverments use the Internet to sell to or
buy from businesses. For example, electronic tendering systems using
reverse auctions are becoming mandatory, to ensure the best price for
government procurement of goods and services
3. G2G this type of transactions includes intragovernment EC, as well as
services among different governmental agencies.
E COMMERCE SUPPORT SERVICES

E Commerce support services are divided into threse major categories:

a) E-infrastructure, which includes mostly technology consultants, system
developers and integrators, hosting, security, wireless and networks
b) E-process, which are mainly payments and financial services, and logistics
and related services
c) E-Markets, which includes marketing, sales and advertising, affiliate
programs and data mining
d) E-Communities different audiences and business partners
e) E-services CRM, PRM and directory services
f) E-Content, which supplied by content providers

All of these services support the EC applications in the center of the figure, and
all of the services need to be managed.
The most important functions, that need to be explained in further detail are:
market research and advertisement, payments and order fulfillment.
MARKET RESEARCH
The goal of market research is to find information and knowledge that describe
the relationships among consumers, products, marketing methods, and
marketers.
Its aim is to discover marketing opportunities and issues, to establish marketing
plans in order to better understand the purchasing process, and to evaluate
marketing performance.
It includes gathering information about topics such as the economy, industry,
firms, products, pricing, distribution, competition, promotion, and consumer
purchasing behavior.
EC market research can be conducted through conventional methods, or it can be
done with the assistance of the Internet. The usage of internet is gaining in
popularity because it is faster and more efficient, while it allows the researcher to
access a more geographically diverse audience than those found in offline
surveys. Also, on the Web market researchers can conduct a large study much
more cheply than with other methods.
WEB ADVERTISING
Advertising is an attempt to disseminate information in order to affect buyerseller transactions.
In traditional marketing, advertising was impersonal, one way mass
communication that was paid for by sponsors.
In direct marketing, the advertising was conducted with help of telemarketing
and direct mail ads, which were attempts to personalize advertising, to make it
more effective. Even tough these approaches worked fairly well, they were
expensive and slow and exclusive to one-on-one interaction. Another problem
with direct marketing is that the advertisers knew very little about the receipents.
Market segmentation by various characteristics helped a bit, but did not solve the
problem.
The internet introduced the concept of interactive marketing, which enabled
marketers and advertisers to interact directly with customers. A consumer can
click an ad to obtain more information or send an e-mail to ask a question.
Besides the two-way communication and e-mail capabilities provided by the
internet, vendors also can target specific groups and individuals on which they
want to spend their advertising dollars. The Internet enables truly one-to-one
advertising.
Company can decide to use one of the previously stated methods of advertising,
or use the combination of the tools, which is a more frequent appereance.
The two major business models for advertising online are:

1. Using the Web as a channel to advertsise a frim's own products and

services
2. Making a firm's site a public portal site and using captive audiences to
advertise products offered by other firms
The major strategies that can be used in online advertising are:
1. Affiliate Marketing and Advertising which is a revenue model by
which an organization refers customers to the selling company's Web site.
It is used mainly as a revenue sorce for the referring organization, and as a
marketing tool for sellers.
2. Search Engine Advertisement most serach engines allow companies
to submit their Internet addresses, called universal resource locators
(URLs), for free so that people can search them electronically. Seach
engine intelligent software programs (known as spider) crawl through each
side, indexing its content and links. The site is then included in future
searches. Because there are several thousand search engines, advertisers
who use this method should register their URLs with as many search
engines as pssible. In some cases, URLs may be searched even if they are
not submitted. The major advantage of using URLs as an advertising tool is
that it is free. It is the most popular online advertising method today,
mainly thanks to Google.
3. Ads as a Commodity paying people for time spent viewing an ad.
Consumers fill out data on personal interests, and then they receive
targeted banners based on their personal profiles. Each banner is labeled
with the amount of payment that will be paid if the consumer reads the ad.
If interested, the consumer clicks the banner to read it, and after passing
some test as to its content, is paid for the effort.
4. Viral Marketing it refers to word-of-mouth marketing in which
customers promote a product or service by telling others about it. This can
be done by e-mails, in conversations facilitated in chat rooms, by posting
messages in newsgroups, in wikis and blogs, and in electronic consumer
forums. Having people forward messages to friends, asking them to check
out this product is an example of viral marketing. This method can be
used to build brand awareness at a minimal cost.
5. Customized Ads this method refers to creation of customized ads for
individual customers in order to reduce the information overload and filter
irrelevant information. Using this feature, a marketing manager can
customize display ads based on users' profiles. The product also provides
market segmentation.
6. Online Events, Promotions, and Attractions today, promotions are
regular events on thousands of Web sites. Contests, quizzes, coupons and
giveaways designed to attract visitors are as much a part of online
marketing as they are of offline commerce.
7. Live Web Events (concerts, shows, interviews, debates, sport
maches, videos) the best practices for successful live Web events are:
a. Carefully planning content, audience, interactivity level,
preproduction, and schedule
b. Executing the production with rich media, if possible
c. Conducting appropriate promotion via e-mails, affinity sites, and
streaming media directories, as well as conducting proper offline
and online advertisement

d. Preparing for quality delivery

e. Capturing data and analyzing audience response so that
improvements can be made
8. Advertising in Newsletters ads are usually short, and they have a link
to details
9. Posting Press Releases Online millions of people visit popular portals
such as Yahoo!, MSN, AOL, and Google every day looking for news. Thus, it
makes sense to try to reach an audience through such sites
10.Advergaming the practice of using games, particularly computer
games, to advertise or promote a product, an organization, or a viewpoint.
Advergaming normally falls into one of three categories:
a. A company provides interactive games on its Web site in the hope
that potential customers will be drawn to the game and spend more
time on the Web site or simply become more product (or brand)
aware. The games themselves usually feature the company's
products prominently.
b. Games are published in the usual way, but they require players to
investigate further. The subjects may be commercial, political, or
educational.
c. With some games, advertising appears within the actual game. This
is similar to subtle advertising in films, whereby the advertising
content is withing the world of the movie or game.
ELECTRONIC PAYMENTS
Payments are an integral part of doing business, whether in the traditional way or
online. Unfortunately, in several cases traditional payment systems are not
effective for EC, especially for B2B.
Cash cannot be used because there is no face-to-face contact. Not everyone
accepts credit cards or checks, and some buyers do not have credit cards or
checking accounts. Finally, contrary to what many people believe, it may be less
secure for the buyer to use the telephone or mail to arrange or send payment,
especially from another country, than to complete a secured transaction on a
computer.
For all of these reasons, a better way to pay for goods in services in cyberspace is
needed. This better way is electronic payment systems.
ELECTRONIC PAYMENTS METHODS (SYSTEMS)
1. Electronic funds transfer popular for paying bills online. Money is
transferred electronically from payer's account to the recipient's.
2. Electronic checks digitally signed e-check is encrypted and moved from
the buying customer to the merchant.
3. Electronic credit cards paying with regular cards
4. Purchasing e-cards corporate credit cards, with limits, work like regular
credit cards, but must be paid quicker
5. e-Cash (stored value money cards) prepaid card can be used for
transportation, making copies in the library, parking, telephone calls, etc.
6. e-Cash (smart cards) cards that contain considerable information can
be manipulated as needed and used for several purposes, including
transfer of money

7. e-Cash (person-to-person) special online account from which funds

can be sent to others is created. PayPal is the best known company.
8. Electronic bill presentment and payments bills are presented for
payer's approval. Pamyment is made online
9. Pay at ATMs ATM allows you to pay monthly bills by transferring money
from your account to the biller
10.
Micropayments payments are too small to be paid with credit
cards. Can be paid with stored-value money cards, or with special payment
methods, including payments from cell phones.
11.
B2B special methods enterprise invoice presentment and
payment, wire transfer, and electronic letter of credit are popular methods.
The most common methods of electronic payments are:
a) Electronic Credit Cards make it posible to charge online payments to
one's credit card account. For security, only encrypted credit cards should
be used. Credit card detailes can be encrypted by using the SSL protocol in
the buyer's computer (available in standard browsers). This method of
electronic payment is most frequently used in B2C transactions and in
shopping by SMEs (small-to-medium enterprises)
b) Electronic Bill Payment there are three major ways to pay bills over
the Internet:
a. Online banking the consumer signs up for a bank's online bill-pay
service and makes all of his or her payments from a single Web site
b. Biller direct the consumer makes payments at each biller's Web
site either with a credit card or by giving the biller enough
information to complete an electronic withdrawal directly from the
consumer's bank account.
c. Bill consolidator the customer enrolls to receive and pay bills for
multiple billers with a third-party bill consolidator
SECURITY IN ELECTRONIC PAYMENTS
Two main issues need to be considered under the topic of payment security:
1. What is required in order to make EC payments safe, and
2. Methods that can be used to do so
Security requirements for conducting EC are the following:
1. Authentication the buyer, the seller, and the paying institutions must
be assured of the identity of the parties with whome they are dealing
2. Integrity it is necessary to ensure that data and information transmitted
in EC are not accidentally or maliciously altered or destroyed during
transmission
3. Nonrepudiation merchanges need protection against the customer's
unjustified denial of placing an order. On the other hand, customers need
protection against merchants' unjustified denial of payments made.
4. Privacy many customers want their identity to be secured. They want to
make sure others do not know that they buy. Some prefer complete
anonymity, as is possible with cash payments.
5. Safety customers want to be sure that it is safe to provide a credit card
number on the Internet. They also want protection against fraud by sellers
or by criminals posing as sellers.

Security Protection. Several methods and mechanisms can be used to fulfill

the above requirements. These methods are:
1. Encryption the primary mechanism used and part of the most useful
security schemes (more in Chapter 5)
2. E-Wallets software mechanisms that provide security measures and
convenience to EC purchasing. The wallet stores the financial information
of the buyer, such as credit card number, shipping information, and more.
Thus, sensitive information does not need to be reentered for each
purchase. The problem is that you need an e-wallet with each merchant.
3. Virtual Credit Crads allows you to shop with an ID number and a
password instead of with a credit card number. Such cards are primarily
used by people who do not trust browser encryption sufficiently to use
their credit card numbers on the Internet
4. Payment Using Fingerprints a computer template of your fingerprint
is kept in the merchant's computer system. Each time you shop, your
fingerprint is matched with the template at the payment counter. You
approve the amount, which is then charged either to your credit card or
bank account.
ORDER FULFILLMENT
We now turn our attention to another important EC support service order
fulfillment. Any time a company sells direct to customers a product delivered
physically, it is inolved in various order fulfillment activities:
1.
2.
3.
4.

Quickly finding the products to be shipped

Pack them,
Arrange for the packages to be delivered quickly to the customer's door
Collect the money from every customer, either in advance by COD, or by
individual bill,
5. Handle the return of unwanted or defective products
It is very difficult to accomplish these activities both effectively and efficiently in
B2C, since a companymay need to ship small packages to many customers, and
do it quickly.
For this reaons, both online companies and click-and-mortar companies often
have difficulties in their B2C supply chain, and they outsource deliveries and
sometimes packaging.
Order fulfillment includes not only providing customers with what they ordered
and doing it on time, but also providing all related customer service. In addition,
if the customer is not happy with a product, an exchange or return must be
arranged.
Order fulfillment is basically a part of what are called a company's back-office
operations
THE EC ORDER FULFILLMENT PROCESS
The process starts when an order is received and after verification that it is a real
order. Afterwards several activities take place, some of which take place
simultaneously, whie others must be done in a sequence.

These activities include the following steps:

1. Activity 1: Assurance of customer payment. Depending on the payment
method and prior arrangements, the validity of each payment must be
determined. Any holdup may cause a shipment to be delayed, resulting in
a loss of goodwill or a customer.
2. Activity 2: Check of in-stock availability. In this step, the order information
needs to be connected to the information about in-stock inventory
availability.
3. Activity 3: Shipment arrangement. If the product is available, it can be
shipped to the customer right away (otherwise, go to step 5). Products can
be digital or physical. If the item is available, packaging and shipment
arrangements need to be made. Whatever the case, information need to
flow among several partners.
4. Activity 4: Insurance. Sometimes the contents of a shipment need to be
insured. This could involve both the finance department and an insurance
company, and again, information needs to flow between partners.
5. Activity 5: Replenishment. Customized orders will always trigger a need
for some manufacturing or assembly operation. Similarly, if standard items
are out of stock, they need to be produced or procured.
6. Activity 6: In-house production. In-house production needs to be planned,
which means identifying resources, both material and human, and possible
partners (suppliers, subcontractors and business partners) needed for the
in-house production. This process is different for physical goods and
services.
7. Activity 7: Contractor use. A manufacturer may opt to buy products or
subassemblies from contractors, instead of producing them.
8. Activity 8: Contacts with customers. Sales representatives need to keep
in constant contact with customers, especially in B2B, starting with
notification of orders received, and ending with notification of a shipment
or a change in delivery date. These contacts are usually done via e-mail
and are frequently generated automatically.
9. Activity 9: Returns. In some cases, customers want to exchange or return
items.
Order fulfillment processes may vary, depending on the product and the vendor.
The order fulfillment process also differs between B2B and B2C activities,
between the delivery of goods and of services, and between small and large
products.
Furthermore, certain circumstances, such as in the case of perishable materials
or foods, require additional steps.
WREHOUSING AND INVENTORY MANAGEMENT IMPROVEMENTS
WMS or Warehouse Management System is a popular EC inventory
management solution. It refers to a software system that helps in managing
warehouses. It has several components.
ETHICAL AND IMPLEMENTATION ISSUES IN E-BUSINESS
1. Privacy. Most electronic payment systems know who the buyers are;
therefore, it may be necessary to protect the buyers' identities. A privacy
issue related to employees also involves tracking: many companies

monitor employees' e-maila and have intalled software that performs inhouse monitoring of Web activities to discover employees who extensively
use company time for non-business-related activities, including harassing
other employees.
2. Web Tracking. Log files ar the principal resources from which ebusinesses draw information about how visitors use a site. Applying
anayltics to log files meanseither turning log data to an ASP (Application
Service Provider) or installing software that can pluck relevant information
from files in-house. By using tracking sfotware, companies can track
individuals' movements on the Internet. The tracking history is stored on
your PC's hard drive, and any time you revisit a certain Web site, the
computer knows it.
3. Loss of Jobs. The use of EC may result in the elimination of some
company employees as well as brokers and agents. The manner in which
these unneeded workers are treated may raise ethical issues, such as how
to handle the displacement and whether to offer retraining programs.
4. Disintermediation and Reintermediation. One of the most interesting
EC issues related to loss of jobs is that of intermediation. Intermediaries
provide two types of services:
a. Matching and providing information can be fully automated,
and therefore these services are likely to be assumed by emarketplaces and portals that provide free services
b. Value-added services, such as consulting requires expertise,
and these can be only partially automated
Intermediaries who provide only (or mainly) the first type of service may
be eliminated, a phenomenon called disintermediation (elimination of
the intermediaries). Example: direct sales from manufacturer to
customers may eliminate retailers.
On the other hand, borkers who provide the second type of service or who
manage electronic intermediation, also known as infomediation, are not
only surviving, but may actually prosper. This phenomenon is called
reintermediation.

LEGAL ISSUES SPECIFIC TO E-COMMERCE

Many legal issues are related to e-commerce. When buyers and sellers do not
know each other and cannot even see each other, there is a chance of fraud and
other crimes over the Internet.
During the first few years of EC, the public witnessed many of these, ranging
from the creation of a virtual bank that disappeared along with the investors'
deposits, to manipulation of stock prices on the Internet. Unfortunately, fraud on
the Internet is increasing.
PROTECTION OF EC BUYERS AND SELLERS
Buyer Protection. In order to conduct electronic trading in a safe manner follow
the following tips:

Look for reliable brand names at sites such as Wal-Mart Online or

Amazon.com. Before purchasing, make sure that the site is authentic by
entering the site directly and not from an unverified link.
Search any unfamiliar selling site for the company's address and phone
and fax numbers. Call up and quiz the employees about the seller.
Check out the vendor with the local Chamber of Commerce or Better
Business Bureau. Look for seals of authenticity such as TRUSTe
Investigate how secure the seller's site is by examining the security
procedure and by reading the posted privacy policy
Examine the money-back gurantees, warranties, and service agreements
Compare prices to those in regular stores. Too-low prices could prove too
good to be true, and some catch is probably involved
Ask friends what they know. Find testimonials and endorsements in
community sites and well-known bulletin boards
Find out what your rights are in case of a dispute. Consult consumer
protection agencies and the National Fraud Information Center
Check consumerworld.org for a listing of useful resources
Check cfenet.com and isaca.org

In short, do not forget that you have shopper's rights. Consult your local or state
consumer protection agency for general information on your consumer rights.
Seller Protection. Online sellers, too, need protection. They must be protected
against consumers who refuse to pay or who pay with bad checks and from
buyers' claims that the merchandise did not arrive.
They also have the right to protect against the use of their name by others as
well as to protect the use of their unique words and phrases. Slogans, and Web
address (trademark protection). Security features such as authentication,
nonrepudiation, and escrow services provide some needed protection.
Another seller protection applies particularly to electronic media: Sellers have
legal resource against customers who download without permission copyrighted
software and/or knowledge and use it or sell it to others, as the music industry
has proved.
MANAGERIAL ISSUES
1. E-commerce failures. Failures of EC initiatives are fairly common.
According to Useem, the major reasons for EC failure are:
a. Incorrect revenue model,
b. Lack of strategy and contingeny planning,
c. Inability to attract enough customers,
d. Lack of funding,
e. Too much online competition in standard (commodity) products
f. Poor order-fulfillment infrastructure, and
g. Lack of qualified management
h. Channel Conflicts
2. Failed EC initiatives within organizations. Whereas failed companies,
especially publicly listed ones, are well advertised, failed ECC initiatives
within companies, esepcially withing private companies, are less known.
3. Success stories and lessons learned. Offsetting the failures and
hundreds of EC success stories, primarily in specialty and niche markets.

4. Managing resistance to change. Electronic commerce can result in a

fundamental change in how business is done, and resistance to change
from employees, vendors, and cutomers may develop. Education, training,
and publicity over an extended period offer possible solutions to the
problem.
5. Integration of e-commerce into the business environment. Ecommerce needs to be integrated with the rest of the business. Integration
issues involve planning, compatition for corporate resources with other
projects, and interfacing EC with databases, existing IT applications, and
infrastructure.
6. Lack of qualified personnel and outsourcing. Very few people have
expertise in e-commerce. There are many implementation issues that
require expertise, such as when to offer special promotions on the Internet,
how to integrate an e-market with the information systems of buyers and
sellers, and what kind of customer incentives and appropriate under what
circumstances.
7. Managing the impacts and the implementation. The impacts of ecommerce on organizational structure, people, marketing procedures, and
profitability may be dramatic. Therefore, establishing a committee or
organizational unit to develop strategy and to manage e-commerce is
necessary. Creation of an implementation plan may be useful. Such a plan
should include goals, budgets, timetables, and contingency plans. It should
address the many legal, financial, technological, organizational, and ethical
issues that can surface during implementation.
8. Alliances. It is not a bad idea to join an alliance or consortium of
companies to explore e-commerce.
9. Choosing the company's strategy toward e-comerce. Generally
speaking, there are three major options:
a. Lead large-scale innovative e-commerce activities
b. Watch and Wait do nothing, but carefully watch what is going on
in the field in order to determine when EC is mature enough to enter
it
c. Expermient start some e-commerce experimental projects (learn
by doing)
10.
Justifying e-commerce by conducting a cost-benefit analysis
is very difficult. Many intangible benefits and lack of experience may
product grossly inaccurate estimates of costs and benefits. Nevertheless, a
feasibility study must be done, and estimates of costs and benefits must
be made.

CHAPTER 8: SOCIAL NETWORKS IN WEB 2.0.

ENVIRONMENT
This chapter of the text deals with the newest areas of IT social networks and
other Web 2.0. applications
THE WEB 2.0.

Web 2.0. is the popular term for advanced Internet technology and applications
including blogs, wikis, RSS, and social networks.
One of the most significant differences between Web 2.0. and the traditional Web
is greater collaboration among Internet users and other users, content providers,
and enterprises. As an umbrella term for an emerging core of technologies,
trends and principles, Web 2.0. is not only changing what's one the Web, but also
how it works.
Among the biggest Web 2.0 advantages for companies is better collaboration
with customers, partners, and suppliers, as well as among internal users.
REPRESENTATIVE CHARACTERISTICS OF WEB 2.0
1. The ability to tap into the collective intelligence of users. The more users
contribute, the more popular and valuable a Web 2.0 site becomes.
2. Making data available in new or never-intended ways. Web 2.0 data can be
remixed or mashed up often through Web-service interfaces, much the
way a dance-club DJ mixes music.
3. Web 2.0 uses user-generated and controlled content and data
4. The presence of lightweight programming techniques and tools that lets
nearly anyone act as a developer
5. The virtual elimination of software-upgrade cycles makes everything a
perpetual beta or work in progress and allows rapid prototyping using the
Web as a platform for developing applications.
6. Networks as platforms, delivering and allowing users to use applications
entirely through a browser.
7. An architecture of participation and digital democracy engourages users to
add value to the application as they use it.
8. New business models are rapidly and continuously being created
9. A major emphasis is on social networks
10.A rich interactive, user-friendly interface based on Ajax (Asynchronous
JavaScript and XML) or similar frameworks is often used. Ajax is a Web
development techniquefor creating interactive Web applications. The
intent is to make Web pages feel more responsive by exchanging small
amounts of data with the server behind the scenes so that the entire Web
page does not have to be reloaded each time the user makes a change.
This is meant to increase the Web page's interactivity, speed, and usability.
SOCIAL MEDIA
One of the major phenomena of Web 2.0 is the emergence and rise of mass
social media. Social media refers to the online platforms and tools that people
use to share opinions and experiences including photos, videos, music, insights,
and perceptions with each other.
Social media can take many different forms including text, images, audio, or
video clips. The key is that people, rather than the organizations, control and use
them.
Furthermore, people can use these media with ease at little or no cost. It is a
powerful democratization force: the network structure enables communication
and collaboration on a massive scale.

Notice, that traditional media content goes from the technology to the people,
whereas in social media, people create and control the content.
INDUSTRY AND MARKET DIRUPTORS
Companies that introduce Web 2.0-based innovations that could dirupt and
reorder markets, or even entire industries, are referred to as diruptors.
In order to identify disruptors, one can use the checklist of questions developed
by The Distruption Group. The top four questions are:
1. Is the service or product simpler, cheaper, or more accessible?
2. Does the disruptor change the basis of competition with the current
supplier?
3. Does the disruptor have a different business model?
4. Does the product or service fit with what customers value and pay for?
VIRUTAL COMMUNITIES AND VIRTUAL WORLDS
A community is a group of people with common interests who interact with one
another. A virtual (Internet) community is one in which the interaction takes
place by using a computer network, mainly the Internet.
Virtual communities parallel typical physical communities, such as
neighborhoods, but people do not meet face-to-face. Instead, they meet online.
Similar to the EC click-and-mortar model, many physical communities have a
Web site for Internet-related activities that supplement the physical activities.
ELEMENTS OF INTERACTION OF VIRTUAL COMMUNITY
1. Communication
a. Bulletin boards
b. Chat rooms/threaded discussions
c. E-mail and instand messaging and wireless messages
d. Private mailboxes
e. Newsletter, netzines (electronic magazines)
f. Blogging, wikis, and mash ups
g. Web postings
h. Voting
2. Information
a. Directories and yellow pages
b. Search engines
c. Member-generated content
d. Links to information sources
e. Expert advice
3. EC Element
a. Electronic catalogs and shopping carts
b. Advertisements
c. Auctions of all types
d. Classified ads
e. Bartering online
TYPES OF VIRTUAL COMMUNITIES
Threre are two important classifications of virtual communities: one proposed by
Hagel and Armstrong (1997) and one propsed by Cashel (2001)

According to Hagel and Armstrong, virtual communities can be:

1. Transaction and other business facilitates buying and selling. Combines
informatio nportal with infrastructure for trading. Members are buyers,
sellers, intermediaries, etc., focused on a specific commercial area
2. Purpose or interest no trading, just exchange of information on a topic of
mutual interest
3. Relations or practices members are organized around certain life
experiences
4. Fantasy members share imaginary envrionments
5. Social networks members communicate, collaborate, create, share, form
smaller groups, entertain, and more
6. Virtual worlds members use avatars to represent them in a simulated 3D
environment where they can play, conduct business, socialize, and
fantasize
Cashed identified 10 specific niches within the online community space that are
bucking the trend and demonstrating strong revenues. These trends include:
1. Search communities
2. Trading communities
3. Education communities
4. Scheduled event communities
5. Subscriber-based communities
6. Community consulting firms
7. E-mail based communities
8. Advocacy communities
9. CRM communities, and
10.Mergers and acquisition activities
One of the major types of virtual communities is the virtual world.
VIRTUAL WORLDS
A virtual world is a user-defined 3D world in which people can interact, play, and
do business with the help of avatars.
Virtual worlds are computer-based simulated environments intended for its users
to inhabit and interact via avatars. The world presents perceptual stimuli to the
user, who in turn can manipulate elements in the modeled world. The model
world may simulate rules based on the real world or some hybrid fantasy world.
Example rules are gravity, topography, locomotion, real-time actions, and
communication. Communication between users has ranged from text, graphical
icons, visual gesture, sound, and, rarely, forms using touch and balance senses.
Virtual worlds emerged from several concepts, primarily as an evolutionary
process of virtual reality and massively multiplayer games.
BUSINESS ASPECTS OF VIRTUAL WORLDS
SEE HOF (2008) AND ROBBINS AND BELL (2007) for more on the
BUSINESS ASPECTS OF VIRTUAL WORLDS
ONLINE SOCIAL NETWORKING: BASICS AND EXAMPLES

We defined a social network as a place where people create their own space, or
home page, on which they write blogs (web logs); post pictures, videor or music;
share ideas; and link to other Web locations they find interesting.
Social networkers tag the content they post with keywords they choose
themselves, which makes their content searchable. In effect, they create online
communities of people with similar interests. The mass adoption of social
networking Web sites points to an evolution in human social interaction.
A social network is basically a social structure made of nodes that are usually
individuals or small groups. It indicates the ways in which individuals are
connected through various social familiarities, ranging from casual acquaintance
to close familial bonds.
Social Network Theory. Social network theory views social relationships in
terms of nodes and ties. Nodes are the individual actors within the networks, and
ties are the relationships between the actors. There can be many kinds of ties
between the nodes. In its simplest form, a social network is a map of all of the
relevant ties between the nodes being studied. The network can also determine
the social assets of individuals. Often, a social network diagram displays these
concepts, where nodes are the points and ties are the lines.
Social Networking Services. To participate in social networking, people must
join a company that provides the services described earlier. Such a company is
called social network service or social network site (SNS). They are frequently
referred to as just social networks.
Socisl Network Analysis (SNA) is the mapping and measuring of relationships
and flows between prople, groups, organizations, computers, or other information
or knowledge processing entities. The nodes in the network are the people and
the groups, whereas the links show relationships or flows between the nodes.
SNA provides both a visual and a mathematical analysis of relationships.
Social Networking Tools. There are many tools that are used in social
networks: the most advertised are blogs and wikis. Other tools are presented in
Chapter 4.
REPRESENTATIVE SOCIAL NETWORK SERVICES
In the following text we will enumerate some examples of social network sites:
1. Classmates Online. Classmates Online helps members find, conect, and
keep in touch with friends and acquaintances from thorughout their lives
from kindergarten to work
2. Xanga a Web site that holds Weblogs, photoblogs and social networking
profiles. A blogring connects a circle of Weblogs with a common focus or
theme. All users are given the ability to create a new blogring or join an
existing one (max 8)
3. Digg a community-based popularity Web site with an emphasis on
technology and science. It combines social bookmarking, blogging, and
syndication with a form of nonhierarchical, democratical editorial control.
Users submit news stories and Web sites, and then a user-contorolled
ranking system promotes these stories and sitesto the front page.

4. Facebook the second largest social network in the world, with more than
70 million active users.
FACEBOOK
Launched in 2004 by a former Harvard student, Mark Zuckerberg. Photos, groups,
events, marketplace, posted items, and notes are the basic applications already
installed in Facebook. Apart from these basic applications, users can develop
their own applications or add any of the millions of Facebook-available
applications that have been developed by other users. In addition, fb owns two
special features called news feed and mini-feed that allow users to track the
movement of friends in their social circles. Facebook also launched an application
called People You May Know that helps new users connect with their old friends.
When Zuckerberg first created Facebook, he had very strong social ambitions and
aimed at helping people connect to others on the Web. Initially, it was an online
social space for college and high school students. Gradually, innovating its
content, Facebook became a social site for anyone 13 or older with a vaild e-mail
address.
The primary reason that Facebook expands is the network effect: that is, more
users mean more value. The more users involved in the social space, the more
they can connect to other people.
Facebook is encouraging organizations to open pages where they can conduct
advertisements and promotions. Also, the site is open to developers who create
applications both for entertainment and business.
BEBO
Bebo (bebo.com ; acronym for the phrase blog early, blog often) was launched
in January 2005 and skyrocketed to one of the foremost social networking
platforms online today. It boasts a usership of over 40 millions, making billions of
page views per month.
Similar to Facebook and MySpace, Bebo provides a canvas for users to display
personal profiles using media such as photos, diaries, music, embedded video,
commercial applications, quizzes, and so forth. It allows its users to add other
users as friends wh ocan view their profiles and post messages.
Bebo adopts a private setting whenever a new friend is added. This limits the
friend's access to information on the user's profile unless special authorization by
the owner is granted. This tactic ensures more privacy for its users, which has
been an early issue among social networking sites.
CRAIGSLIST
Craig Newmark started the Craigslist in 1995 merely as a weekend activity. It was
meant to be used only as a corner on the Web where friends and collegues from
the Bay area could post items for sale or barter, but like many Internet
phenomenon, once enough users got their hooks into it, it grew far beyond
anything Newmark had initially anticipated.
Within less than a decade, Craigslist became the most authoritative e-classifieds
service. Classified listings include housing, jobs, personals, erotic services, for

sale/wanted, and local activities, all of which are easily searchable by urban
location.
The site is free to use, as is posting ads, except for a small number of job ads and
rental availability in a few selected areas. Craigslist has revolutionized traditional
commerce by facilitating direct buyer-seller interaction for free in an online
context.
HELLO.COM ?
FLICKR
Flickr was created by a small Vancouver-based company called Ludicorp. Users of
the photo-networking site Flickr are accustomed to adding new friends to their
online profiles.
The site, which allows for the storage and organization of photos, was launched in
2004 and drew fans who were seeking a place to manage and share their photos.
Users require an individual account in order to add friends to their network and
share their photos. One of the first Web 2.0 applications ever, Flickr today (May
2008) hosts more than two billion images.
BUSINESS-ORIENTED SOCIAL NETWORKS
A business network is defined as a group of people that have some kind of
commercial or business relationship. They are also referred to as business social
networks or enterprise social networks.
Business networking functions best when individuals offer to help others to find
connections rather than cold-calling on prospects themselves. It can take place
outsideof traditional business physical environments.
Example: LinkedIn. The main purpose of LinkedIn is to allow registered users to
maintain a list of contact details of people they know and trust in business. The
people in the list are called connections. Users can invite anyone, whether he or
she is a LinkedIn user or not, to become a connection.
Here is how the site works:
-

A contact network is built up consisting of users' direct connections, each

of their connections' connections (called second-degree connections), and
also the connections of second-degree connections (called third-degree
connections)
LinkedIn can then be used to find jobs, people, and business opportunities
recommended by anyone in your contact network. It can be used also to
list job seekers' resumes
Employers can list jobs and search for potential candidates
Job seekers can review the profiles of hiring managers and discover which
of their existing contacts can introduce them to a specific hiring manager

ENTREPRENEURIAL NETWORKS
In business, entrepreneurial networks are social organizations offering different
types of resources to start or improve entrepreneurial projects. Combined with
leadership, the entrepreneurial network is an indispensable kind of social network

not only necessary to properly run the business or project but also to differentiate
the business from similar ones.
The goal of most entrepreneurial networks is to bring together a broad selection
of professionals and resources that complement each others' endeavors. Initially,
a key priority is to aid successful business launches.
ENTERPRISE SOCIAL NETWORKS
Interfacing with Social Networking. Enterprises can interface with social
networking in several ways. Such interfaces create enterprise social
networks, meaning that companies are conducting enterpreneurial social
networking activities in one or more ways.
Typical modes of interaction with social networks are:
1.
2.
3.
4.
5.
6.

Create in-house social network,

Participate in existing social networks and virtual worlds
Participate in a business-oriented network
Develop tools and services to support social networking
Create social networking marketplace
Use Web 2.0 tools, include Web 2.0 functionalities in application

Enterprise 2.0 refers to Web 2.0-style collaboration via blogs and wikis.
According to an Information Week survey, the most useful Web 2. tools in
Enterprise 2.0 are:
-

Instant messaging,
Collaborative tools
Integrated search tools
Unified communication
Wikis
Mashups

The major concerns in Enterprise 2.0 are:

-

Security
Lack of expertise
Intergration with existing IT systems, and
Difficulty in proving ROI

SOCIAL MARKETPLACES
The term social marketplace is derived from the combination of social networking
and marketplaces, such that a social marketplace acts like an online community
harnessing the power of one's social networks for introducing, buying, and selling
of products, services, and resources, including people's own creations. Examples:
Windows Live Expo, Fotolia, Filpsy.
An increasing number of companies create their own networks for their
employees, former employees, and/or customers. There are several formats for
creating such entities, depending on their purpose, the industry, the country, and
so forth.
COMMERCIAL ASPECTS OF WEB 2.0 APPLICATIONS AND SOCIAL
NETWORKS

Web 2.0 sites, especially social networks and similar communities, attract a large
number of visitors. Therefore they provide an opportunity for vendors to
advertise and sell to community members.
Furthermore, they are spreading rapidly, and many of them cater to a specific
segment of the population (music lovers, travelers, game lovers, etc.).
Finally, a large population of the visitors is young but in the future will grow up
and will have more money to spend. For these reasons, many believe that social
networks, blogging, and other Web 2.0 activities will play a major role in the
future of e-commerce.
Retailers stand to benefit from online communities in several important ways:
-

Consumers can be a source of feedback (similar to focus group) on existing

product features, new product design, and other important company
performed functions which can lead to innovation for retailer
Brand awareness is a major objective of many companies. This way the
social aspects are maintained and the commercial objectives are not
evidenced.
Word-of-mouth (i.e. viral marketing) if free advertising that increases the
visibility of niche retailers and products
Increased Web site traffic, a common effect of viral marketing, inevitably
brings with it more ad dollars
Increased sales can come from harnessing techniques based on personal
preferences such as collaborative filtering

All of the above may result in revenue and profit.

ADVERTISING
1. Viral (Word-of-Mouth) Marketing. Young adults are especially good at
viral marketing. What they like can spread very quickly, sometimes to
millions of people, at a minimal cost to companies. According to Megna,
many retailers are capitalizing on the word-of-mouth marketing of
bloggers. Luckily for the corporations, bloggers can be bought.
2. Classified Ads and Job Listing.
3. Mobile Advertising. Mobile advertising is a rapidly developing area. It
refers to advertisement on cell phones and other mobile devices. The
competition for ad revenue is intensifying, especially with the increasing
use of the cell phones with access to the Internet.
SHOPPING
Shopping is a natural area for social networks to be active in.
FEEDBACK FROM CUSTOMERS
Companies are starting to utilize Web 2.0 tools to get feedback from customers.
Conversational Marketing. Web 2.0 brings in feedback via blogs, wikis, online
forums, chat rooms, and social networking sites. Companies are finding these
conversational marketing outlets not only generate faster and cheaper results
than traditional focus groups, but also foster closer relationships with customers.

Using an approach known also as enterprise feedback management, companies

are interested not only in collecting information but also in interaction between
customers and company employees, and in properly distributing customer
feedback throughout the organization.
According to Gogoi (2007), retailers know that customers, especially the younger
and more Net-savvy, want to be heard, and they also want to hear what others
like them say. So, increasingly, retailers are opening up their Web sites to
customers, letting them post product reviews, ratings, and in some cases photos
and videos. The result is that customer reviews are emerging as a prime place to
visit for online shoppers.
RISKS TO ENTERPRISES WHEN INTERFACING WITH SOCIAL NETWORKS
There are some risks involved in opening up your marketing and advertising to
the less controlled social networks. Here are some considerations:
1. Aligning a product or company with sites where content is user-generated
and often not edited or filtered has its downsides. A company needs to be
ready and willing to cope with negative feedback and reviews.
2. The 20-80 rule, which posits that a minority of individuals contributes most
of the content material in some blogs, wikis, and similar tools.
3. Web 2.0 significantly increases the security risk for the company
OTHER REVENUE-GENERATION STRATEGIES IN SOCIAL NETWORKS
1. Offer premium service for a monthly or per service fee,
2. Partner organizations with the social networks, paying them a monthy
service fee;
3. Provide local physical venues where members can meet
STRATEGIES THAT ENABLE COMPANIES TO MAKE MAXIMUM USE OF WEB
2.0 APPLICATIONS
1. There are three direct ways to monetize Web 2.0: advertising,
subscriptions, and commissions.
2. Some indirect ways that lead to revenue growth, user growth, and
increased resistance to competition, which in turn lead to increased
subscriptions, advertising, and commission revnue, are:
a. Strategic acquisition identify and acquiring Web 2.0 companies
that are on the exponential growth curve before the rest of the
market realizes what they are worth
b. Maintaining control of hard to recreate data sources. Let
users access everything, but don't let them keep it.
c. Building attention trust. By being fair with customer data and
leveraging users' loyalty, you can get them to share more
information about themselves, which in turn leads to much better
products and services tailored to them.
d. Turning applications into platforms. One single use of an
application is simply a waste of software. Online platforms are
actually easy to monetize, but having compelling content or
services first is a prerequisite
e. Fully automated online customer self-service. Let users get
what they want, when they want it, without help.

WEB 2.0 COMMERCIAL ACTIVITIES INSIDE THE ENTERPRISE

In order to adequately implement Web 2.0 commercial activities inside the
enterprise, one should follow the following guidelines:
-

Allow employees to collaborate and communicate in an employee-driven

system
Promote the use of enterprise wikis via demonstrations
Set up internal blogs and incorporate them into internal directories so
users can see who has a blog
Set up enterprise social bookmarking systems so users can see what sort
of content their colleagues are tagging
CIOs should be involved from the beginning to make sure the right
infrastructure and tools are in place

THE FUTURE: WEB 3.0

Web 3.0 will deliver a new generation of business applications that will see
business and social computing converge on the same fundamentals as ondemand architecture is converging with consumer applications.
Some features of Web 3.0 will probably be:
-

Faster, far-flung connectivity, richer ways of interacting

New Web Services that work entirely withing a browser window
More powerful search engines
More clout for everyday people and more user-friendly application creation
capabilities
New possibilites of artificial intelligence applications
10 MB of bandwidth (instead of 1 MB in Web 2.0 on the average)
More uses of 3D and virtual wrolds
Larger utilization of wireless

Web 3.0 Structure

The topology of Web 3.0 can be divided into four distinct layers:
1. API (Application Program Interface) services API services are hosted
services that have powered Web 2.0 and will become the engines of Web
3.0. One of the most significant characteristics of this foundation layer is
that it is a commodity layer. As Web 3.0 matures, an almost perfect market
will emerge and squeeze out virtually all of the profit margin from the
highest-volume services.
2. Aggregation services these services are intermediaries that take some
of the hassle out of locating all of those raw API services by bundling them
together in useful ways.
3. Application services this layer is where the biggest, most durable
profits should be found. These services will not be like the established
enterprise application categories, such as CRM or ERP, but a new class of
composite applications that bring together functionality from multiple
services to help users achieve their objectives in a flexible, intuitive way.
An example of an area that is expected to grow is voice commerce (vcommerce), which is an umbrella term for the use of speech recognition
to allow voice-activated services.

4. Serviced clients there is a role for client-side logic in the Web 3.0
landscape, but users will expect it to be maintained and managed for
them.
WEB 3.0 AND THE SEMANTIC WEB
The Semantic Web is an evolving extension of the Web in which Web content can
be expressed, not only in natural language but also in a form that can be
understood, interpreted, and used by intelligent computer software agents,
permitting them to find, share, and integrate information more easily.
At its core, the Semantic Web comprises a philosophy, a set of design principles,
collaborative working gorups, and a variety of enabling technologies.
Semantic Web will be available through a Semantic-Web browser, in which people
will be able to display the data, draw graphs, and so on.
Web 3.0 will also be characterized by an explosion of mobile social networks.
MOBILE SOCIAL NETWORKS
The explosion of wireless Web 2.0 services and companies enables many social
communities to be based on the mobile phone and other portable wireless
devices. This extends the reach of social interaction to millions of people, who
don't have regular or easy access to computers.
FUTURE THREATS
According to Stafford, the following four trends may slow EC and Web 3.0 and
even criple the Internet:
-

Security concern. Both shoppers and users of e-banking and other

services worry about online security. The Web needs to be made safer.
Lack of Net neutrality. If the big telecom companies are allowed to
charge companies fro a guarantee of faster access, critics fear that small
innovative Web companies could be crowded out by the Microsofts and
Googles that can afford to pay more.
Copyrights complaints. The legal problems of YouTube, Wikipedia, and
others may result in a loss of vital outlets of public opinion, creativity, and
discourse
Choppy connectivity. Upstream bandwidths are still constricted, making
uploading of video files a time-consuming task. Usable mobile bandwidth
still costs a lot, and some carriers impose limitations on how Web access
can be employed.

PAGES 31, 32 IS FOR THE CONCRETE SITUATION

CHAPTER 10: Enterprise Systems: Supply Chains, ERP,

CRM, and KM
ESSENTIALS OF ENTERPRISE SYSTEMS AND SUPPLY CHAINS

Enterprise systems (enterprisewide systems) are systems or processes that

involve the entire enterprise or two or more departments of it. This is in contrast
to functional systems, which are confined to one department each.
Several enterprise systems can be found in organizations. Typical examples are:
-

ERP (Enterprise Resource Planning), which usually supports the internal

supply chain
Extended ERP, which supports business partners as well (Most ERP
systems today are extended)
CRM (Customer Relationship Management), which provides customer care
KM (Knowledge Management) systems, whose objective is to support
knowledge creation, storage, maintenance, and distribution throughou the
enterprise.
PRM (Partner Relationship Management), which is designed to provide care
to business partners
BPM (Business Process Management), which involves the understanding
and realignment of processes in the organization, including reengineering
and managing the flow of activities and tasks
MRP (Materials Requirement Planning) and other supply chain
management systems
PLM (Product Life Cycle Management), which involves conceptualization,
design, building, and support of products and services. The management
of PLM seeks to reduce cycle times, streamline production costs, and get
more products to market
DSSs (Decision Support Systems), whose purpose is to support decision
making throughout the enterprise, frequently with the help of a data
warehouse. This category includes executive information systems.
Intelligent systems, which include a knowledge component, such as an
expert system or neural network
BI (Business intelligence), which is computer-based decision analysis
usually done online by managers and staff. It includes forecasting,
analyzing alternatives, and evaluating risk and performance.

SUPPLY CHAIN
A supply chain is defined as a set of relationships among suppliers,
manufacturers, distributors, and retailers that facilitate the transformation of raw
materials into final products.
The supply chain includes all of the interactions between suppliers,
manufacturers, distributors, warehouses, and customers. Supply chain involve
the flow of materials, information, money, and services from raw materials
suppliers, through factories and warehouses, to the end customers.
Although the supply chain is comprised of serveral businesses, the chain itself is
viewed as a single entity.
The supply chain also includes the organization processes for developign and
delivering products, information, and services to end customers.
SUPPLY CHAIN MANAGEMENT
SCM (Supply Chain Management) is the efficient management of the supply
chain end-to-end processes that start with the design of the product or services
and end when it is sold, consumed, or used by the end consumer.
Some activities include inventory management, materials acquisition, and
transformation of raw materials into finished goods, shipping, and transportation.
The main goal of modern SCM is to reduce uncertainty, variability, and risks, and
increase control in the supply chain, thereby positively affecting inventory levels,
cycle time, business processes, and customer service.
These benefits contribute to increased profitability and competitiveness. Effective
management of the supply chain provides a major opportunity for an
organization to reduce costs while increasing operating efficiencies. Thus, SCM
may provide a significant competitive advantage.
Information technology must support the basic infrastructure and coordination
needed for the supply chain to function. Implementation issues include the
following:
-

Procurement and supplier decisions

Production decisions
Distribution decisions
Information support decisions
Material flow decisions
Cash flow decisions

SUPPLY CHAIN MANAGEMENT SOFTWARE

SCM software refers to software needed to support specific segments of the
supply chain, such as in manufacturing, inventory control, scheduling, and
transportation. This software concentrates on improving decision making,
optimization, and analysis.
E-Supply Chain. When a supply chain is managed electronically, usually with
Web-based software, it is referred to as a digital supply chain or an e-supply
chain. A digital supply chain can take many shapes.

As will be shown in this chapter, improvements in supply chains frequently

involve attempts to convert a traditional supply chain to an e-supply chain,
namely to automate the information flow in the chain.
Supply chains are composed of three major components:
-

Upstream: the flows and activities conducted between a company and its
suppliers and their sub-supliers, all the way to the origin of the materials.
Internal: the flows and activities conducted within a company among its
own deparments. It includes the processing of the materials.
Downstream: the flow of materials, products, and activities from the
manufacturing company to its distributors, marketing channels, and so
forth, all the way to the end consumer.

MANAGING COLLABORATION
Proper SCM and inventory management require coordination of all of the different
activities and links in the supply chain. Successful coordination enables goods to
move smoothly and on time from suppliers to manufacturers to distributors to
customers, while keeping inventories low and costs down.
Collaboration of supply chain partners is necessary since companies depend on
each other, but do not always work together toward the same goal. As part of the
collaboration effort, business partners must trust each other and each other's
information systems.
A common way to solve supply chain problems, and especially to improve
demand forecasts, is sharing information along the supply chain. Such
information sharing is frequently referred to as the collaborative supply chain.
Collaborative supply chain may take several different formats
COLLABORATIVE PLANNING, CPFR, AND COLLABORATIVE DESIGN
In collaborative planning, business partners manufacturers, suppliers,
distribution partners, and other partners collectively create initial demand (or
sales) forecasts, provide changes as necessary, and share information, such as
actual sales, and their own forecasts. In this case, all parties work according to a
unified schedule aligned to a common view, and all have access to order and
forecast performance that is globally visible through electronic links. Schedule,
order, or product changes trigger immediate adjustments to all parties'
schedules.
CPFR (Collaborative Planning, Forecasting, and Replenishment) is a
business practice in which suppliers and retailers collaborate in planning and
demand forecasting in order to ensure that members of the supply chain will
have the right amount of raw materials and finished goods when they need them.
The goal of CPFR is to streamline product flow from manufacturing plants all teh
way to customers' homes.
Collaborative planning is designed to synchronize production and distribution
plans and product flows, optimize resource utilization over an expanded capacity
base, increase customer responsiveness, and reduce inventories.

This figure shows the model of the CPFR concept. It is divided into four major
areas:
1. Strategy and planning for collaboration on supply and inventory levels,
which leads to
2. Joint demand forecasting and managing supplies and inventories
accordingly
3. Then the above plans are executed and results are analyzed, leading to
4. Adjustment strategy, if needed
These activites are centered along the supply chain from a seller to a buyer to
end customer.
VENDOR-MANAGED INVENTORY
VMI (Vendor-managed inventory) indicates that the vendor, usually a
distributor, manages the inventories for the manufacturer or buyer. This reduces
warehousing costs for suppliers.
E-BUSINESS SYSTEMS AND THE SUPPLY CHAIN
The increase in e-commerce has resulted in new opportunities to improve the
performance of the supply chain. Primary advantages of Internet utilization in
SCM are:
-

Better cost performance from improved productivity and lower costs,

Enhanced customer service from improved quality of service
Improved process capabilities from online business quality consistency
Higher productivity and dependability from increased control of material
flows along the supply chain

Shortened cycle times due to fewer delays and higher speed

Greater flexibility in planning and replanning
Shortened supply chain
Smoother related production processes

The following are examples of e-business activites that can improve SCM:
1. CFNs (Collaborative Fulfillment Networks) enable coordination among
multiple participating firms at different stages of the supply chain.
Collaborative fulfillment networks can help alleviate concerns related to
coordination, shorten delays, expedite shipments, and so forth
2. Electronic marketplaces (using business-to-business Internet-based
technologies) allow organizations, even competitors in the supply chain, to
identify upstream suppliers. Electronic marketplaces provide for more
efficient resource allocation within the organization and between
organizations, better information flow and dissemination on products and
services in the supply chain, and the ability to better manage risk in the
organization
3. EDI (Electronic Data Interchange) is a communication standard that
enables the electronic transfer of routine documents, such as purchse
orders, between business partners.
4. EOFT (Electronic Ordering and Funds Transfer) is an important component
in e-business transactions. EOFT uses tools such as XML, extranets, Web
Services, and EDI. A supply chain integration hub allows for the electronic
connection of trading partners with the organization's e-business systems.
It transmits the information while simultaneously populating the
customer's systems on demand
ELECTRONIC DATA INTERCHANGE (EDI)
EDI, used by transactions between organizations, is a standardized datatransmittal format for electronic transactions.
An expanded version of EDI is called ASN (Advanced Shipping Notice), which is a
shipping notice delivered directly from the vendor to the purchaser.
MANAGING INVENTORY
The most common solution used by companies to solve supply chain problems is
building inventories as insurance against supply chain uncertainties.
The main problem with this approach is that it is very difficult to correctly
determine inventory levels for each product and part. If inventory levels are set
too high, the cost of keeping inventory will be very large (+bullwhip effect).
If the inventory is too low, there is no insurance against high demand or slow
delivery times, and revenues (and customers) may be lost.
Thus, companies make major attempts to optimize and control inventories. AN
emerging method is the use of RFID, which is described in Chapter 11.
MANAGING E-PROCUREMENT
E-procurement is the use of Internet technologies to purchase or provide goods
and services. They require the use of integrated database systems, WAN

communication systems, Web-based systems, inventory systems, and interaction

with accounting systems.
Cost efficiencies in the purchasing process have been a major catalyst for the
adoption of e-procurement. E-procurment reduces purchase prices through
greater transparency of market pricing and lower search costs. E-procurement
allows, for example, organizations that purchase similar products to form a
cooperative in the supply chain to get significantly lower pricing through volume
discounts (group purchasing).
In e-procurement, requesters directly search for and select products in electronic
catalogs. Part of this strategy is a shift from managing transactions to managing
suppliers.
MANAGING OTHER IT-ASSISTED SOLUTIONS
Companies employ multiple other methods to achieve supply chain superiority.
We will discuss two of these ways:
1. Supply Chain Teams a supply chain team is a group of tightly
coordinated employees who work together to serve the customer. Each
task is done by a member of the team who is best positioned, trained, and
capable of doing that specific task, regardless of which department or even
company the member works for.
2. Virtual Factories a virtual factory is a collaborative enterprise
application that provides a computerized model of a factory. In the virtual
factory, proposed designs can be tested, relationships with suppliers can
be simulated, and manufacturing processes and how they are connected
can be modeled. If potential problems in these areas are spotted in the
digital model of the factory , simulated solutions can be worked out in the
virtual model before they are implemented in the real-word factory.
Usually, the virtual factory application would connect suppliers to the B2B
system and clearly present the needed demand to suppliers. This demand
visibility can help teh company focus on two important key performance
indicators: lead times and transaction cost.
THE LEANING OF THE SUPPLY CHAIN
Mobility eliminates wasted time hidden in your business processes time that
slows your entire chain of operations. Without mobility, processes are tied to an
application that can be accessed only on a desktop computer, leaving businesses
dependent upon paper to disseminate information (such as work orders) to
empoyees as well as to colect needed information throughout business
processes.
Through mobility, computing power is moved from a stationary desktop computer
to a mobile computer the tools workers need to automate business processes
are always in hand. Workers can now access and capture data in real time right
at the point of work. Manual processes are replaced with real-time computing.
BUSINESS VALUE OF SCM
The flow of goods, services, information, and financial resources are usually
designed to effectively transform raw items to finished products and services,
and to do so efficiently.

The goals of SCM are to reduce uncertainty and risks along the supply chain, and
to improve collaboration, thereby decreasing inventory levels and cycle time, and
improving business processes and customer service.
All of these benefits contribute to increased profitability and competitiveness, as
demonstrated in the opening case, and therefore SCM has a significant strategic
value.
SUPPLY CHAINS AND INFORMATION INTEGRATION
Twentieth-century computer technology was functionally oriented. Functional
systems may not let different departments communicate with each other in the
same language. Worse yet, crucial sales, inventory, and production data often
have to be painstakingly entered manually into separate computer systems every
time a person who is not a member of a specific department needs ad-hoc
information related to the specific department.
In many cases, employees using functionally oriented technology simply do not
get the information they need, or they get it too late. Thus, managing the twentyfirst century enterprise cannot be done effectively with old technology.
There are two basic types of systems integration:
1. Internal integration refers to integration within a company between (or
among) applications, and/or between applications and databases. For
example, an organization may integrate inventory control with an ordering
system, or a CRM suite with the database of customers.
2. External integration refers to integration of applications and/or
databases among business partners for example, the suppliers' catalogs
with the buyers' e-procurement system. Another example of external
supply chain integration is product-devellopment systems taht allow
suppliers to dial into a client's intranet, pull product specifications, and
view illustrations and videos of a manufacturing process
ETHICAL ISSUES RELATED TO SUPPLY CHAIN SOLUTIONS
Conducting an SCM project may result in the need to lay off, retrain, or transfer
employees. Other ethical issues may involve sharing of personal information,
which may be required for a collaborative organizational culture, but which some
employees may resist. Finally, individuals may have to share computer programs
that they designed for their personal use on the job. Such programs may be
considered the intellectual property of the individuals.
ERPs ENTERPRISE RESOURCE PLANNING SYSTEMS
With the advance of enterprisewide client/server computing comes a new
challenge: how to control all major business processes in real time with a single
software architecture.
The most common integrate software solution of this kind is known as ERP or
Enterprise resource planning. This software integrates the planning,
management, and use of all of the resources in the entire enterprise.

It is comprised of sets of applications that automate routine back-end operations

(financial, inventory management, and scheduling) to help enterprises handle
jobs that are done in several departments such as order fulfillment.
ERP promises benefits ranging from increased efficiency to improved quality,
productivity, and profitability.
THE PURPOSE AND ADVANTAGES OF ERP
ERP's major objective is to integrate all departments and functional
information flows across a company onto a single computer system that can
serve all of the enteprise's needs.
Such availability of information helps to optimize production schedules, raises
productivity, and increases customer satisfaction, resulting in competitive
advantage. Furthermore, errors are being reduced, so money is saved.
CAPABILITIES OF ERP
ERP projects are focused on specific business process areas, such as:
-

Combining LTLs (Less than truckloads) shipments in order to fill trucks,

reduce pickup/delivery times, and eliminate unneeded storage facilities
Dynamically sourcing products from different manufacturing and
distribution facilities based on inventory and capacity
Showing a single face to global customers across business lines
Consolidating country-based sales, marketing, and distribution operations
in geographic areas, such as Europe, that have lower barriers to trade
Coordinating procurement and logistics of key commodities across
business units and geographies
Creating supplier portals that consolidate the needs of each business unit
and provide a way of deepening the relationship and partnerhip with the
suppliers.

The success of ERP depends on successful implementation and on the ability to

overcome some of its limitations.
ERP IMPLEMENTATION ISSUES
Some of the ERP implementation issues are:
-

ERP vendor and product selection,

Matching commercial software with organizational processes,
Installing ERP commercial software,
Complexity of the software,
Reasons for either successful or failed implementations,
Value generated from ERP systems, and
Integrations issues

For businesses that want to use ERP, one option is to self-develop an integrated
system, either by linking together existing functional packages or by
programming a new, custom-built system.
Another option, which is often quicker and/or less expensive, is to use
commercially available integrated ERP software. The leading ERP software is SAP
R/3.
Yet another way for a business to implement ERP is to lease ERP systems from
application service providers (ASPs). A major advantage of the leasing option is
that even a small company can enjoy ERP, a small company can lease only
relevant modules, rather than buy an entire ERP package.
Another strategy that is used by some companies is best-of-breed building their
own customized ERP with ready-made components leased or purchased from
several vendors, using the best modules of the different vendors.
CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
Customer relationship management is an enterprisewide effort to acquire
and retain profitable customers. CRM focuses on building long-term and
sustainable customer relationships that add value for both the customer and the
company.
In general, CRM is an approach that recognizes that customers are the core of the
business and that the company's success depends on effectively managing
relationships with them. In other words, CRM is a business strategy to select and
manage customers to optimize long-term value.
CRM overlaps somewhat with the concept of relationship marketing, but not
everything that could be called relationship marketing is in fact CRM.
It is basically a simple idea: Treat different customers differently, because
their needs differ and their value to the company may be different. CRM involves
much more than just sales and marketing, because a firm must be able to change
how its products are configured or its service is delivered, based on the needs of
individual customers. Smart companies have always encouraged the active
participation of customers in the development of products, services, and
solutions.

One reason so many firms are beginning to focus on CRMis that this kind of
service can create high customer loyalty and, additionally, help the firm's
profitability.
Involvment of almost all other departments, and especially engineering (design),
accounting, and operations, is critical in CRM.
CLASSIFICATION OF CRM APPLICATIONS
According to The Patricia Seybold Group, CRM applications can be divided into
four categories:
1. Customer-facing applications. These include all of the areas where
customers interact with the company: call centers, including help desks,
sales force automation, and field service automations. Such CRM
applications basically automate the information flow or support employees
in these areas.
2. Customer-touching applications. In this category, customers interact
directly with the applications. Notable are self-service, campaign
management, and general-purpose e-commerce applications.
3. Customer-centric intelligence applications. These are applications
that are intended to analyze the results of operational processing and use
the results of the analysis to improve CRM applications. Data reporting and
warehousing and data mining are the prime topics here.
4. Online networking applications. Online networking refers to methods
that provide the opportunity to build personal relationships with a wide
range of people in business. These include chat rooms and discussion lists.
E-CRM
The term e-CRM (electronic CRM) covers a broad range of topics, tools and
methods, ranging from the proper design of digital products and services to
pricing and to loyalty programs. The use of e-CRM technologies has made
customer service, as well as service to partners, much more effective and
efficient.
Through Internet technologies, data generated about customers can be easily fed
into marketing, sales, and customer service applications for analysis. Electronic
CRM also includes online applications that lead to segmentation and
personalization. The success of these efforts can be measured and modified in
real time, further evaluating customer expectations
THE LEVELS AND TYPES OF E-CRM
We can differentiate three leves of e-CRM
1. Foundational service. This includes the minimum necessary services
such as Web site responsiveness, site effectiveness, and order fulfillment.
2. Customer-centered services. These services include order tracking,
product configuration and customization, and security/trust. These are the
services that matter the most to customers.
3. Value-added services. These are extra services, such as online
auctions and online training and education. One such service is loyalty
programs.

Loyalty programs are programs that recognize customers who repeatedly use
the services (products) offered by a company.
Three major types of CRM activities are:
1. Operational CRM related to typical business functions involving
customer services, order management, invoice/billing, and sales/marketing
automation and management
2. Analytical CRM involves activities that capture, store, extract, process,
interpret, and report customer data to a corporate user, who then anaylzes
these data as needed
3. Collaborative CRM deals with all necessary communication,
coordination, and collaboration between vendors and customers.
CUSTOMER SERVICE ON THE WEB
A primary activity of e-CRM is customer service on the Web, which can take many
forms. Some of these forms are:
1.
2.
3.
4.
5.

Search and Comparison Capabilities

Free Products and Services
Technical and Other information and Services
Customized Products and Services
Account or Order Status Tracking (customers can view their account
balances or check merchandise shipping status at any time)
6. Personalized Web Pages (customers create their own individual Web pages)
7. FAQs (Frequently asked questions)
8. E-Mail and Automated Response
9. Chat Rooms
10.Live Chat
11.Call Centers
12.Troubleshooting Tools

ISSUES REGARDING CRM

Some of the major issues relating to CRM failures are the following:
-

Difficulty in measuring and valuing intengible benefits. There are only a

few tangible benefits to CRM
Failure to identify and focus on specific business problems that the CRM
can solve
Lack of active senior management sponsorship
Poor user acceptance. This issue can occur for a variety of reasons, such as
unclear benefits and usability problems
Trying to automate a poorly defined business process in the CRM
implementation

HOW TO IMPLEMENT CRM TO AVOID ITS FAILURE

1. Conduct a survey to determine how the organization responds to
customers
2. Carefully consider the four components of CRM: sales, service, marketing,
and channel/partner management
3. CRM includes the analytical aspects of understanding your customers, their
buying habits, and the reasons they make the decision they do. Survey
how CRM accomplishments are measured, use defined metrics. Make sure
quality, not just quantity, is addressed
4. Consider how CRM software can help vis-a-vis the organization's objectives
5. Decide on a strategy: refining existing CRM processes, or reengineering the
CRM
6. Evaluate all levels in the organization but particularly frontline agents, field
service, and salespeople. Strong executive sponsor support is necessary

for getting people to change how they do their jobs and to adopt a CRM
culture.
7. Prioritize the organization's requirements as one of the following: must,
desired, or not so important.
8. Select appropriate CRM software. There are more than 60 vendors. Some
provide comprehensive packages, others provide only certain functions.
BUSINESS VALUE OF CRM
There are three areas of CRM that should be given priority to realize the total
business value of CRM:
1. Marketing
2. Sales
3. Service
One of the biggest problems in CRM implementation is the difficulty of defining
and measuring success. Additionally, many companies say that when it comes to
determining value, intangible benefits are more significant than tangible cost
savings. Yet companies often fail to establish quantitative or even qualitative
measures in order to judge these intangible benefits.
A formal business plan must be in place before the e-CRM project begins one
that quantifies the expected costs, tangible financial benefits, and intangible
strategic benefits, as well as the risks. The plan should include an assessment of
the following:
1. Tangible net benefits. The plan must include a clear and precise costbenefit analysis that lists all of the planned project costs and tangible
benefits. This portion of the plan should also contain a strategy for
assessing key financial metrics, such as ROI, NPV, or other justification
methods.
2. Intangible benefits. The plan should detail the expected intangible
benefits, and it should list the measured successes and shortfalls. Often,
an improvement in customer satisfaction is the primary goal of the e-CRM
solution, but in many cases this key value is not measured.
3. Risk assessment. The risk assessment is a list of all of the potential
pitfalls related to the people, processes, and technology that are involved
in the e-CRM project.
Tangible and intangible benefits of e-CRM typically include increases in staff
productivity, cost avoidance, revenues and margin increases as well as
reductions in inventory costs, due to the elimination of errors. Other benefits
include increased customer satisfaction, loyalty, and retention.
POTENTIAL PITFALLS AND RISKS OF E-CRM
1.
2.
3.
4.
5.

Taking on more than can be delivered

Getting over budget and behind schedule
Poor user adoption
Expensive maintenance and support
Isolation (the effectiveness of project may suffer if the CRM data are not
used throughout the company)
6. Garbage in-garbage out (because e-CRM systems require so much data
entry, users often put in placeholders, misguided estimates, or inaccurate

information, which leads to poor analytical results and decision-making

errors)
7. Failure to measure success
Like several other enterprise systems, CRM can be delivered in two ways:
1. On-premise (traditional way) meaning users purchased the system and
installed it on site, which is very expensive and requires a large upfront
payment
2. On-demand, known also as utility computing or software as a service. It is
basically CRM hosted by an ASP or other vendor on the vendor's premise
POSSIBLE PROBLEMS AND BENEFITS OF ON-DEMAND CRM
Possible implementation problems:
-

ASPs can go out of business, leaving customers without service

It is difficult, or even impossible, to modify hosted software
Upgrading could become a problem
Relinquishing strategic data to a hosting vendor can be risky
Integration with existing software may be difficult

The benefits are:

-

Improved cash flow, due to savings in front-up purchase

No need for corporate software experts
Ease of use with minimal training
Fast time-to-market (can use it quickly)
Vendors' expertise available

These issues determine the IT strategy in general.

KNOWLEDGE MANAGEMENT AND IT
Knowledge management (KM) is a process that helps organizations identify,
select, organize, disseminate, and transfer important information and expertise
that are part of the organization's memory and that typically reside within the
organization in an unstructured manner.
Such treatment of knowledge enables effective and efficient problem solving,
expedited learning, strategic planning, and decision making. Knowledge
management initiativees focus on identifying knowledge, explicating it in such a
way that it can be shared in a formal manner, and leveraging its value through
reuse.
For organizational success, knowledge, as a form of capital, must be
exchangeable among persons, and it must be able to grow. Knowledge about how
problems are solved can be captured, so that knowledge management can
promote organizational learning, leading to further knowledge creation.
KNOWLEDGE, DATA AND INFORMATION
Data are a collection of facts, measurements, and statistics.
Information is organized or processed data that are timely and accurate.
Knowledge is information that is contextual, relevant, and actionable.

Having knowledge implies that it can be used to solve a problem, whereas having
information does not carry the same connotation. Knowledge has the following
characteristics that differentiate it from an organization's other assets:
-

Extraordinary leverage and increasing returns. Knowledge is usually

not subject to diminishing returns. When it is used, it is not consumed. Its
consumers can add to it, thus increasing its value.
Fragmentation, leakage, and the need to refresh. As knowledge
grows, it branches and fragments. Knowledge is dynamic, it is information
in action. Thus, an organization must continually refresh its knowledge
base to maintain it as a source of competitive advantage.
Uncertain value. It is difficult to estimate the impact of an investment in
knowledge. There are too many intangible aspects.
Uncertain value of sharing. Similarly, it is difficult to estimate the value
of sharing the knowledge, or even who will benefit most.
Rooted in time. The utility and validity of knowledge may vary with time;
hence, the immediacy, age, perishability, and volatility of knowledge are
important attributes.

Intellectual capital (or intellectual assets) is another term often used for
knowledge, and it implies that there is a financial value to knowledge. Though
intellectual capital is difficult to measure, some industries have tried.
Given the breadth of the types of applications of knowledge, we adopt the simple
and elegant definition that knowledge is information in action.
Explicit and Tacit Knowledge. Explicit knowledge deals with more objective,
rational, and technical knowledge (data, policies, procedures, software,
documents, etc.). Tacit knowledge is usually in the domain of subjective,
cognitive, and experiential learning, it is highly personal and difficult to formalize.
THE NEED FOR KNOWLEDGE MANAGEMENT SYSTEMS
The goal of knowledge management is for an organization to be aware of
individual and collective knowledge so that it may make the most effective use of
the knowledge it has.
KMSs (Knowledge management systems) refers to the use of modern
information technologies to systematize, enhance, and expedite intra- and interfirm knowledge management.
KMSs are intended to help an organization cope with turnover, rapid change, and
downsizing by making the expertise of the organization's human capital widely
accessible. They are being build in part from incerased pressure to maintain a
well-informed, productive workforce.
Moreover, they are build to help large organizations provide a consistent level of
customer service. They also help organizations retain the knowledge of departing
employees.
KNOWLEDGE MANAGEMENT SYSTEM CYCLE
A functioning knowledge management system follows six steps in a cycle. The
reason the system is cyclical is that knowledge is dynamically refined over time.
The knowledge in a good KM system is never complete because, over time, the

environment changes, and the knowledge must be updated to reflect the

changes. The cycle works as follows:
1. Create knowledge. Knowledge is created as people determine new ways
of doing things or develop know-how. Sometimes external knowledge is
brought in.
2. Capture knowledge. New knowledge must be identified as valuable and
be represented in a reasonable way.
3. Refine knowledge. New knowledge must be placed in context so that it is
actionable. That is where human insights (tacit qualities) must be captured
alog with explicit facts
4. Store knowledge. Useful knowledge must then be stored in a reasonable
format in a knowledge repository so that others in the organization can
access it.
5. Manage knowledge. Like a library, the knowledge must be kept current.
It must be reviewed to verify that it is relevant and accurate.
6. Disseminate knowledge. Knowledge must be made available in a useful
format to anyone in the organization who needs it, anywhere and any time.
As knowledge is disseminated, individuals develop, create, and identify new
knowledge or update old knowledge, with which they replenish the system. Even
though it is not consumed when used, knowledge can age or become obsolete. It
has to be updated and the amount of knowledge usually grows over time.
COMPONENTS OF KNOWLEDGE MANAGEMENT SYSTEMS
Knowledge management systems are developed using the following sets of
technologies:
1. Communication and collaboration technologies, which allow users to
access needed knowledge, and to communicate with each other and with
experts. They also allow for knowledge solicitation from experts.
2. Storage and retrieval technologies, which originally meant using a
database management system to store and manage knowledge. Desktop
search is a major tool in knowledge retrieval.
KNOWLEDGE MANAGEMENT SYSTEM IMPLEMENTATION (ways of usage)
1. Finding Experts Electronically and Using Expert Location Systems.
Companies know that information technology can be used to find experts.
People who need help may post their problem on the corporate intranet
and ask for help. Similarly, companies may ask for advice on how to exploit
an opportunity. Expert (or expertise) location systems (ELSs) are
interactive computerized systems that help employees find and connect
with colleagues who possess the expertise (i.e., experts) required for
specific problems whether they are across the country or across the room
in order to solve specific, critical business problems in seconds.
2. Enterprise Knowledge Portals (EKPs). These are the doorways into
many knowledge management systems. Enterprise konwledge portals are
a means of organizing the many sources of unstrctured information in an
organization. Most EKPs combine data integration, reporting mechanisms,
and collaboration, while a server handles document and knowledge
management. The portal aggregates each user's total information nneds:
data and documents, e-mail, web links and queries, etc.

3. Using KM in Training and Learning. Accumulated knowledge in

organizations can be used for training new employees and retraining
existing ones. Expert systems, for example, can be used to facilitate
training. Several companies provide methodologies that contain knowledge
bases and KM for training.
PAGES 34 AND 35 USEFUL FOR REAL LIFE

CHAPTER 11: INTERORGANIZATIONAL, LARGE-SCALE,

AND GLOBAL INFORMATION SYSTEMS
ON-DEMAND ENTERPRISE AND REAL-TIME OPERATIONS
On-demand enterprise. The concept of on-demand enterprise is based on the
premise that manufacturing (or service fulfillment) will start its operation only
after an order is received. We referred to this as build-to-order and mass
customization as well.
On-demand and real-time. An on-demand process implies that no production
step would be ahead or behind because the entire fulfillment cycle would be
primed to respond to real-time conditions. There will be no backorders, safety
stock, lag time, or excess inventory.
These two concepts have revolutionized the supply chain.
INTERORGANIZATIONAL ACTIVITIES
Some common activities conducted between and among business partners are:
1. Joint Ventures. Business partners conduct large numbers of joint
ventures, sometimes as virtual corporations. Such activities require
collaboration.
2. Collaboration.
3. Buying and Selling. This activity includes finding a partner, viewing
catalogs, negotiating, order taking and fulfillment, billing, payments, aftersale service, and more.
4. Other Activities. For example, companies may work jointly on standards,
conduct research, appeal to the government, and refer business they
cannot do.
OVERVIEW OF ORDER FULFILLMENT
Order fulfillment refers to providing customers with what they have ordered
and doing so on time, and to providing all related customer services.
Order fulfillment is basically a part of back-end (or back-office) operations,
which are the activities that support the fulfillment of orders, such as accounting,
inventory management, and shipping. It also is strongly related to front-office
operations or customer-facing activities, which are activities such as sales and
advertising that are visible to customers.
OVERVIEW OF LOGISTICS

Logistics is defined by the Council of Logistics Management as the process of

planning, implementing, and controlling the efficient and effective flow and
storage of goods, services, and related information from point of origin to point of
consumption for the purpose of conforming to customer requirements
The key aspects of order fulfillment are deliver of materials or products at the
right time, to the right place, and at the right cost.
THE ORDER FULFILLMENT PROCESS
Several activities, some of which can be done simulataneously, while other must
be done in a sequence, make the order fulfillment process. These activities are:
1. Make sure the customer will pay. Depending on the payment method
and prior arrangements, the validity of each payment must be determined.
This activity may be done by the company's finance department or
financial institution.
2. Check for in-stock availability. Regardless of whether the vendor is a
manufacturer or a retailer, as soon as an order is received, an inquiry
needs to be made regarding stock availability. Several scenarios are
possible here that may involve the material management and production
departments, as well as outside suppliers and warehouse facilities.
3. Arrange Shipments. If the product is available, it can be shipped to the
customer (otherwise, go to step 5). Products and payment can both be
digital or physical, which determines the delivery and revenue collection
method used by the company.
4. Insurance. Sometimes the content of a shipment need to be insured.
5. Replenishment. Customized (build-to-order) orders will always trigger a
need for some manufacturing or assembly operation. Similarly, if standard
items are out of stock, they need to be produced or procured. Production
can be done in-house or by contractors. The suppliers involved may have
their own suppliers.
6. In-house production. In-house production needs to be planned.
Production planning involves people, materials, components, machines,
financial resources, and possibly suppliers and subcontractors.
7. Use supliers. A manufacturer may opt to buy products or subassemblies
from suppliers. Similarly, if the seller is a retailer, the retailer must puchase
products from its manufacturers.
8. Contacts with customers. Sales representatives need to keep in
constant contact with customers, especially in B2B, starting with
notification of orders received and ending with notification of a shipment or
a change in delivery date.
9. Returns. In some cases, customers want to exchange or return items. The
movement of returns from customers back to vendors is called reverse
logistics.
Typical problems are shipment, packaging, and return cost. It is necessary to
study why items are returned and look for patterns.
Order fulfillment process may vary, depending on the product and the vendors. It
also differs between B2B and B2C activities, between the delivery of goods and of
services, and between small and large products. Futhermore, additional steps

may be required in certain circumstances, such as in the case of perishable

materials or foods.
Finally, there are differences in fulfilling regular orders with a long lead time or
on-demand orders that must be fulfilled quickly.
The nine-step order fulfillment process just described, as well as order taking, are
integral parts of the supply chain.