Planning E-Commerce

Electronic Commerce
MIS 4108
Planning E-commerce Initiatives
Session Objectives
The objectives of this session are:
To describe how to prepare a simple business

plan
To describe how to develop objectives
To analyse strategies used to fulfil objectives
And to analyse methods used to manage ecommerce initiatives.
Business Plans
What is a business plan?

Why should I create a
business plan?
What are the sections of a
business plan?
What is a Business Plan?
A business plan is a document which

highlights (for the given year):
A plan of how the company will be run

The goals of the company
The money required to meet those goals
The strategy employed to meet those goals
(including marketing)
Why Should I Create a Business Plan?
A business plan forces a business to assess

the market place
It forces a business to identify a clear
marketing strategy
It also serves as a benchmark which the
companies performance can be measured
against.
The Sections of a Business Plan
There are seven essential sections of a business

plan. These are the:
Executive Summary
Business Description
Define Your Market
Identify and Analyse Your Competition
Design and Development Plan
Operations and Management Plan
Financial Statements
Executive Summary
The executive summary follows the title page of

the business plan
The purpose of the executive summary is to
explain to the reader what the business wants
The summary should be short and concise
(maybe half a page, typically no longer than a
page)
People do not have time to waste reading long

documents
Executive Summary Contd

The key elements of an executive summary are:
1. The business concept
What is the business you are proposing, its products

and the advantages over the competition
2. The financial features
Highlight the forecasted sales, profits, cash flows and

return on investment
3. The financial requirements
What are the start-up costs and the cost of expansion.

How will this money be used?
Executive Summary Contd

4. Current business position
This includes any relevant information about

the company, its formation date, its owners
and key personnel
5. Major achievement
Are there any developments which are

essential to the success of the business? These
may include prototypes, patents or crucial
contracts
10
Business Description
This section often begins with a short description

of the industry, its present outlook and future
possibilities
Include any products or developments that might affect

your business
State whether the business is new or already in

existence; and the type of operation, e.g. is it retail,
food service, manufacturing or service-oriented?
State who your customers will be and how your
product will be distributed and advertised
11
Business Description Contd
Describe the product or service you intend

to market
Show how your business will gain the
competitive edge
Explain how the business will be profitable
12
Define Your Market
Define the entire market for your industry
in terms of size, structure, growth prospects,

trends and sales potential
Define the specific market that you will be

targeting (market segmentation)
Define your niche in this market
13
Define Your Market Contd
After defining your market you must:
Estimate your market share for the period of

time the business plan covers
Position your business
Price your product
Determine the distribution strategy
Create a promotion plan
Estimate your sales potential
14
Define Your Market Contd
After researching the market, the

information gained should be used to:
Identify objectives
And develop strategies that will allow you to
fulfil these objectives
This will be the focus of the next section
15
Identify and Analyse Your Competition
Determine who your competitors are

What strategies are they using to sell their
products or service
What are they strengths and weaknesses
16
Design and Development Plan
The design and development plan allows

investors to understand:
The design of your product

How it is produced
How it will be marketing
The development budget required to allow
the company to meet its goals
17
Design and Development Plan Contd
The sections included in the development plan

include:
Product development
Market development
Organisational development
Each of these sections should be described from a

funding point of view
Finally, identify measurable goals for the overall
design and development plan
18
Operations and Management

Plan
Describes how the business functions
It explains business logistics:
The responsibilities of the management team

The task assigned to each company division
Capital and expense requirements related to the operation of
the business
And the financial tables
The operating expense table

The capital requirements table
The cost of goods table
19
Financial Statements
The three common financial statements are:
The balance sheet
The Income statement
A statement of your assets, liabilities and equity

Reflects when sales are made and expenses are
incurred
The statement of cash flows shows
The amount of cash required to meet obligations,

when it is required and from where it will come
20
A successful business
plan should include
activities that:
Identify objectives
Link objectives to
business strategy
21
Identifying Objectives
Objectives businesses strife to achieve using ecommerce include:
Increase sales in existing markets

Launching out into new markets
Improve service to existing customers
Identifying new vendors
Coordinating more efficiently with existing vendors
More effective recruiting
22
Types of Objectives
Vary with the size of the organisation, for

example:
Small companies might want to build a Web site to

encourage customers to do business using existing
channels.
A site offering only product or service information is less

costly do design and implement
Larger companies that might want to build sites that

offer transaction handling, bidding, communication
and other capabilities have to pay much more
23
SMART Objectives
Objectives must be:
Specific
Measurable
Achievable
Results-based
Time-bound
24
Linking Objectives to Business

Strategy
After identifying objectives a company

must:
identify business strategies that will help to

realise these objectives
e.g. a small companys objective might be to

become a global player within a year and as a
result one of its activities is to build a brand
25

Strategy Contd
Businesses can use downstream strategies

to improve the value that the business
provides to customers
Or can pursue upstream strategies that
focus on reducing cost or generating value
by working with suppliers or inbound
shipping and freight service providers
26

Strategy Contd
E-commerce can inspire businesses to partake in

activities such as:
Build brands
Enhance existing marketing programs
Sell products and services
Sell advertising
Develop a better understanding of the customers
need
Improve after sales support and service
27

Strategy Contd
E-commerce can inspire businesses to partake in

activities such as:
Purchase products and services

Manage supply chains
Operate auctions
Build virtual communities
However, these can not be done in an ad hoc

manner. It is important to measure the benefit and
cost of each activity
28
Measuring Benefit
Some benefits are tangible and easy to measure,

for example increase sales, decrease cost
Others are intangible thus difficult to measure, for
example increased customer satisfaction
Managers need to try to set objectives that are
measurable even for intangible benefits
E.g. increased customer satisfaction might be

measured by counting the number of first-time
customers who return to the Web site and buy
29
Measuring Benefit Contd

Build brand
Surveys or opinion polls

that measure brand
awareness
Enhance existing
marketing program
Change in per-unit sales

volume
Improve customer
service
Customer satisfaction
surveys, quantity of
customer complaints
30
Measuring Benefit Contd
Reduce cost of
Quantity and type (telephone,
after-sale support fax, e-mail) of support activities
Imply supplier
chain operation
Cost, quality and on-time

delivery of materials or services
purchased
Hold auctions
Quantity of auctions, bidders,

sellers, items sold, registered
participants, dollar value of
items sold
Provide portals
Number of visitors
31
Managing Cost
IT projects are often difficult to estimate

and control
E.g. web development technologies change

rapidly, thus it is difficult for managers to
estimate cost
These cost include hardware and software
Even though hardware cost tend to

decrease, new software often demands new
hardware, thus increase cost
32
Total Cost of Ownership
The project budget must include
Hardware and software cost

Costs of hiring, training and paying personnel
Web site designers, developers, content providers,

operators and maintainers
Organisations tend to track cost by activity
33
Total Cost of Ownership Contd
The total cost of ownership (TCO) includes
Cost of hardware (servers, routers, firewalls and load

balancing devices)
Cost of software (licenses for operating systems, Web
server software, database software, and application
software)
Cost of outsourced design work
Salaries and benefits for employees
Cost of maintaining the site once operational
A good TCO will include cost of future redesign

34
Change Management
Every project involves change

Change management is the process of
helping employees cope with change
Change management techniques include
Communicating the need for change

Inclusion in the change decision process
Inclusion in the planning for the change
35
Change Management Contd
If change is not properly managed,

employees feel
Uncomfortable
Inadequate
Stressed which leads to reduced work
performance
Unable to do the job properly
Powerless
36
Opportunity Cost
Opportunity cost is the benefit that will be

lost if a company chooses not to initiate an
e-commerce initiative
This is of great concern to management
and accountants
37
Web Site Costs
The cost required for a large company to

build an entry-level e-commerce site is
US$1 million
79% is labour cost

10% software cost
11% hardware cost
Source: International Data Corporation and Gartner Inc.
38
Web Site Costs Contd
The cost required for a large company to build a

site that is comparable to leading sites is US$2 $5 million
To build a Web site that is noticeably better than
competitors will cost a minimum of US$15
million
10 of the top 100 e-commerce sites spent over
US$10 million for Web site development and
implementation
Source: International Data Corporation and Gartner Inc
39
A small company can put a Web site online for

US$5000
For a business with full transaction and payment
processing capabilities, it is difficult to keep it
under US$10,000 per year
Construction of new Web sites for small
businesses actually averages US$140,000
Minimum amount to open a complete ecommerce Web site is US$150,000
40
Web site costs include
Start-up cost
Ongoing costs (between 50% - 200% of
initial cost)
41
The cost for a full portal magazine site
To build: US$2.4 million

US$4.3 million per year to maintain with a
staff of 35 people
The cost for a more limited site
To build: US$150,000
US$270,000 per year to maintain with a staff
of 2 people
42
Web Site Costs Example
Kmart (http://www.kmart.com/)
>US$140 million to create online retail

website
Much of the sites cost is hidden from the
user
Cost of customising middleware that connects the

Web site to Kmarts vast inventory and logistics
databases
43
Web Site Costs: A Final Word
The high cost of creating e-commerce Web sites

can serve as a discouragement to small businesses
Smaller organisations can control costs by:
Using a combination of third party hosting services

and packaged e-commerce software
Sign up for mall-style service providers
This provides low initial cost and controls annual

TCO, however cost of related activities can not be
ignored, e.g. creating and maintaining a product
catalog
44
Comparing Benefits to Costs

Identify
benefits
Determine value
of benefits
Compare value
of benefits to
value of cost
Identify
costs
Determine value
of costs
45
Return On Investment (ROI)
Return on Investment techniques measure

the amount of income (return) that will be
provided by a specific expenditure
ROI requires that all costs are stated in a

dollar amount
ROI focuses on benefits that can be predicted
Many benefits are often hidden
ROI tends to emphasize short-term benefits

over long term benefits
46
ROI Hidden Benefits Example
CISCO systems created an on-line customer

forum to discuss product issues
The intended benefits were to
Reduce customer service costs

Increase customer satisfaction regarding the
availability of product information
Additional (hidden) benefit
Cisco engineers were able to get feedback on new

products
47
ROI Problems
If managers rely only on ROI incorrect

decision may be made
Due to biases towards short term cost and

benefits rather than long term
48
Strategies For Developing Ecommerce Web Sites
1994-1996 Static Brochures
Contact information
Logos and or other branding
Some product information
Financial statements
49
Strategies For Developing Ecommerce Web Sites Contd
1996 1999 Transaction Processing
Static brochures plus

Complete product catalog
Shopping cart
Secure payment processing
Other information queries
Shipment tracking
50
Strategies For Developing Ecommerce Web Sites Contd
1992 Present Full Range of Automated

Business Processes
Transaction processing, plus

Personalisation
Interactive capabilities
Frequently updated content
Customer relationship
Management tools
51
Internal Development v. Outsourcing
Definition:
Outsourcing is the hiring of outside support

to do all or part of a project
E-commerce site development problems

can not be avoided by outsourcing
Success depends on how well the ecommerce initiative is integrated into and
supports business activities
52
Internal Development v.
Outsourcing Contd
Using internal people to lead e-commerce

initiatives helps to ensure that the
companies specific needs are addressed
and that the plan fits the culture
Outside consultants are seldom able to learn

enough about the culture (in the contract
period) in order to accomplish all the
objectives
53
Internal Development v.
Outsourcing Example
Few companies are large enough or have

sufficient expertise to launch an ecommerce project without external help
E.g. Wal-mart (with annual sales of $195

billion) in 2006 hired another company for
outside support
54
Internal Teams
In determining which parts of an e-project

to outsource first create an internal team
Include people:
With technical know-how about the Internet
Creative thinkers
Already successful employees
55
Internal Teams Contd
Do not select a technical wizard as project

leader if he/she
does not have the necessary business skills

Is not well-known and respected by the
operating function managers
Is not creative
56
Set aside between 5-10% of a projects

budget for
quantifying the projects value and measuring

the achievement (e.g using metrics)
More and more companies are realising the

importance of their staffs knowledge about
the business and its processes
These resources do not appear in companies

financial statements
57
The internal team decides
Which part of the project to outsource

Who the parts will be outsourced to
Which partners the company needs to hire for
the project
58
Types of Outsourcing
There are three types of outsourcing
Early outsourcing
E-commerce initiatives lend themselves more to

early outsourcing
Late Outsourcing
Partial outsourcing
59
Early Outsourcing
The initial site design and development is outsourced

in order to launch it quickly
An e-commerce site can rapidly become a source of

competitive advantage for a company
Outsourcing team trains company information system

professionals in the technology and hands over the
operation of the site
It is best for the companys own information systems
people to work closely with the outsourcing team and
develop ideas for improvements as early as possible
60
Late Outsourcing
This is the more traditional way

The companys information system professionals
do the initial design and development work,
implement the system and operate it until it
becomes a stable part of the business
After the competitive advantage is gained, the
system is outsourced, allowing the team to pursue
new technology projects
61
Partial Outsourcing
The company identifies specific portions of

the project that can be completely
designed, developed, implemented and
operated by another firm that specialises in
a particular function
In both early and late outsourcing a single

group is responsible for the entire design,
development and operation of a project
62
Partial Outsourcing Contd
E-commerce initiatives can benefit from

partial outsourcing
Partial outsourcing is also called
component outsourcing
63
Partial Outsourcing Example
Many smaller Web sites outsource their email

handling and response functions
Electronic payment systems
A company may use an external vendor to take care

of payment processing
When the customer is ready to pay, he/she is taken to

another site and then returned to the original site
The most common part of an e-commerce project

that is outsourced is the web-hosting activity
64
Selecting a Web Hosting Service
The internal team should be responsible for

selecting the ISP to host the site
For smaller e-commerce projects teams can

consult an ISP dictionary (for ISPs, web
hosting services or ASPs (application service
provider))
Larger companies should use consultants or
other firms that rate service providers
65
Selecting a Web Hosting Service

Contd
The most important factors to use when

evaluating a hosting service are:
Functionality
Reliability
Bandwidth and server scalability
Security
Backup and disaster recovery
Cost
66
New Methods for implementing

Partial Outsourcing
In the past five years new ways of

implementing partial outsourcing have
been creating
Incubators
Fast venturing
67
Incubators
A company that offers start-up companies a

physical location with offices, accounts and
legal assistance, computers, and Internet
connections at a very low monthly cost
Some also offer seed money, management

advice an marketing assistance
In exchange the company gives 10-50%

ownership of the company to the Incubator
68
Incubators Contd
When the company grows and can obtain

venture capital financing or can publicly
offer stock, the Incubator sells all or part of
its interest and re-invests in a new incubator
candidate
Example:
Idealab (www.idealab.com/) was one of the

first Internet incubators and helped
www.carsdirect.com/home
69
Internal Incubators
Internal incubators are incubators that are

set up by a company (using internal staff),
e.g. Kodak internal venturing program of the

1980s
Most of these were unsuccessful because

employees found it difficult to maintain an
entrepreneurial spirit when what ever they
developed would be taken away and
controlled by the parent company
70
Internal Incubators Contd
A new internal incubator model has emerged

where the resulting technology is left under the
control of the team, who form a company
The parent company and the new company then
become strategic partners
This new internal incubator model promises to be
more successful than the traditional model
71
Fast Venturing
An existing company that wants to launch an ecommerce initiative joins with external equity and
operational partners that can offer the experience
and skills that can scale up the project rapidly
Equity partners are usually banks or venture

capitalist that can offer money or expertise
Operational partners are firms, such as system
integrators, consultants and Web portals who have the
experience in moving projects along and scaling up
prototypes
72
Fast Venturing Contd

Venture sponsor Equity partners
Develop ideas.
Staffs internal
team.
Create prototype.
Provide all or
most of the startup funds.
Operational
Review and refine partners
ideas.
Provide advice.
Evaluate prototype.
Provide contacts
(including
operational
partners).
Turn ideas into a

business plan.
Provide financial,
technical and
operations expertise.
Provide industry best
practice knowledge.
Scale up prototype to
an operating model.
73
Managing E-Commerce Initiatives
Project management
Project portfolio
management
Specific staffing
Post-implementation
audits
74
Managing Electronic Commerce

Initiatives
To manage complex e-commerce

implementations formal management
techniques should be used:
Project management
Project portfolio management
Specific staffing
Post-implementation audits
75
Project Management
A collection of formal techniques for planning and

controlling the activities undertaken to achieve a
specific goal
The project plan includes cost, schedule and
performance
Applications such as Microsoft Project and
Primavera Project Planner help with project
planning
These type of projects (e-commerce projects) have
a reputation for failing
76
Project Portfolio Management
A technique used to manage multiple

projects
Each project is monitored as if it is an

investment in a financial portfolio
Each project is assigned a rank based on its
importance to the strategic goals of the
business and level of risk
E-commerce projects are viewed as
investments in assets
77
Staffing for E-Commerce
The internal team must determine the staffing

needs for the e-commerce initiatives
The general areas of staffing required are:
Business, project and account managers

Application specialists
Web programmers and graphic designers
Content creators, managers or editors
Customer service
System, and database administration
Network operations
78
Business Manager
Should be a member of the internal team

Sets objectives for the project
Responsible for implementing the elements of the
business plan and reaching the objectives set
Develops proposal for plan revisions and funding
Should have the required domain knowledge (e.g.
retail knowledge if a retail Web site is being built)
79
Project Manager
Specific training or skills in tracking costs

and accomplishing project goals
Certification might be useful (e.g. Project
Management Institute) or MBA
Skills in the use of project management
software
80
Account Manager
Keeps track of multiple Web sites in use by a

project
Or keeps track of projects that will combine to
make a larger Web site
The account manager supervises the location of
specific Web pages and related software
installations as they are moved from test, to
demonstration, to production
In smaller companies they handle the project and
account management functions
81
Application Specialist
Maintain accounting, human resources, and

logistics software
Must maintain e-commerce software, e.g.
catalogs, payment processing
82
Other Roles
Web programmers
Web graphics designers
A person trained in art, layout, composition and

understands how Web pages are constructed
Content creators
Design and write code for Web site
Write original content
Content managers/editors
Purchase existing material and adapt it

83
Other Roles Contd
Customer service personnel
Help design and implement customer

relationship management activities, e.g. issue
passwords, design customer interface
features, handle customer e-mail and
telephone requests for service and conduct
telemarketing for the site
Some companies hire a call centre to handle phone

calls and e-mail
84
Other Roles Contd
Systems administrator
Network operation staff
Responsible for system reliability and security

Load estimation and monitoring, resolving network
problems and managing network operations
Database administration
Support activities such as transaction processing,

order entry, inquiry management or shipment
logistics
85
Post-Implementation Audits
A formal review of a project after it is up

and running
Managers compare the the objectives,
performance specifications, cost estimates,
and scheduled delivery dates plans with the
actuals
86
Post-Implementation Audits Contd
The purpose is not to lay blame but to:
Provide project and business managers to raise questions

about the objectives and use the feedback in other projects
The audit should result in a comprehensive report that

analyses the project performance, the administration,
organisational structure and the performance of the
project team
Some audits contain a confidential section which
evaluates the performance of individual team
members to help when choosing teams in future
87
Group Assignment # 2
By reading this handout carefully, you are

requested to create a business plan for a
particular business (Include the steps related
to a business plan).
Is it possible to present your business on the
web?
If so, you have to develop it as your final
project of this course?
88
References
[1] Tiffany, Laura, Elements of a Business Plan, March 2001. Online document
available at http://wwww.entrepreneur.com/article/print/0,2361,287355,00.html
[2] Online Women's Business Center, Purpose Of The Marketing Plan, May 1997.
http://www.onlinewbc.gov/docs/market/mk_plan_why.html
[3] Schneider, Gary, P., Electronic Commerce: The second wave, Thomson Course
Technology, Fifth Annual Edition, 2004
89

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Electronic Commerce

Planning E-commerce Initiatives

The objectives of this session are:

To describe how to prepare a simple business

Planning E-commerce Initiatives

What is a business plan?

Planning E-commerce Initiatives

Planning E-commerce Initiatives

What is a Business Plan?

A business plan is a document which

A plan of how the company will be run

Planning E-commerce Initiatives

Why Should I Create a Business Plan?

A business plan forces a business to assess

The Sections of a Business Plan

There are seven essential sections of a business

The executive summary follows the title page of

People do not have time to waste reading long

Executive Summary Contd

What is the business you are proposing, its products

2. The financial features

Highlight the forecasted sales, profits, cash flows and

3. The financial requirements

What are the start-up costs and the cost of expansion.

Executive Summary Contd

This includes any relevant information about

Are there any developments which are

This section often begins with a short description

Include any products or developments that might affect

State whether the business is new or already in

Business Description Contd

Describe the product or service you intend

Planning E-commerce Initiatives

Define Your Market

Define the entire market for your industry

in terms of size, structure, growth prospects,

Define the specific market that you will be

Planning E-commerce Initiatives

Define Your Market Contd

After defining your market you must:

Estimate your market share for the period of

Define Your Market Contd

After researching the market, the

Planning E-commerce Initiatives

Identify and Analyse Your Competition

Determine who your competitors are

Planning E-commerce Initiatives

Design and Development Plan

The design and development plan allows

The design of your product

Planning E-commerce Initiatives

Design and Development Plan Contd

The sections included in the development plan

Each of these sections should be described from a

Operations and Management

Describes how the business functions

It explains business logistics:

The responsibilities of the management team

And the financial tables

The operating expense table

The three common financial statements are:

The balance sheet