Information Systems Today Managing in the Digital World

INTERNATIONAL EDITION Information Systems Today Managing in the Digital World SIXTH EDITION Joe Valacich Christoph Schneider

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chapter4 enablingbusiness-to-consumerelectroniccommerce 171 segment of the global economy. With this much money at stake, it is little wonder that no other information systems (IS) issue has captured as much attention as has EC. Already during the Berlin airlift in 1948, the foundations for EC transactions between businesses were laid, as the Military Air Transport Service of the U.S. Air Force in Europe realized that not only the airlifted cargo was important, but that information about the cargo was equally important, and devised standard universal codes for transmitting these data via teletype (Seidemann, 1996). The emergence of the Internet and Web further facilitated EC and, in addition, paved the way for marketing and selling products and services to individual consumers. This has led to the creation of an electronic marketplace where a virtually limitless array of services, features, and functionality can be offered. As a result, a presence on the Web has become a strategic necessity for most companies. Contrary to popular belief, EC goes beyond consumers merely buying and selling products online. EC can involve the events leading up to the purchase of a product as well as customer service after the sale. Furthermore, EC is not limited to transactions between businesses and consumers, which is known as business-to-consumer (B2C) EC. EC is also used to conduct business with business partners such as suppliers and intermediaries. This form of EC, not involving the end consumer, is commonly referred to as business-to-business (B2B) EC. According to the U.S. Census Bureau, B2B EC is by far the largest form of EC in terms of revenues, and many irms concentrate solely on B2B EC. Further, almost all companies focusing on the B2C arena, such as the clothing and home furnishing retailer Eddie Bauer, also engage in B2B EC. In the process of producing goods and services, a business typically sources its raw materials from a variety of specialized suppliers (in B2B transactions); after the production, the business sells each inished product to a distributor or wholesaler (in a B2B transaction) or directly to the end consumer (in a B2C transaction). We will discuss B2B EC in Chapter 8, Strengthening Business-to-Business Relationships Via Supply Chain and Customer Relationship Management. Some forms of EC do not even involve business irms, as would be the case with an online auction site such as ebay; these forms of EC are referred to as consumer-to-consumer (C2C). An emerging EC model that is referred to as consumer-to-business (C2B) is a complete reversal of the traditional B2C, where consumers offer products, labor, and services to companies. Finally, there are forms of EC that involve a country s government and its citizens (governmentto-citizen [G2C]), businesses (government-to-business [G2B]), and other governments (government-to-government [G2G]). These basic types of EC are summarized in Table 4.1. The tremendous increase in the use of mobile devices such as smartphones and tablets has given rise to m-commerce (mobile commerce), that is, any electronic transaction or information TABLE 4.1 Types of EC types of EC description Example Business-to-consumer (B2C) Transactions between businesses and their customers A person buys a book from Amazon.com. Business-to-business (B2B) Transactions among businesses A manufacturer conducts business over the Web with its suppliers. Consumer-to-business (C2B) Consumer-to-consumer (C2C) Government-to-citizen (G2C) Government-to-business (G2B) Government-to-government (G2G) Transactions between customers and businesses Transactions between people not necessarily working together Transactions between a government and its citizens Transactions between a government and businesses Transactions among governments A person offers his photography at shutterstock.com. A person purchases some memorabilia from another person via ebay.com. A person iles his or her income taxes online. A government purchases supplies using an Internet-enabled procurement system. A state agency reports birth and death information to the U.S. Social Security Administration using the Internet.

172 chapter4 enablingbusiness-to-consumerelectroniccommerce interaction conducted using a wireless, mobile device and mobile networks (wireless or switched public network) that leads to the transfer of real or perceived value in exchange for information, services, or goods (MobileInfo, 2008). In the following section, we examine the reasons that Web-based EC is revolutionizing the way business is being done. Technological forces are driving business, and the Internet and Web have emerged as strong agents of change, lowering barriers to entry and leveling the playing ield, allowing small businesses from around the globe to sell products to a global customer base (Looney & Chatterjee, 2002). For small companies, this opens up vast opportunities. Unlike in large sports tournaments such as the Ironman World Championship, where athletes have to compete locally to qualify for the big event, online businesses can participate in the world championships (i.e., compete on a global scale) right from the start. Companies are exploiting the capabilities of the Web to reach a wider customer base, offer a broader range of products, and develop closer relationships with customers by striving to meet their unique needs (Valacich, Parboteeah, & Wells, 2007). These wide-ranging capabilities include global information dissemination, integration, mass customization, interactive communication, collaboration, transactional support, and disintermediation (Chatterjee & Sambamurthy, 1999; Looney & Chatterjee, 2002; see Table 4.2). Internet and World Wide Web Capabilities InFORMATIOn DISSEMInATIOn. The powerful combination of Internet and Web technologies has given rise to a global platform where irms from across the world can effectively compete for customers and gain access to new markets. EC has wide geographical potential given that many countries have at least some type of Internet access. The worldwide connectivity of the Internet enables global information dissemination, a relatively economical medium for irms to market their products and services over vast distances. This increased geographical reach has been facilitated by virtual storefronts that can be accessed from every Web-enabled computer or mobile device in the world. InTEGRATIOn. Web technologies also allow for integration of information via Web sites that can be linked to corporate databases to provide real-time access to personalized information. No longer must customers rely on old information from printed catalogs or account statements that arrive in the mail once a month. For example, like nearly every other major airline, US Airways (www.usairways.com) dynamically adjusts fares based on availability, booking time, current TABLE 4.2 Capabilities of the Web Web Capability description Example Global information dissemination Integration Mass customization Interactive communication Transactional support Disintermediation Products and services can be marketed over vast distances. Web sites can be linked to corporate databases to provide real-time access to personalized information. Firms can tailor their products and services to meet a customer s particular needs. Companies can communicate with customers, improving their image of responsiveness. Clients and businesses can conduct business online without human support. Cutting out the middleman and reaching customers more directly and eficiently A global audience has access to the trailer for Universal Pictures Fast and Furious 6. Customers can view real-time fares on www.usairways.com. Customers can build their own messenger bag on www.timbuk2.com. Customers can receive live help through text or video chat on www.landsend.com. Customers can purchase everything from books to kitchen ware on www.amazon.com. US Airways can sell tickets directly to customers, without the need for travel agents.

chapter4 enablingbusiness-to-consumerelectroniccommerce 173 FIGURE 4.3 US Airways website. Source: netphotos/alamy and historical demand, forecast demand, and other factors to maximize revenues (a practice referred to as yield management); the most current fares are disseminated in real-time on the company s Web site (see Figure 4.3). This is particularly important for companies operating in highly competitive environments such as the air transport industry. Furthermore, US Airways offers their valued customers the ability to check the balances of their frequent-lier accounts, linking customers to information stored on the irm s corporate database. Customers do not have to wait for monthly statements to see if they are eligible for travel beneits and awards. MASS CUSTOMIzATIOn. Web technologies are also helping irms realize their goal of mass customization. Mass customization helps irms tailor their products and services to meet a customer s particular needs on a large scale. For instance, Dell Computer Corporation allows customers to customize their computers based on their speciic performance needs (see Fig ure 4.4). Dell began selling computers on the Web in mid-1996, and by early 1998, Dell was already experiencing around US$2 million in online sales per day. Dell derives about 90 percent of its overall revenues from sales to medium-sized and large businesses, yet more than half of its Web-based sales have been from individuals and small businesses FIGURE 4.4 Customers can build their own computers at www.dell.com. Source: 2012dellinc.allrights reserved.

174 chapter4 enablingbusiness-to-consumerelectroniccommerce that typically buy one computer at a time. Linking an online product coniguration system with just-in-time production allows Dell to build each individual computer based on the customers speciications. InTERACTIVE COMMUnICATIOn. Interactive communication via the Web enables irms to build customer loyalty by providing immediate communication and feedback to and from customers, and this can dramatically improve the firm s image through demonstrated responsiveness. Many irms have augmented telephone-based ordering and customer support with Web-based applications and electronic mail. In many cases, online chat applications are provided to allow customers to communicate with a customer service representative in real-time through the corporate Web site. Clothing retailer Lands End, for example, offers online customer support through various channels. Whereas traditionally, customers would have to phone or even mail the retailer in case of order problems, Lands End offers text chat and even one-way video chat (so that customers see they re actually communicating with a real person) for customers with problems, questions, or suggestions. This customer-driven approach far outdistances traditional, non-electronic means in terms of tailoring and timeliness. TRAnSACTIOn SUPPORT. By providing ways for clients and irms to conduct business online without human assistance, the Internet and Web have greatly reduced transaction costs while enhancing operational efficiency. Any company selling products or services online uses automated transaction support capabilities. For example, once a customer places an order, the customer s address and payment information is stored in the company s customer database, the customer s credit card is automatically charged, the inventory is checked, and the order is routed to the fulillment center, where the shipping label is automatically generated. Asides from picking and packing the actual product, most of the transaction requires little to no human interaction. For the business, this tremendously reduces the costs associated with the transactions by reducing the demand for phone representatives taking the order or back-ofice staff handling the orders. DISInTERMEDIATIOn. The Web has enabled manunfacturers of products (such as Dell computers) to sell their products directly to the end customers, without the need for distributors or retailers. This phenomenon of cutting out the middleman and reaching customers more directly and eficiently is known as disintermediation. Disintermediation creates both opportunities and challenges. While disintermediation allows producers or service providers to offer products at lower prices (or reap greater proits), they also have to take on those activities previously performed by the middleman. For example, when airlines started selling tickets online and dealing directly with customers, they disintermediated travel agents (and thus directly had to deal with upset travelers in case of delays or cancellations). To make up for this lost revenue, travel agents now charge booking fees when arranging a person s travel. In contrast, reintermediation refers to the design of business models that reintroduce middlemen in order to reduce the chaos brought on by disintermediation. For example, without middlemen like Travelocity.com, Orbitz.com, and other travel Web sites, a consumer would have to check all airline Web sites in order to ind the light with the best connection or lowest price. EC Business Strategies Given the vast capabilities of the Internet, the Web has moved traditional business operations into a hypercompetitive electronic marketplace. While it is beneicial for many small companies to access a global marketplace, this also means that every company participating in a market faces increased competition. Thus, companies must strategically position themselves to compete in the new EC environment. At one extreme, companies following a brick-and-mortar business strategy choose to operate solely in the traditional physical markets. These companies approach business activities in a traditional manner by operating physical locations such as retail stores, and not offering their products or services online. In contrast, companies following a click-only business strategy (i.e., virtual companies) conduct business electronically in cyberspace. These irms have no physical store locations, allowing them to focus purely on EC. An example of a click-only company is the online retailer Amazon.com, which does not have a physical storefront in the classic sense. In e-business terminology, click-only companies are sometimes called

chapter4 enablingbusiness-to-consumerelectroniccommerce 175 BrIef CAse Catchaire Fueling Volunteer-to-Charity e-commerce Ever thought of giving a little for a good cause but confused where and how to start? Online charitable giving has been on the rise, reaching a whopping US$22 billion in 2010. Yet, many people do not want to donate money, but want to donate time or expertise for a cause, and inding the right organization to volunteer time or expertise is often dificult. Recognizing this problem, organizations such as Catchaire.org, MediaCause.org, or sparked.com, offer the answer to matching you with the right job and the exact non-proit enterprise you can offer your heart to. The New York based organization Catchafire is an online platform that bridges the gap between non-profits, social enterprises, and skilled individuals looking out to join charitable projects. That is, through an annual membership fee, enterprises are promised commitment to their agendas and allowed access to other Catchaire projects; volunteering professionals, on the other hand, are warmly welcomed free-of-charge. Catchafire then matches up professionals and organizations based on the organizations needs and the individuals skills, interests, and time availability; for the non-proits, this cuts the costs and time for identifying the best professionals and coming up with coordinated timeslots for the project to run smoothly. For example, design professionals can engage in the design of Web sites, infographics, or merchandise for various charitable organizations; communications specialists can develop press kits or public relations plans; fundraising specialists can assist in creating fundraising plans; and information systems professionals can create and update donor databases or create Web sites for charitable organizations. No matter what your skills are, the opportunities to help out are virtually limitless. As charitable organizations are increasingly looking for volunteers possessing some speciic skills, such marketplaces open up new ways to ind the people needed for their projects. For volunteers, volunteering their skills means not only giving back ; volunteering is becoming an increasing part of people s résumés, provides the opportunity to gain important experience, and, last but not least, helps to build one s career network. When you re looking for an opportunity to volunteer your skills, be it just a few hours per week, you can shop on these online platforms to ind the project that best its your skills and availability. Questions: 1. In what other ways can charitable organizations use the Internet for their purposes? 2. Do you feel that charities are becoming too commercialized? Justify your answer. Based on: ABC News (2012, February 23). Catchaire: skills-based volunteer matching. ABC News Retrieved June 13, 2012, from http://abcnews.go.com/gma/video/ catchafire-skills-based-volunteer-matching-at-work-non-profit-companiesbusiness-15780145. Catchaire.org (2012). Give what you re good at. Retrieved June 13, 2012, from http://www.catchaire.org. Farrell, M. (2011, December 22). Charitable giving goes high tech. Boston Globe. Retrieved June 13, 2012, from http://www.bostonglobe.com/ business/2011/12/22/charitable-giving-goes-high-tech-with-start-ups-helpingnonproits-raise-money/qv9qaksgdjivcqy54tnl4o/story.html. Leland, J. (2011, November 1). Volunteering rises on the résumé. The New York Times. Retrieved June 13, 2012, from http://www.nytimes.com/2011/11/02/ giving/volunteer-work-gains-stature-on-a-resume.html?pagewanted=all. pure play companies, focusing on one very distinct way of doing business; other irms, such as the bookseller Barnes & Noble, choose to straddle the two environments, operating in both physical and virtual arenas. These irms employ a click-and-mortar business strategy approach (also referred to as the bricks-and-clicks business strategy). The three general approaches are depicted in Figure 4.5 (Looney & Chatterjee, 2002). ThE ClICK-AnD-MORTAR STRATEGy. The greatest impact of the Web-based EC revolution has occurred in companies adopting the click-and-mortar approach. Click-and-mortars continue to operate their physical locations and have added the EC component to their business activities. Physical Virtual FIGURE 4.5 General approaches to EC. Brick and Mortar Click and Mortar Click Only