Introduction To E-Business Management And Strategy

PrefacexvThe structure and content of this book has been compiled tohelp undergraduate and postgraduate students new to the subjectof e-business understand the key issues from both theoretical andpractical perspectives. The book is also a valuable source of guidanceand information for practitioners seeking an insight into thekey issues affecting an e-business venture. There are many bookscovering different aspects of the internet, some focus on thetechnology, others on marketing or economics. There has, in recentyears, been a proliferation of books on the security and legal aspectsof the internet. Many business and management books incorporateelements of online trading into the narrative or as featured casestudies.This book uses rigorous academic theories and practical examplesto bring together the business, management and strategic issuesrelating to e-business in a coherent and lucid manner to help theprocess of learning for students and practitioners seeking anintroduction to e-business. In particular, the book offers readers aninsight into how organisations can build an effective e-businessventure using a mix of resources and capabilities. There are practicalissues relating to security, law, economics and human resourcesthat provide the basis for creating an effective e-business. Thisis complemented by an outline of the main business models that canbe adopted as a means of competing in the e-business environment.The chapters on formulating and implementing a strategy fore-business provide a guide to the stages involved in developing acoherent strategy that is geared towards leveraging a competitiveadvantage by engaging in e-business activities.

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AcknowledgementsThe author would like to thank the editorial team at ButterworthHeinemann in Oxford for their help in producing this book. Inparticular, thanks go to commissioning editor Maggie Smith andeditorial assistant Francesca Ford. I would also like to express mygratitude to the reviewers of the book proposal for invaluable adviceand guidance in determining the content and structure of thebook: Andrew Slade, Sunderland University; Linda Macaulay, UMIST;and Maurice Mulvenna, Ulster University. I am also grateful toCaledonian Business School for providing me with the time andresources needed to commit to this challenge. Finally, thanks toDebbie and Richard for their patience and encouragement during thewriting of this book.

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C H A P T E R1IntroductionKey issues:ggggggggDefining e-business;The development of the new economy;Types of e-business and related industries;The growth of e-business;Use of the internet;Key people;Scope of the book;Structure of the book.Defining e-businessElectronic business (e-business) can be defined as the use of theinternet to network and empower business processes, electroniccommerce, organizational communication and collaboration within acompany and with its customers, suppliers, and other stakeholders.E-businesses utilise the internet, intranets, extranets and other networks to support their commercial processes. Electronic commerce(e-commerce) is the buying and selling, marketing and servicingof products and services via computer networks. Since e-businessincludes the process of transacting with suppliers and customers thereis an overlap in activities with e-commerce.Although the terms ‘e-business’ and ‘e-commerce’ are often usedsynonymously, the distinction between them lies in the broader rangeof processes in e-business that incorporates internal transactionswithin an organisation. These include transactions relating toprocurement, logistics, supply chain management, payments, stockcontrol and order tracking. As Chaffey (2004) notes, e-commercecan best be conceived as a subset of e-business. Where the twoconcepts overlap is in the buying and selling of products and services.

2Introduction to E-businessChapter 1E-businessE-commerceBuying and selling electronicallySell-side e-commerceElectronic procurementBuy-side e-commerceElectronic distributionOnline customer serviceElectronic marketingFigure 1.1The relationshipbetween e-businessand e-commerceSecure transactionsAutomation of processesElectronic collaborationBuy-side e-commerce refers to electronic transactions between apurchasing organisation and its suppliers and sell-side e-commercerefers to electronic transactions between a supplier organisationand its customers. Figure 1.1 illustrates the relationship betweene-business and e-commerce.The developmentof the new economyThroughout the book references will be made to ‘the interneteconomy’, ‘the information economy’ or ‘the digital economy’. Theseterms are used to define the distinct contributions to the economythrough use of the internet, digital technology, or information andcommunications technology (ICT). Together these types of technologies have created the so-called ‘new economy’, one that is basedon entrepreneurship in knowledge creation and sharing, innovationand creativity, and utilising information technology for developingand selling new products and services. The new economy definedthe industrial landscape of the late twentieth century and will bethe dominant driver of economies well into the new millennium.The new economy has been boosted by the development of theinfrastructure that supports the internet, ICT and digital technology.The rollout of high-speed broadband internet access means morepeople can connect to the internet at higher speed and with greaterflexibility and scope of activities. Digital exchanges and fibre-opticnetworks mean that the convergence of technologies further booststhe new economy. Where once the internet, television broadcastingand telecommunications were separate and distinct industries,convergence means that these sectors have increasingly merged,

Chapter 1Introduction3thereby offering consumers greater scope for accessing services viaone technology. For example, the new economy is boosted by thedevelopment of internet access on mobile phones because it meansknowledge workers can access information and communicate withothers from almost any location. The convergence of the internet andtelevision means that interactive television provides an additionalmedia for facilitating online sales of products and services.At the business level, organisations are no longer viewed asindividual entities but as part of an integrated network of organisations where information and communications technologies play a keyrole in smoothing transactions and collaborative ventures betweenpartners. The internet has opened up the possibility of exchanginginformation, products and services around the globe without anyrestraints of time or distance. This has given rise to the concept of the‘boundaryless’ organisation. Indeed, the new economy is characterised by changes to the boundaries of whole economies as well asindustries and firms. In the last few decades these changes have led toa marked acceleration in globalisation.The diffusion of information technologies has played a key role inknowledge sharing, encouraging innovation and creativity, integratingglobal supply chains, facilitating global trade and creating wealth.There is also a local characteristic to the new economy as organisationsutilise information technologies to serve local or regional demand.The scope of the new economy encompasses the spectrum fromlocalisation through to globalisation and lends meaning to the conceptof the ‘boundaryless’ organisation, industry or economy.Information technology has also enabled new forms of managementand control, both within organisations and between organisations.Information technology makes it possible to simultaneously co-ordinate economic activity in many different locations and beyondtraditional organisational boundaries. This has enabled organisationsto create new structures, such as the network organisation or the virtual organisation, that are more flexible and efficient, harness the bestskills and experience of workers and eliminate many of the costs associated with running traditional hierarchical and rigid organisations.The new economy is also characterised by changes in the competitive structure of industries. The traditional model, based onmass production where competitive advantage was gained throughdecreasing production costs or increasing productivity, has given wayto a need for organisations to adapt to changes in market conditions,seek new opportunities, enhance learning, embrace change and innovation, and create and share knowledge. Managers in organisations

4Introduction to E-businessIssuesChapter 1Old economyNew economyMarketsStableDynamic and complexCompetitionNationalInternational and globalStructureManufacturingServiceValue driverPhysical capitalHuman capitalOrganisationHierarchyNetwork or virtualProductionMassFlexible, customisedGrowth driverCapital and labourInnovation and knowledgeTechnology driverMachinesDigital and electronicCompetitive advantageLow cost/high productionInnovation, speed, StableDynamic, segmentedSkillsSpecialisedMultiple and flexibleEducational needsTrade orientatedLifelong learningWorkplace relationsConfrontationalCollaborativeNature of employmentStableInsecure, opportunisticEconomy factorsBusiness factorsConsumer factorsFigure 1.2Key differencesbetween the oldand new economyhave to co-ordinate and control the use of information technologiessuch as the internet, intranet, extranet and applications software tohelp meet these challenges and take advantage of the opportunitiesassociated with operating within the new economy. Figure 1.2 summarises the key differences between the old and new economy fromthe perspectives of the overall economy, businesses and consumers.Types of e-business andrelated industriesE-business varies in scope and type of activities undertaken.The entire supply chain of many industries has been radicallytransformed by the development of the internet and related technologies. Some organisations specialise in business-to-business (B2B)activities by providing e-business services across the supply chain orin parts of the supply chain such as e-procurement, logistics, stock

Chapter 1Introduction5control, ordering, payments and distribution. E-business also includesthe organisation of collaboration platforms that allows differentorganisations to share information and knowledge for mutualbenefit, i.e. the organisation of e-marketplaces that bring organisations together for buying and selling products and services orproviding an online business support service.The most high profile types of e-business involve those that sellproducts or services to customers. The business-to-consumer (B2C)sector has attracted the highest number of entrants as well as someof the most successful e-business ventures such as Amazon.com, e-Bayand FriendsReunited. The latter two also incorporate a consumer-toconsumer (C2C) element to their service by bringing consumerstogether for specific purposes. Most organisations now have a websitethat is used for promoting the activities of the business or marketingtheir products and services. More and more traditional firmsare creating their own e-business and e-commerce websites tooffer an additional sales channel for their customers (Tesco.com,marksandspencer.com).There is a large industry sector that supports e-business, includingInternet Service Providers (ISPs) such as Yahoo!, Google and AOL.These organisations run a number of services including internet accessand search engines and have built up enormous databases of websitesthat form the basis of their search engine. Organisations who want tohave their websites on the search engine pay an amount relative to theprominence on the list. Other organisations specialise in providingapplications software for facilitating e-business or sell hardware suchas computers and modems (Dell, Compaq, IBM). There are manythousands of businesses that specialise in maintaining and supporting e-businesses, including computer analysts, IT specialists, softwareconsultants, applications consultants, computer trainers, security consultants and so on. The development and maintenance of the networkinfrastructure is a vital industry for ensuring high quality access tointernet services and includes some of the world’s biggest and mostcomplex organisations such as BT and Cisco.The growth of e-businessThe most significant factor that transformed the internet into a globalcommunications phenomenon was the development of the WorldWide Web (WWW) in the early 1990s. This extended the functionalityof the internet by introducing hypertext that linked documents held

6Introduction to E-businessChapter 1on the internet servers. This facilitated access to particular partsof documents or even to other relevant documents held on otherservers. This was called the hypertext transfer protocol (HTTP) andderived from a mark-up language called hypertext markup language(HTML). Within the servers, each document, or pages within documents, are given a unique address. The addresses are termed universal resource locators (URL’s). The ability to access pages, documentsand servers from many different websites created a network ofinterconnectivity and gave rise to the term the World Wide Web.The Web was the catalyst for huge changes in the business environment as more and more firms sought to integrate their traditionalbusiness models with those online. By the mid 1990s firms ‘bornon the net’ emerged, whose function was to exploit the opportunitiesin the marketplace by using the internet. However, the key driverof the phenomenal rise of the internet was the rapid increase in theuse of computers with access to the internet and the Web by thepublic. From 1993 to 1996 the number of computer users with accessto the internet and the Web rose from zero to 10 million. In 2004the figure stood at around half a billion. Also, the number of websitesappearing on the Web has increased exponentially from 1993onwards. In the months following the release of HTTP and HTMLthere were less than 50 websites in existence. By the end of the decadethere were countless millions available.Since the commercialisation of the internet in the mid 1990sdemand for its use has increased hugely each year. In fact, the growthof the internet has been such that there are fears that the existinginfrastructure may be unable to sustain demand into the future.The internet has had a profound effect at so many different levelsincluding individuals, society, business, governments, education,health, security services, entertainment, news services, financialmarkets and many others. To comprehend the staggering growth ofthe internet many analysts turn to the prediction of the founder ofIntel and inventor of the chip, Gordon Moore. In the mid 1960sMoore predicted that the number of components that could belocated on a single chip would double every twenty-four months. Inthe twenty years between 1974 and 1994 the Intel 8080 chip increasedthe number of transistors from 5000 to over 5 million. This exponential growth phenomenon became known as Moore’s law and caneasily be related to the growth witnessed in demand for access toinformation technology in general, and the internet in particular.The internet has created a new communications channel andprovides an ideal medium for bringing people together cheaply,

Chapter 1Introduction7efficiently and for a wide range of different reasons. It has alsopresented opportunities and challenges for the business community. As consumers become more knowledgeable about using theinternet to service their needs and wants so the business communityhas been boosted by the potential the internet presents for extendingmarkets, developing new products and services and achievinga competitive advantage and profitability. New markets quicklyemerged based on applications of the internet, most prominentlythe business-to-consumer (B2C) and business-to-business (B2B)sectors.One of the key characteristics of e-commerce is the ease ofentry for firms. The cost of entry and exit is low relative to traditional industries, as firms do not require large sales teams, costlyinvestment in infrastructure or high sunk costs in order to competeeffectively. Rising connectivity rates among potential customersensures increasing competition among e-commerce firms as moreare attracted to the source of potential revenue. Importantly, theinternet does away with geographical boundaries thereby increasingyet further the extent of competitive rivalry. Intense competition is a characteristic of the internet economy and has spreadacross all e-business and e-commerce sectors. Figure 1.3 outlinesthe main benefits that firms and consumers gain from using theinternet.Advantages of using the internetFigure 1.3Advantages ofusing the internetfor firms andconsumersFirmsConsumersEase of accessEase of accessEase of useEase of useAccess to wider marketAccess to market informationPotential economies of scaleConvenienceMarketing economiesLower pricesImproved logisticsPersonalisationAutomated processesCustomisationNetwork externalitiesNetwork externalitiesImproved customer knowledgeOne-to-one customer serviceLower costsAccess to internet communityIncreased efficiencyEmpowerment

8Introduction to E-businessChapter 1Use of the internetDemand for internet services has been growing year on year since itbecame generally available to the public in the mid 1990s. Theinternet has had an impact on the economic and social fabric of manysocieties and has been the catalyst for changes in the way peopleinteract, do business, gain information and seek entertainment. Theinternet has provided a whole new economy with its own rules andterms of engagement. Businesses and customers have been througha period of learning about how they can best leverage advantagefrom using the internet and many users are now adept at utilisingthe technology in a versatile and effective way to enhance theirlifestyle.In the UK around 60% of adults actively use the internet (Oxis).Of those, seven out of ten regard the internet as important or veryimportant to their lives. The average time spent on computers by the2200 people surveyed by the Oxford Internet Institute (OII) in2005 was one and a half hours. The time spent using the internet hasbeen at the expense of other activities such as reading, watchingtelevision and family life. There are many types of activities availableon the internet but searching for information or communicating viae-mail are the two most popular. Figure 1.4 lists the percentage ofinternet users undertaking a sample of activities.Not everyone enjoys the benefits of the internet. There is, in eachcountry, a section of society that remains marginalised or excludedfrom the digital revolution. The digital divide has implications forgovernment, social services and society as a whole. In particular,children from poorer homes are more likely to find themselvesexcluded from the benefi

Chapter 5 E-marketing 117 Key issues 117 Introduction 117 Internet marketing 118 E-marketing plan 119 The marketing mix 126 Branding 131 Online advertising 132 Targeting online customers 135 Interactive television and e-marketing 137 Customer relationship management 142 Summary 147 Questions and tasks 148 References 149 Further reading 150