Driving Forces of E – Commerce
Forces Behind E-commerce
E-Commerce is becoming popular, it is worthwhile to examine today’s business environment so let us understand the pressures it creates on organizations and the responses used by organizations.
Environmental factors that create Business Pressures:
Market, economical, societal and technological factors are creating a highly competitive business environment in which consumers are the focal point. These factors change quickly, sometimes in an unpredictable manner and therefore companies need to react frequently not only in the traditional actions such as lowering cost and closing unprofitable facilities but also innovative activities such as customizing products, creating new products or providing superb customer service.
Economic Forces One of the most evident benefits of e-commerce is economic efficiency resulting from the reduction in communications costs, low-cost technological infrastructure,speedier and more economic electronic transactions with suppliers,lower global information sharing and advertising costs,and cheaper customer service alternatives.
Categories of Economic Forces
· Lower marketing costs: marketing on the Internet maybe cheaper and can reach a wider crowd than the normal marketing medium.
· Lower sales costs: increase in the customer volume do not need an increase in staff as the sales function is housed in the computer and has virtually unlimited accessibility
· Lower ordering processing cost: online ordering can be automated with checks to ensure that orders are correct before accepting, thus reducing errors and the cost of correcting them.
· New sales opportunities: the website is accessible all the time and reaches the global audience which is not possible with traditional store front.
Economic integration is either external or internal. External integration refers to the electronic networking of corporations, suppliers, customers/clients, and independent contractors into one community communicating in a virtual environment (with the Internet as medium). Internal integration, on the other hand, is the networking of the various departments within a corporation, and of business operations and processes. This allows critical business information to be stored in a digital form that can be retrieved instantly and transmitted electronically. Internal integration is best exemplified by corporate intranets.
Among the companies with efficient corporate intranets are Procter and Gamble, IBM, Nestle and Intel. EG. SESAMi.NET: Linking Asian Markets through B2B Hubs SESAMi.NET is Asia’s largest B2B e-hub, a virtual exchange integrating and connecting businesses (small, medium or large) to trading partners, e-marketplaces and internal enterprise systems for the purpose of sourcing out supplies, buying and selling goods and services online in real time. The e-hub serves as the centre for management of content and the processing of business transactions with support services such as financial clearance and information services.
It is strategically and dynamically linked to the Global Trading Web (GTW), the world’s largest network of trading communities on the Internet. Because of this very important link, SESAMi reaches an extensive network of regional, vertical and industry-specific interoperable B2B e-markets across the globe.
Corporations are encouraged to use e-commerce in marketing and promotion to capture international markets, both big and small. The Internet is likewise used as a medium for enhanced customer service and support. It is a lot easier for companies to provide their target consumers with more detailed product and service information using the Internet. Strong competition between organizations, extremely low labor cost in some countries, frequent and significant changes in markets and increased power of consumers are the reasons to create market forces.
The development of information and communications technology (ICT) is a key factor in the growth of ecommerce. For instance, technological advances in digitizing content, compression and the promotion of open systems technology have paved the way for the convergence of communication services into one single platform. This in turn has made communication more efficient, faster, easier, and more economical as the need to set up separate networks for telephone services, television broadcast, cable television, and Internet access is eliminated. From the standpoint of firms/ businesses and consumers, having only one information provider means lower communications costs.
Moreover, the principle of universal access can be made more achievable with convergence. At present the high costs of installing landlines in sparsely populated rural areas is incentive to telecommunications companies to install telephones in these areas. Installing landlines in rural areas can become more attractive to the private sector if revenues from these landlines are not limited to local and long distance telephone charges, but also include cable TV and Internet charges. This development will ensure affordable access to information even by those in rural areas and will spare the government the trouble and cost of installing expensive landlines
Societal and environmental forces
To understand the role of E-commerce in today’s organizations, it becomes necessary to review the factors that create societal and environmental forces.
· Changing nature of workforce
· Government deregulations
· Shrinking government subsidies
· Increased importance of ethical and legal issues
· Increased social responsibility of organizations
· Rapid political changes
Critical response activities by Organizations
A response can be a reaction to a pressure already in existence, or it can be an initiative that will defend an organization against future pressures. It can also be an activity that exploits an opportunity created by changing conditions.
Organizations’ major responses are divided into five categories:strategic systems for competitive advantage,continuous improvement efforts, business process reengineering (BPR), business alliances and EC.These several responses can be interrelated and Ecommerce can also facilitate the other categories. The four categories are described below.
Strategic systems provide organizations with strategic advantages, thus enabling them to increase their market share, better negotiate with their suppliers, or prevent competitors from entering into their territory. There is a variety of EC supported strategic systems. An example is FedEx’s overnight delivery system and the company’s ability to track the status of every individual package anywhere in the system. Most of FedEx’s competitors have already mimicked the system. So FedEx moved the system to the Internet. However, the competitors quickly followed and now FedEx is introducing new activities.
Continuous Improvement Efforts
In order to improve the company’s productivity and quality, many companies continuously conduct innovative programs. The efforts taken by companies for continuous improvement are
· Improved productivity
· Improved decision making
· Managing Information
· Change in management
· Customer service Innovation and
For example, Dell Computer takes its orders electronically and improved moves them via Enterprise Resources Planning software (from SAP Corp.) into the just-in-time assembly operation. Intel is taking its products’ consumption in 11 of its largest customers, using its extranets, almost in real time, and determining production schedules and deliveries accordingly.
Business Process Reengineering (BPR)
Business Process Reengineering refers to a major innovation in the organization’s structure and the way it conducts business. Information technology and especially EC play a major role in BPR. Electronic Commerce provides flexibility in manufacturing, permits faster delivery to customers and supports rapid and paperless transactions among suppliers, manufacturers and retailers.
The major areas in which E-Commerce supports BPR are
· Reducing cycle time and time to market: Reducing the business process time (cycle time) is extremely important for increasing productivity and competitiveness.Similarly, reducing the time from the inception of an idea until its implementation— time to market—is important because those who can be first on the market with a product, or who can provide customers with a service faster than competitors, enjoy a distinct competitive advantage.
· Empowerment of employees and collaborative work: Empowerment is related to the concept of self-directed teams. Management delegates authority to teams who can execute the work faster and with fewer delays. Information Technology allows the decentralization of decision making and authority but simultaneously supports a centralized control. For example, the Internet and the intranets enable empowered employees to access data, information and knowledge they need for making quick decisions.
· Knowledge management: Employees can access organizational know-how via their company’s intranet. Some knowledge bases are open to the public for a fee over the Internet, generating income.
· Customer-focused approach: Companies are becoming increasingly customer oriented. This can be done in part by changing manufacturing processes from mass production to mass customization. In mass production, a company produces a large quantity of identical items. In mass customization, items are produced in a large quantity but are customized to fit the desires of each customer. Electronic commerce is an ideal facilitator of mass customization.
Many companies realize that alliances with other companies, even competitors can be beneficial. There are several types of alliances, such as sharing resources, establishing permanent supplier-company relationships and creating joint research efforts. One of the most interesting types is the temporary joint venture, in which companies form a special organization for a specific, limited-time mission.
What it is that will drive e-commerce in the future? — in a word, it’s community.
We certainly have the technology to build great business-to-consumer and business-to business ecommerce applications into our business models. And, yes, attributes such as viable application design, integration with business processes, and overall performance matter.
A successful community strategy must embrace the idea of moving the one-onone communication that occurs offline into the virtual world of e-commerce. Such a strategy currently requires multiple technical approaches. However, we believe community solutions will soon become more integrated and far-reaching.
The tools that form online communities include discussion or forum software, chat functions, instant messaging, two-way mailing lists, online collaboration tools, audio, video, and more. You may choose to invest slowly at first and increase your community commitment over time.
Online conversation with business partners will also give net positive results. A private discussion area or secured online meetings can go a long way toward building stronger relationships between companies. This will also serve to potentially drive new business opportunities for both parties. Building community has to be at the heart of any successful ecommerce strategy.
Is e-Commerce the Same as e-Business?
While some use e-commerce and e-business interchangeably, they are distinct concepts. In e-commerce, information and communications technology (ICT) is used in inter-business or inter-organizational transactions (transactions between and among firms/ organizations) and in business-to-consumer transactions (transactions between firms/ organizations and individuals).
In e-business, on the other hand, ICT is used to enhance one’s business. It includes any process that a business organization (either a for-profit, governmental or non-profit entity) conducts over a computer-mediated network. A more comprehensive definition of e-business is: “The transformation of an organization’s processes to deliver additional customer value through the application of technologies, philosophies and computing paradigm of the new economy.”
Three primary processes are enhanced in e-business:
1. Production processes, which include procurement, ordering and replenishment of stocks; processing of payments; electronic links with suppliers; and production control processes, among others;
2. Customer-focused processes, which include promotional and marketing efforts, selling over the Internet, processing of customers’ purchase orders and payments, and customer support, among others; and
3. Internal management processes, which include employee services, training, internal information-sharing, videoconferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales force productivity. Workgroup communications and electronic publishing of internal business information are likewise made more efficient. The Internet economy pertains to all economic activities using electronic networks as a medium for commerce or those activities involved in both building the networks linked to the Internet and the purchase of application services such as the provision of enabling hardware and software and network equipment for Web-based/online retail and shopping malls (or “e-malls”).