Chapter 3Using Information Technology to Using Information Technology to

Engage in Electronic Engage in Electronic CommerceCommerce

MANAGEMENT INFORMATION SYSTEMS 8/ERaymond McLeod, Jr. and George Schell

Copyright 2001, Prentice-Hall, Inc.

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Electronic CommerceElectronic Commerce

Electronic commerce is the use of Electronic commerce is the use of computers to facilitate the firm’s operationscomputers to facilitate the firm’s operations

– internal (finance, marketing, internal (finance, marketing, manufacturing, ...)manufacturing, ...)

– external (customers, suppliers, external (customers, suppliers, government, ...)government, ...)

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Environmental Environmental Responsibilities Responsibilities

of Functional Areasof Functional Areas

Customers

Suppliers

Stockholders

Labor Unions

Government

Financial Community

Global Community

Competitors

Finance Resources Services Manufacturing Marketing

Human Information

X

X

X

X

X

X

X

X

X

X

X

X

X

X

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Electronic Commerce Electronic Commerce BenefitsBenefits

Improved service, especially to Improved service, especially to customerscustomers

Improved relationships to suppliers and Improved relationships to suppliers and the financial communitythe financial community

Increased return on stockholder and Increased return on stockholder and owner investmentsowner investments

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Electronic Commerce Electronic Commerce ConstraintsConstraints

High costsHigh costs Security concernsSecurity concerns Immature or unavailable softwareImmature or unavailable software

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New Electronic Commerce New Electronic Commerce EraEra

Instead of specialized software, firms Instead of specialized software, firms are designing systems to use Internet are designing systems to use Internet BrowsersBrowsers

Making a common interface for Making a common interface for customers and electronic commerce customers and electronic commerce partnerspartners

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Selection of Electronic Selection of Electronic CommerceCommerce

Strategy, Methodology, and Strategy, Methodology, and TechnologyTechnology

BusinessIntelligence

CompetitiveAdvantage

Strategic Business Plan

Enabling strategy

Interorganiza- tional

Electronic data interchange

Enabling methodology

System life cycle

Business process redesign

Enabling technology

Direct connectivity

Value-added networks

The Internet

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Business Intelligence (BI)Business Intelligence (BI)

Evolved from simply gathering data Evolved from simply gathering data about competitors to data gathering about competitors to data gathering about all environmental elementsabout all environmental elements

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Data

Collect data

2 Evaluate data

Analyze data

4Storeintelligence Intelligence

5

Disseminateintelligence

Intelligence

The Five Basic Intelligence Tasks

Data

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External DatabasesExternal Databases

Important commercial databases that Important commercial databases that provide information on virtually any subjectprovide information on virtually any subject– LEXIS-NEXIS, DIALOG, DOWJONES.COMLEXIS-NEXIS, DIALOG, DOWJONES.COM– Over 1,000 data service sites listed by Over 1,000 data service sites listed by

YAHOO.COMYAHOO.COM Less expensive to use database services Less expensive to use database services

than to perform researchthan to perform research

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Search EnginesSearch Engines

Special computer programs that ask users Special computer programs that ask users for a word or group of words to be found at for a word or group of words to be found at Internet sitesInternet sites

Yahoo, Excite, AltaVista, HotBot, Lycos, Yahoo, Excite, AltaVista, HotBot, Lycos, and Webcrawler are examplesand Webcrawler are examples

Government databases Government databases

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ExtranetsExtranets

Allow sharing of sensitive computer-based Allow sharing of sensitive computer-based information using Internet technologyinformation using Internet technology

Limited to trusted suppliers and large Limited to trusted suppliers and large customerscustomers

Security and privacy issuesSecurity and privacy issues– FirewallsFirewalls

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Interorganizational System Interorganizational System (IOS)(IOS)

These link two or more firms so that they These link two or more firms so that they function as a single function as a single systemsystem to accomplish a to accomplish a common goalcommon goal

Generate internal efficiency in addition to Generate internal efficiency in addition to interorganizational efficiencyinterorganizational efficiency

Provides customers with unique product Provides customers with unique product features, reduced search-related costs, and features, reduced search-related costs, and raises the customer’s switching costsraises the customer’s switching costs

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Electronic Data Electronic Data Interchange (EDI)Interchange (EDI)

Consists of direct computer-to-computer Consists of direct computer-to-computer transmissions among multiple firms of data in a transmissions among multiple firms of data in a machine-readable, structured formatmachine-readable, structured format

Typical linkagesTypical linkages– Supply sideSupply side– Customer sideCustomer side– Transaction setTransaction set

Vendor stock replenishment (VSR)Vendor stock replenishment (VSR) Electronic Funds Transfer (EFT)Electronic Funds Transfer (EFT)

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Electronic Data Electronic Data Interchange (EDI)Interchange (EDI)

Adheres to Standard Adheres to Standard FormatsFormats

Suppliers The Firm

Request for a price quotePrice quote

Purchase order

Acknowledge P.O. receiptInvoice

ANSI ASC X12 - North America EDIFACT - International

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Selected EDI Transaction Selected EDI Transaction Sets and Sample Invoice Sets and Sample Invoice

DataData104 Air Shipment Information 130 Student Educational Record (Transcript)152 Statistical Government Information 300 (Booking Request) (Ocean)311 Canadian Customs Information 810 Invoice

NameAddress InformationMarking, Packaging, LoadingIndustry CodeQuantityCurrency

Tax InformationPricing InformationItem Physical DetailsTerms of Sale / Deferred Terms of SaleCarrier DetailProduct / Item DescriptionInvoice Shipment SummaryTransaction Totals

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Mapping Software Translates Mapping Software Translates Data to and from Standard Data to and from Standard

FormatsFormats

Sending firm’scomputer

Application software

Mappingsoftware

Standard EDI format

Receiving firm’scomputer

Application software

Mappingsoftware

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Degree of EDI Degree of EDI ImplementationImplementation

Level-one usersLevel-one users– One or two transmission sets sent to limited trading One or two transmission sets sent to limited trading

partnerspartners Level-two usersLevel-two users

– Many transaction sets transmitted to large number of Many transaction sets transmitted to large number of trading partnerstrading partners

Level-three usersLevel-three users– Many transaction sets transmitted to large number of Many transaction sets transmitted to large number of

trading partners and firm’s computer applications are trading partners and firm’s computer applications are tailored to EDI approachtailored to EDI approach

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Adoption InfluencesAdoption Influences

Competitive pressure, Competitive pressure, this is reactivethis is reactive Exercised power, Exercised power, this is proactivethis is proactive Internal need, Internal need, this is proactivethis is proactive Top management support, Top management support, this is both this is both

proactive and reactiveproactive and reactive

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Internal and Internal and Environmental Influences Environmental Influences

on EDI Adoptionon EDI AdoptionEnvironmental Influences

PressureExercised Power

Internal Influences

InternalNeed

TopManagement

Support

Competitors TradingPartners

EDI3-20

EDI BenefitsEDI Benefits DirectDirect

– Reduced errorsReduced errors– Reduced costsReduced costs– Increased operational efficiencyIncreased operational efficiency

IndirectIndirect– Increased ability to competeIncreased ability to compete– Improved relationships with trading partnersImproved relationships with trading partners– Improved customer serviceImproved customer service

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EDI Direct and Indirect EDI Direct and Indirect BenefitsBenefitsIndirect Benefits

Direct Benefits

ReducedErrors

IncreasedOperationalEfficiency

Reduced Costs

Competitors Trade Partners

Customers

Increased Abilityto Compete

Improved Service

ImprovedRelationships

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A Challenge to EDIA Challenge to EDI

Extensible markup language (XML)Extensible markup language (XML)– Extension of HTMLExtension of HTML– Provides file formatting structure and means for Provides file formatting structure and means for

describing data describing data – Allows Web pages to perform many EDI Allows Web pages to perform many EDI

functionsfunctions

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Electronic Commerce Electronic Commerce TechnologyTechnology

Direct ConnectivityDirect Connectivity– Uses dial-up or private lines to connectUses dial-up or private lines to connect

Value-Added Networks (VANs)Value-Added Networks (VANs)– Circuit provided by vendorCircuit provided by vendor

– Vendor provides additional servicesVendor provides additional services The InternetThe Internet

– Global communications networkGlobal communications network3-24

Internet EvolutionInternet Evolution Derived from the Advanced Research

Projects Agency network (ARPANET) Designed to let computer-to-computer

communications continue even during military attacks

ARPANET joined with Computer Science Network (CSNET) and National Science Foundation Network (NSFNET) to form today’s Internet

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Internet Evolution [cont.)Internet Evolution [cont.) During the 1970’s various other networks

were connected This led to the 1980’s Internet concept which

means each network can seamlessly interconnect with other networks

Businesses began using the new Internet with workstations and local area networks

The Internet has become a network of networks

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Internet Evolution (cont.)Internet Evolution (cont.)

In 1989, Tim Berners-Lee of CERN came In 1989, Tim Berners-Lee of CERN came up with the hypertext conceptup with the hypertext concept

World-Wide Web is really the application World-Wide Web is really the application of hypertext documents and other materialsof hypertext documents and other materials

Hypertext is conceptually a ‘speed dial’ Hypertext is conceptually a ‘speed dial’ feature in that a user points to and presses feature in that a user points to and presses the hypertext link and the system the hypertext link and the system automatically goes to that locationautomatically goes to that location

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Key Web TerminologyKey Web Terminology WebsiteWebsite Hypertext linkHypertext link Web pageWeb page Home pageHome page Universal resource locator (URL)Universal resource locator (URL)

– Protocol Protocol – Domain nameDomain name– PathPath

BrowserBrowser FTP (File Transfer Protocol)FTP (File Transfer Protocol)

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Parts of a URLParts of a URL

http://aisvm1.ais.com/abra7883/index.html

hypertext transmission protocol

domain name path (directory and file name on the web server)

hypertext markup language

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Internet Client/Server Internet Client/Server Information Retrieval Information Retrieval

SystemsSystems GopherGopher

Wide Area Information Servers (WAIS)Wide Area Information Servers (WAIS)

USENETUSENET

Each of these predates the WWW and represents a major step forward in Internet Use 3-30

Terminal Emulator PC or Macintosh Unix X11 NextStep

Addressing schema, Protocols, Format negotiation

FTP

News

Gopher

WAIS

HTTPGateway isHTTP serverplus otherapplication.

Database, infosystem, etc.

Internet Client/Server Architecture

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Internet SecurityInternet Security

Any resources linked to data Any resources linked to data communications have riskcommunications have risk

Security by physically separating the Web Security by physically separating the Web site from the firm’s computer resourcessite from the firm’s computer resources

Security by using passwords that allow Security by using passwords that allow access to computing resourcesaccess to computing resources

‘‘Firewalls’ using routers, intermediary Firewalls’ using routers, intermediary computers or application-level methodscomputers or application-level methods

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An Application-Level FirewallAn Application-Level Firewall

ExternalExternalServicesServices

Border RouterBorder Router

IP ChokeIP ChokeProtocol FilterProtocol Filter

Internal/ExternalInternal/ExternalService GatewayService Gateway

Internal RouterInternal Router

RouterRouter

Isolation MechanismIsolation Mechanism

Internet ConnectivityInternet ConnectivitySupplier’s NetworkSupplier’s Network

InternetInternet

Internal Network

Incoming packets from the Internet passIncoming packets from the Internet passthrough the connectivity supplier’s networkthrough the connectivity supplier’s networkto a router and to the organizationto a router and to the organization

The packet goes to a router box that duplicatesThe packet goes to a router box that duplicatesthe function of the external routerthe function of the external router

Rather than routing the packet directly to its destination, theRather than routing the packet directly to its destination, therouter redirects traffic through an external services host and router redirects traffic through an external services host and an IP “choke” hostan IP “choke” host

The external services host runs desired apps such as E-mail The external services host runs desired apps such as E-mail interfaceinterface

The IP choke performs actual protocol filteringThe IP choke performs actual protocol filtering

Traffic is sent through a gateway to a separate router box Traffic is sent through a gateway to a separate router box on the internal network, configured according to internal on the internal network, configured according to internal security policysecurity policy

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IntranetIntranet

Internet technology used for internal Internet technology used for internal communications and applicationscommunications and applications

Used for many business applications Used for many business applications requiring communicationrequiring communication

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Business Applications Business Applications for the Internetfor the Internet

Marketing researchMarketing research Competitive intelligenceCompetitive intelligence Retailing applicationsRetailing applications The future impact of the Internet on The future impact of the Internet on

business is enhanced as the National business is enhanced as the National Information Infrastructure programs Information Infrastructure programs become establishedbecome established

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Successful Internet UseSuccessful Internet Use

Make sure your Web Make sure your Web site is robustsite is robust

Make sure your Make sure your browser and database browser and database structure are both structure are both flexible and intuitiveflexible and intuitive

Update oftenUpdate often Look beyond Look beyond

customerscustomers

Target content to Target content to specific users’ needsspecific users’ needs

Make the interface Make the interface intuitiveintuitive

Be in the right Web Be in the right Web locationlocation

Create a sense of Create a sense of communitycommunity

Get help if you need it Get help if you need it 3-36

SummarySummary

E-Commerce begins with business E-Commerce begins with business intelligenceintelligence

Primary and secondary data comprise Primary and secondary data comprise business intelligencebusiness intelligence

Reasons for IOSReasons for IOS– Comparative efficiencyComparative efficiency– Bargaining powerBargaining power

Three levels of EDIThree levels of EDI3-37

Summary [cont.]Summary [cont.]

Internet Internet – Network of networksNetwork of networks– Security concernsSecurity concerns– FirewallsFirewalls

IntranetsIntranets National information infrastructureNational information infrastructure

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