Electronic Commerce COMP3210 Session 6: Planning E-Commerce Initiatives Dr. Paul Walcott Department...
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Electronic Commerce COMP3210
Session 6: Planning E-Commerce Initiatives
Dr. Paul Walcott Department of Computer Science, Mathematics and PhysicsUniversity of the West Indies, Cave Hill CampusBarbados
The Department of Computer Science Mathematics and Physics, University of the West Indies, Cave Hill Campus, Barbados
© 2007 Dr. Paul Walcott
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Session Objectives1,2,3
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 e-
commerce initiatives
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Business Plans What is a business
plan? Why should I create a
business plan? What are the sections
of a business plan?
http://www.paragonventures.com/business%20plan%20d8dgvd8.gif
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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)
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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
company’s performance can be measured against.
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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
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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
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Executive Summary Cont’dThe 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?
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Executive Summary Cont’d 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
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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
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Business Description Cont’d 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
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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
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Define Your Market Cont’d 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
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Define Your Market Cont’d 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
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Identify and Analyse Your Competition Determine who your competitors are What strategies are they using to sell their
products or service What are their strengths and weaknesses
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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 marketed The development budget required to allow
the company to meet its goals
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Design and Development Plan Cont’d 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
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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
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Financial Statements The three common financial statements
are: The balance sheet
A statement of your assets, liabilities and equity The Income statement
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
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Planning E-commerce Initiatives A successful business
plan should include activities that: Identify objectives Link objectives to
business strategy
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Identifying Objectives Objectives businesses strive to achieve using e-
commerce 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
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Types of Objectives 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 to 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
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SMART Objectives Objectives must be:
Specific Measurable Achievable Results-based Time-bound
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An ExampleGIST To create a comprehensive tester's guide
for the Icon Income system.
SCALE Percentage completed at the specified milestone
PLAN 50% (Icon* 5.01), 100% (Icon 5.02).
MUST 25% (Icon 5.01), 75% (Icon 5.02).
ACTUAL 10% (Icon 5.01), 25% (Icon 5.02)
*In this example, Icon is the name of a software product.
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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 company’s objective might be to
become a global player within a year and as a result one of its activities might be to build its brand
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Linking Objectives to Business Strategy Cont’d 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
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Linking Objectives to Business Strategy Cont’d E-commerce can inspire businesses to partake in
activities such as: Building brands Enhance existing marketing programs Sell products and services Sell advertising Develop a better understanding of the customer’s
need Improve after sales support and service
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Linking Objectives to Business Strategy Cont’d 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
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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 make a purchase
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Measuring Benefit Cont’dBuild 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
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Measuring Benefit Cont’dReduce cost of after-sale support
Quantity and type (telephone, 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
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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 costs tend to decrease, new software often demands new hardware, thus increases costs
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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 costs by activity
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Total Cost of Ownership Cont’d 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
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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
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Change Management Cont’d If change is not properly managed,
employees feel Uncomfortable Inadequate Stressed which leads to reduced work
performance Unable to do the job properly Powerless
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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
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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.
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Web Site Costs Cont’d 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
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Web Site Costs Cont’d 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 e-commerce Web site is US$150,000
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Web Site Costs Cont’d Web site costs include
Start-up cost Ongoing costs (between 50% - 200% of
initial cost)
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Web Site Costs Cont’d 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
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Web Site Costs Example Kmart (http://www.kmart.com/)
>US$140 million to create online retail website
Much of the site’s cost is hidden from the user Cost of customising middleware that connects the
Web site to Kmart’s vast inventory and logistics databases
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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
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Comparing Benefits to Costs
Identify benefits
Identify costs
Determine value of benefits
Determine value of costs
Compare valueof benefits to value of cost
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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 emphasise short-term benefits
over long term benefits
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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
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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
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Strategies For Developing E-commerce Web Sites 1994-1996: Static Brochures
Contact information Logos and or other branding Some product information Financial statements
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Strategies For Developing E-commerce Web Sites Cont’d 1996 – 1999: Transaction Processing
Static brochures plus Complete product catalog Shopping cart Secure payment processing Other information queries Shipment tracking
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Strategies For Developing E-commerce Web Sites Cont’d 1999 – Present: Full Range of Automated
Business Processes Transaction processing, plus
Personalisation Interactive capabilities Frequently updated content Customer relationship Management tools
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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 e-commerce initiative is integrated into and supports business activities
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Internal Development v. Outsourcing Cont’d 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
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Internal Development v. Outsourcing Example Few companies are large enough or have
sufficient expertise to launch an e-commerce project without external help E.g. Wal-mart (with annual sales of $150
billion) in 2000 hired another company for outside support
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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
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Internal Teams Cont’d 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
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Internal Teams Cont’d Set aside between 5-10% of a project’s
budget for quantifying the projects value and measuring
the achievement (e.g using metrics) More and more companies are realising the
importance of their staff’s knowledge about the business and its processes These resources do not appear in companies
financial statements
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Internal Teams Cont’d 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
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Types of Outsourcing There are three types of outsourcing
Early outsourcing E-commerce initiatives lend themselves more to
early outsourcing
Late Outsourcing Partial outsourcing
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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 company’s own information systems people to work closely with the outsourcing team and develop ideas for improvements as early as possible
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Late Outsourcing This is the more traditional way The company’s 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
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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
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Partial Outsourcing Cont’d E-commerce initiatives can benefit from
partial outsourcing Partial outsourcing is also called
component outsourcing
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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
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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
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Selecting a Web Hosting Service Cont’d The most important factors to use when
evaluating a hosting service are: Functionality Reliability Bandwidth and server scalability Security Backup and disaster recovery Cost
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New Methods for implementing Partial Outsourcing In the past five years new ways of
implementing partial outsourcing have been created Incubators Fast venturing
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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 and marketing assistance In exchange the company gives 10-50%
ownership of the company to the Incubator
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Incubators Cont’d 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
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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
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Internal Incubators Cont’d 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
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Fast Venturing An existing company that wants to launch an e-
commerce 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
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Fast Venturing Cont’dVenture sponsorDevelop ideas.
Staffs internal team.
Create prototype.
Provide all or most of the start-up funds.
Equity partnersReview and refine ideas.
Provide advice.
Evaluate prototype.
Provide contacts (including operational partners).
Operational partnersTurn ideas into a business plan.
Provide financial, technical and operations expertise.
Provide industry best practice knowledge.
Scale up prototype to an operating model.
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Managing E-Commerce Initiatives Project management Project portfolio
management Specific staffing Post-implementation
audits
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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
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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
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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
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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
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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)
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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
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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
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Application Specialist Maintain accounting, human resources, and
logistics software Must maintain e-commerce software, e.g.
catalogs, payment processing
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Other Roles Web programmers
Design and write code for Web site Web graphics designers
A person trained in art, layout, composition and understands how Web pages are constructed
Content creators Write original content
Content managers/editors Purchase existing material and adapt it
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Other Roles Cont’d 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
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Other Roles Cont’d Systems administrator
Responsible for system reliability and security
Network operation staff 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
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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
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Post-Implementation Audits Cont’d 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
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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