Planning E-commerce

Electronic CommerceMIS 4108Planning E-commerce Initiatives

Planning E-commerce Initiatives

Session ObjectivesThe objectives of this session are:To describe how to prepare a simple business planTo describe how to develop objectivesTo analyse strategies used to fulfil objectivesAnd to analyse methods used to manage e-commerce initiatives.

*Planning E-commerce Initiatives


Business PlansWhat is a business plan?Why should I create a business plan?What are the sections of a business plan?*Planning E-commerce Initiatives


Planning E-commerce Initiatives*


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 runThe goals of the companyThe money required to meet those goalsThe strategy employed to meet those goals (including marketing)*Planning E-commerce Initiatives


Why Should I Create a Business Plan?A business plan forces a business to assess the market placeIt forces a business to identify a clear marketing strategyIt also serves as a benchmark which the companies performance can be measured against.*Planning E-commerce Initiatives


The Sections of a Business PlanThere are seven essential sections of a business plan. These are the:Executive SummaryBusiness DescriptionDefine Your MarketIdentify and Analyse Your CompetitionDesign and Development PlanOperations and Management PlanFinancial Statements*Planning E-commerce Initiatives


Executive SummaryThe executive summary follows the title page of the business planThe purpose of the executive summary is to explain to the reader what the business wantsThe 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*Planning E-commerce Initiatives


Executive Summary ContdThe key elements of an executive summary are: 1. The business conceptWhat is the business you are proposing, its products and the advantages over the competition 2. The financial featuresHighlight the forecasted sales, profits, cash flows and return on investment 3. The financial requirementsWhat are the start-up costs and the cost of expansion. How will this money be used?*Planning E-commerce Initiatives


Executive Summary Contd 4. Current business positionThis includes any relevant information about the company, its formation date, its owners and key personnel 5. Major achievementAre there any developments which are essential to the success of the business? These may include prototypes, patents or crucial contracts*Planning E-commerce Initiatives


Business DescriptionThis section often begins with a short description of the industry, its present outlook and future possibilitiesInclude any products or developments that might affect your businessState 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*Planning E-commerce Initiatives


Business Description ContdDescribe the product or service you intend to marketShow how your business will gain the competitive edgeExplain how the business will be profitable*Planning E-commerce Initiatives


Define Your MarketDefine the entire market for your industryin terms of size, structure, growth prospects, trends and sales potentialDefine the specific market that you will be targeting (market segmentation)Define your niche in this market



Define Your Market ContdAfter defining your market you must:Estimate your market share for the period of time the business plan coversPosition your businessPrice your productDetermine the distribution strategyCreate a promotion planEstimate your sales potential*Planning E-commerce Initiatives


Define Your Market ContdAfter researching the market, the information gained should be used to:Identify objectivesAnd develop strategies that will allow you to fulfil these objectivesThis will be the focus of the next section *Planning E-commerce Initiatives


Identify and Analyse Your CompetitionDetermine who your competitors areWhat strategies are they using to sell their products or serviceWhat are they strengths and weaknesses*Planning E-commerce Initiatives


Design and Development PlanThe design and development plan allows investors to understand:The design of your productHow it is producedHow it will be marketingThe development budget required to allow the company to meet its goals*Planning E-commerce Initiatives


Design and Development Plan ContdThe sections included in the development plan include:Product developmentMarket developmentOrganisational developmentEach of these sections should be described from a funding point of viewFinally, identify measurable goals for the overall design and development plan*Planning E-commerce Initiatives


Operations and Management PlanDescribes how the business functionsIt explains business logistics:The responsibilities of the management teamThe task assigned to each company divisionCapital and expense requirements related to the operation of the businessAnd the financial tablesThe operating expense tableThe capital requirements tableThe cost of goods table*Planning E-commerce Initiatives


Financial StatementsThe three common financial statements are:The balance sheetA statement of your assets, liabilities and equityThe Income statementReflects when sales are made and expenses are incurredThe statement of cash flows showsThe amount of cash required to meet obligations, when it is required and from where it will come*Planning E-commerce Initiatives


Planning E-commerce InitiativesA successful business plan should include activities that:Identify objectivesLink objectives to business strategy*Planning E-commerce Initiatives


Identifying ObjectivesObjectives businesses strife to achieve using e-commerce include:Increase sales in existing marketsLaunching out into new markets Improve service to existing customersIdentifying new vendorsCoordinating more efficiently with existing vendorsMore effective recruiting*Planning E-commerce Initiatives


Types of ObjectivesVary 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 do design and implementLarger companies that might want to build sites that offer transaction handling, bidding, communication and other capabilities have to pay much more*Planning E-commerce Initiatives


SMART ObjectivesObjectives must be:SpecificMeasurableAchievableResults-basedTime-bound*Planning E-commerce Initiatives


Linking Objectives to Business StrategyAfter identifying objectives a company must:identify business strategies that will help to realise these objectivese.g. a small companys objective might be to become a global player within a year and as a result one of its activities is to build a brand *Planning E-commerce Initiatives


Linking Objectives to Business Strategy ContdBusinesses can use downstream strategies to improve the value that the business provides to customersOr can pursue upstream strategies that focus on reducing cost or generating value by working with suppliers or inbound shipping and freight service providers*Planning E-commerce Initiatives


Linking Objectives to Business Strategy ContdE-commerce can inspire businesses to partake in activities such as:Build brandsEnhance existing marketing programsSell products and servicesSell advertisingDevelop a better understanding of the customers needImprove after sales support and service*Planning E-commerce Initiatives


Linking Objectives to Business Strategy ContdE-commerce can inspire businesses to partake in activities such as:Purchase products and servicesManage supply chainsOperate auctionsBuild virtual communitiesHowever, these can not be done in an ad hoc manner. It is important to measure the benefit and cost of each activity*Planning E-commerce Initiatives


Measuring BenefitSome benefits are tangible and easy to measure, for example increase sales, decrease costOthers are intangible thus difficult to measure, for example increased customer satisfaction Managers need to try to set objectives that are measurable even for intangible benefitsE.g. increased customer satisfaction might be measured by counting the number of first-time customers who return to the Web site and buy *Planning E-commerce Initiatives


Measuring Benefit Contd*Planning E-commerce Initiatives

Build brandSurveys or opinion polls that measure brand awarenessEnhance existing marketing programChange in per-unit sales volumeImprove customer serviceCustomer satisfaction surveys, quantity of customer complaints


Measuring Benefit Contd*Planning E-commerce Initiatives

Reduce cost of after-sale supportQuantity and type (telephone, fax, e-mail) of support activitiesImply supplier chain operationCost, quality and on-time delivery of materials or services purchasedHold auctionsQuantity of auctions, bidders, sellers, items sold, registered participants, dollar value of items soldProvide portalsNumber of visitors


Managing CostIT projects are often difficult to estimate and controlE.g. web development technologies change rapidly, thus it is difficult for managers to estimate costThese cost include hardware and softwareEven though hardware cost tend to decrease, new software often demands new hardware, thus increase cost*Planning E-commerce Initiatives


Total Cost of OwnershipThe project budget must includeHardware and software costCosts of hiring, training and paying personnelWeb site designers, developers, content providers, operators and maintainersOrganisations tend to track cost by activity



Total Cost of Ownership ContdThe total cost of ownership (TCO) includesCost 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 workSalaries and benefits for employeesCost of maintaining the site once operationalA good TCO will include cost of future redesign*Planning E-commerce Initiatives


Change ManagementEvery project involves changeChange management is the process of helping employees cope with changeChange management techniques includeCommunicating the need for changeInclusion in the change decision processInclusion in the planning for the change*Planning E-commerce Initiatives


Change Management ContdIf change is not properly managed, employees feelUncomfortableInadequateStressed which leads to reduced work performanceUnable to do the job properlyPowerless*Planning E-commerce Initiatives


Opportunity CostOpportunity cost is the benefit that will be lost if a company chooses not to initiate an e-commerce initiativeThis is of great concern to management and accountants*Planning E-commerce Initiatives


Web Site CostsThe cost required for a large company to build an entry-level e-commerce site is US$1 million79% is labour cost10% software cost11% hardware cost

Source: International Data Corporation and Gartner Inc.*Planning E-commerce Initiatives


Web Site Costs ContdThe cost required for a large company to build a site that is comparable to leading sites is US$2 - $5 millionTo build a Web site that is noticeably better than competitors will cost a minimum of US$15 million10 of the top 100 e-commerce sites spent over US$10 million for Web site development and implementationSource: International Data Corporation and Gartner Inc*Planning E-commerce Initiatives


Web Site Costs ContdA small company can put a Web site online for US$5000For a business with full transaction and payment processing capabilities, it is difficult to keep it under US$10,000 per yearConstruction of new Web sites for small businesses actually averages US$140,000Minimum amount to open a complete e-commerce Web site is US$150,000*Planning E-commerce Initiatives


Web Site Costs ContdWeb site costs includeStart-up costOngoing costs (between 50% - 200% of initial cost)



Web Site Costs ContdThe cost for a full portal magazine siteTo build: US$2.4 millionUS$4.3 million per year to maintain with a staff of 35 peopleThe cost for a more limited siteTo build: US$150,000US$270,000 per year to maintain with a staff of 2 people*Planning E-commerce Initiatives


Web Site Costs ExampleKmart (http://www.kmart.com/)>US$140 million to create online retail websiteMuch of the sites cost is hidden from the userCost of customising middleware that connects the Web site to Kmarts vast inventory and logistics databases*Planning E-commerce Initiatives


Web Site Costs: A Final WordThe high cost of creating e-commerce Web sites can serve as a discouragement to small businessesSmaller organisations can control costs by:Using a combination of third party hosting services and packaged e-commerce softwareSign up for mall-style service providersThis 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*Planning E-commerce Initiatives


Comparing Benefits to CostsIdentify benefitsIdentify costsDetermine value of benefitsDetermine value of costsCompare valueof benefits to value of cost*Planning E-commerce Initiatives


Return On Investment (ROI)Return on Investment techniques measure the amount of income (return) that will be provided by a specific expenditureROI requires that all costs are stated in a dollar amountROI focuses on benefits that can be predictedMany benefits are often hiddenROI tends to emphasize short-term benefits over long term benefits*Planning E-commerce Initiatives


ROI Hidden Benefits ExampleCISCO systems created an on-line customer forum to discuss product issuesThe intended benefits were toReduce customer service costsIncrease customer satisfaction regarding the availability of product informationAdditional (hidden) benefitCisco engineers were able to get feedback on new products*Planning E-commerce Initiatives


ROI ProblemsIf managers rely only on ROI incorrect decision may be madeDue to biases towards short term cost and benefits rather than long term*Planning E-commerce Initiatives


Strategies For Developing E-commerce Web Sites1994-1996 Static BrochuresContact informationLogos and or other brandingSome product informationFinancial statements*Planning E-commerce Initiatives


Strategies For Developing E-commerce Web Sites Contd1996 1999 Transaction ProcessingStatic brochures plusComplete product catalogShopping cartSecure payment processingOther information queriesShipment tracking *Planning E-commerce Initiatives


Strategies For Developing E-commerce Web Sites Contd1992 Present Full Range of Automated Business ProcessesTransaction processing, plusPersonalisationInteractive capabilitiesFrequently updated contentCustomer relationshipManagement tools



Internal Development v. OutsourcingDefinition:Outsourcing is the hiring of outside support to do all or part of a projectE-commerce site development problems can not be avoided by outsourcingSuccess depends on how well the e-commerce initiative is integrated into and supports business activities*Planning E-commerce Initiatives


Internal Development v. Outsourcing ContdUsing internal people to lead e-commerce initiatives helps to ensure that the companies specific needs are addressed and that the plan fits the cultureOutside consultants are seldom able to learn enough about the culture (in the contract period) in order to accomplish all the objectives*Planning E-commerce Initiatives


Internal Development v. Outsourcing ExampleFew companies are large enough or have sufficient expertise to launch an e-commerce project without external helpE.g. Wal-mart (with annual sales of $195 billion) in 2006 hired another company for outside support*Planning E-commerce Initiatives


Internal TeamsIn determining which parts of an e-project to outsource first create an internal teamInclude people:With technical know-how about the InternetCreative thinkersAlready successful employees*Planning E-commerce Initiatives


Internal Teams ContdDo not select a technical wizard as project leader if he/she does not have the necessary business skillsIs not well-known and respected by the operating function managersIs not creative



Internal Teams ContdSet aside between 5-10% of a projects budget for quantifying the projects value and measuring the achievement (e.g using metrics)More and more companies are realising the importance of their staffs knowledge about the business and its processesThese resources do not appear in companies financial statements*Planning E-commerce Initiatives


Internal Teams ContdThe internal team decidesWhich part of the project to outsourceWho the parts will be outsourced toWhich partners the company needs to hire for the project*Planning E-commerce Initiatives


Types of OutsourcingThere are three types of outsourcingEarly outsourcingE-commerce initiatives lend themselves more to early outsourcingLate OutsourcingPartial outsourcing*Planning E-commerce Initiatives


Early OutsourcingThe initial site design and development is outsourced in order to launch it quicklyAn e-commerce site can rapidly become a source of competitive advantage for a companyOutsourcing team trains company information system professionals in the technology and hands over the operation of the siteIt is best for the companys own information systems people to work closely with the outsourcing team and develop ideas for improvements as early as possible



Late OutsourcingThis is the more traditional wayThe companys information system professionals do the initial design and development work, implement the system and operate it until it becomes a stable part of the businessAfter the competitive advantage is gained, the system is outsourced, allowing the team to pursue new technology projects*Planning E-commerce Initiatives


Partial OutsourcingThe company identifies specific portions of the project that can be completely designed, developed, implemented and operated by another firm that specialises in a particular functionIn both early and late outsourcing a single group is responsible for the entire design, development and operation of a project*Planning E-commerce Initiatives


Partial Outsourcing ContdE-commerce initiatives can benefit from partial outsourcingPartial outsourcing is also called component outsourcing



Partial Outsourcing ExampleMany smaller Web sites outsource their email handling and response functionsElectronic payment systemsA company may use an external vendor to take care of payment processingWhen the customer is ready to pay, he/she is taken to another site and then returned to the original siteThe most common part of an e-commerce project that is outsourced is the web-hosting activity*Planning E-commerce Initiatives


Selecting a Web Hosting ServiceThe internal team should be responsible for selecting the ISP to host the siteFor 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



Selecting a Web Hosting Service ContdThe most important factors to use when evaluating a hosting service are:FunctionalityReliabilityBandwidth and server scalabilitySecurityBackup and disaster recoveryCost*Planning E-commerce Initiatives


New Methods for implementing Partial OutsourcingIn the past five years new ways of implementing partial outsourcing have been creatingIncubatorsFast venturing*Planning E-commerce Initiatives


IncubatorsA company that offers start-up companies a physical location with offices, accounts and legal assistance, computers, and Internet connections at a very low monthly costSome also offer seed money, management advice an marketing assistanceIn exchange the company gives 10-50% ownership of the company to the Incubator*Planning E-commerce Initiatives


Incubators ContdWhen 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 candidateExample:Idealab (www.idealab.com/) was one of the first Internet incubators and helped www.carsdirect.com/home*Planning E-commerce Initiatives


Internal IncubatorsInternal incubators are incubators that are set up by a company (using internal staff), e.g. Kodak internal venturing program of the 1980sMost 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*Planning E-commerce Initiatives


Internal Incubators ContdA new internal incubator model has emerged where the resulting technology is left under the control of the team, who form a companyThe parent company and the new company then become strategic partnersThis new internal incubator model promises to be more successful than the traditional model*Planning E-commerce Initiatives


Fast VenturingAn 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 rapidlyEquity partners are usually banks or venture capitalist that can offer money or expertiseOperational partners are firms, such as system integrators, consultants and Web portals who have the experience in moving projects along and scaling up prototypes



Fast Venturing Contd*Planning E-commerce Initiatives

Venture 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.


Managing E-Commerce InitiativesProject managementProject portfolio managementSpecific staffingPost-implementation audits*Planning E-commerce Initiatives


Managing Electronic Commerce InitiativesTo manage complex e-commerce implementations formal management techniques should be used:Project managementProject portfolio managementSpecific staffingPost-implementation audits*Planning E-commerce Initiatives


Project ManagementA collection of formal techniques for planning and controlling the activities undertaken to achieve a specific goalThe project plan includes cost, schedule and performanceApplications such as Microsoft Project and Primavera Project Planner help with project planningThese type of projects (e-commerce projects) have a reputation for failing*Planning E-commerce Initiatives


Project Portfolio ManagementA technique used to manage multiple projectsEach project is monitored as if it is an investment in a financial portfolioEach project is assigned a rank based on its importance to the strategic goals of the business and level of riskE-commerce projects are viewed as investments in assets*Planning E-commerce Initiatives


Staffing for E-CommerceThe internal team must determine the staffing needs for the e-commerce initiativesThe general areas of staffing required are:Business, project and account managersApplication specialistsWeb programmers and graphic designersContent creators, managers or editorsCustomer serviceSystem, and database administrationNetwork operations*Planning E-commerce Initiatives


Business ManagerShould be a member of the internal teamSets objectives for the projectResponsible for implementing the elements of the business plan and reaching the objectives setDevelops proposal for plan revisions and fundingShould have the required domain knowledge (e.g. retail knowledge if a retail Web site is being built)



Project ManagerSpecific training or skills in tracking costs and accomplishing project goalsCertification might be useful (e.g. Project Management Institute) or MBASkills in the use of project management software*Planning E-commerce Initiatives


Account ManagerKeeps track of multiple Web sites in use by a project Or keeps track of projects that will combine to make a larger Web siteThe account manager supervises the location of specific Web pages and related software installations as they are moved from test, to demonstration, to productionIn smaller companies they handle the project and account management functions



Application SpecialistMaintain accounting, human resources, and logistics softwareMust maintain e-commerce software, e.g. catalogs, payment processing*Planning E-commerce Initiatives


Other RolesWeb programmersDesign and write code for Web siteWeb graphics designersA person trained in art, layout, composition and understands how Web pages are constructedContent creatorsWrite original contentContent managers/editorsPurchase existing material and adapt it*Planning E-commerce Initiatives


Other Roles ContdCustomer service personnelHelp 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 siteSome companies hire a call centre to handle phone calls and e-mail



Other Roles ContdSystems administratorResponsible for system reliability and securityNetwork operation staffLoad estimation and monitoring, resolving network problems and managing network operationsDatabase administrationSupport activities such as transaction processing, order entry, inquiry management or shipment logistics*Planning E-commerce Initiatives


Post-Implementation AuditsA formal review of a project after it is up and runningManagers compare the the objectives, performance specifications, cost estimates, and scheduled delivery dates plans with the actuals



Post-Implementation Audits ContdThe 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 projectsThe audit should result in a comprehensive report that analyses the project performance, the administration, organisational structure and the performance of the project teamSome audits contain a confidential section which evaluates the performance of individual team members to help when choosing teams in future*Planning E-commerce Initiatives


Group Assignment # 2 By reading this handout carefully, you are requested to create a business plan for a particular business (Include the steps related to a business plan).Is it possible to present your business on the web?If so, you have to develop it as your final project of this course?Planning E-commerce Initiatives*


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



**Reference: Tiffany, Laura, Elements of a Business Plan, http://wwww.entrepreneur.com/article/print/0,2361,287355,00.html, March 2001Purpose Of The Marketing Plan, Online Women's Business Center,http://www.onlinewbc.gov/docs/market/mk_plan_why.html, May 1997

Planning E-commerce

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