Electronic Commerce by Dr. John Penrose
Professor and Chair of Information and Decision Systems
College of Business Administration
San Diego State University
Contact:
Marsha Gear
(619) 594-4501
Picture an entrepreneur launching a start up that includes, like most businesses, suppliers, inventory, customers, employees, and vendors. If our entrepreneur follows the traditional approach, there will be employees who place orders, talk with vendors and suppliers, and track purchases and inventory. Marketing employees will position the products and seek the customers. Mailing lists, direct mail advertising, phone calls, and face-to-face sales may be involved. Once the number of employees reaches a critical mass, such personnel media as position announcements, policy and procedure statements, appraisal forms, internal phone directories, and myriad other paper-based forms will be needed.
Now picture the same person using electronic commerce as a strategy to enhance the company's likelihood of survival and success. Electronic commerce is the connection of critical business constituencies through intranets, and the World Wide Web. An intranet is an organization's internal net that likely includes its own Web server, connects its desktop computers with a protocol such as TCP/IP, and deploys data or applications on the server. And the Web is a navigation tool for finding multimedia information in graphic, audio, text, and video format on the internet.
For our entrepreneur's business, the internet is used to help his or her buyers search for needed materials at the best prices from a variety of sources. Orders are placed electronically and tracked by software programs. Internally, via an intranet, manufacturing progress and inventory levels are immediately available to those in the organization so that products can be delivered just-in-time to customers demanding that expertise. And those customers are sought electronically through the internet to minimize the size of the sales force. Software programs on the intranet allow employees to tailor products to customer specifications through speedy groupware collaboration. Of course, all internal financial transactions are done electronically. Employees pick various forms off the intranet, complete them, and return them without printing a page. They see their own productivity level compared to others in the department, look up reference data such as sales figures by region! , or send suggestions via e-mail.
For today's entrepreneur--either just initiating a business or a well established organization--electronic commerce may well be a deciding factor in the company's future.
Don't confuse electronic commerce (or e-commerce or e-business) with internet business (or I-business), which is primarily setting up a "storefront" through a Web page and then selling products directly to customers. There are some examples of incredible success of Web-based companies, but many more that are yet to make a profit. One estimate is that 80 percent of Fortune 500 companies have a Web site, but only five percent are making sales.
E-commerce goes much further than just selling to customers or informing the public via the Web. While each organization tailors its e-commerce approach to its needs, characteristics, and goals, there are two common elements: selling, and payments and security.
Selling. As mentioned, only a few companies are making a profit by selling through the Web. Those that are making money are making lots of money: Dell Computers had sales of $1 million a day last Spring through its Web site and today that figure has doubled. And the future for online sales is staggering: One research firm sees an increase in sales from $1.3 billion in 1996 to $176 billion in 2001. Somewhat surprising is that many industry experts are predicting that most sales will not be business-to-customer, but rather business-to-business. Business-to-business sharing of information beyond simple purchases form the relationship. Efficient electronic communication with strategic partners, for example, will play a critical role.
Payments and Security. The Economist recently reported that 95 percent of Americans would not give out their credit information over the internet. With new software that encrypts payment data, such as the new Secure Electronic Transaction (SET) standard, most experts are now saying electronic payments can be made safely. SET is a protocol that separates credit card information from order information in an online transaction. The bank receives the credit information and the merchant receives the order information. SET facilitates purchases with Visa, for example, which is fine for small customers.
Similar, sophisticated systems are also in place for major transactions between large companies. One such system is Electronic Data Interchange (EDI), which is the interprocess communication (computer application to computer application) of business information in a standardized form. EDI has emerged over the past decade as a way for businesses around the world to enable such practices as procurement, payment handling, and sourcing. Paperwork is all but eliminated through online catalogs, order placement forms, electronic bill paying, or automatic product ordering from input from smart cash registers. Human involvement is held to a minimum and therein lies financial savings. These systems are, in effect, digital cash.
Many other elements of e-commerce have not been mentioned, such as establishing a site and keeping it secure, how to search for products and market to customers, hardware and software issues, e-mail, or cultural issues in a global environment. Initiating a process of awareness of potential e-commerce applications, issues, concepts, and concerns seems prudent, if not essential, for today's entrepreneur. The competition may well be moving in the e-commerce direction already, at the speed of light. Now is not the time to be complacent or overly cautious.
To acquire more information about e-commerce and its related concepts, see the book Frontiers of Electronic Commerce (Kalakota and Whinston), EC.COM magazine or CIO WebBusiness magazine, regular sections of such computer-oriented magazines as PC Week, InfoWorld, or CIO, or see such Web pages as www.zdnet.com/anchordesk.com.
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