Chapter 14Implementing EC Systems:

From Justification to Successful Performance

Learning Objectives1. Describe the major components of EC

implementation.2. Describe the need for justifying EC investments.3. Understand the difficulties in measuring and

justifying EC investments.4. Recognize the difficulties in establishing

intangible metrics.5. List and describe traditional and advanced

methods of justifying EC investments.6. Describe some examples of EC justification.

Learning Objectives7. Describe the role of economics in EC evaluation.8. Discuss the steps in developing an EC system.9. Describe the major EC development strategies.10.List the various EC development methods along

with their benefits and limitations.11.Discuss the major outsourcing strategies.12.Describe EC organizational structure and change

management.13.Understand how product, industry, seller, and

buyer characteristics influence the success of EC.

The Implementation Landscape

• The Major Implementation Factorso Justification/Economicso Acquire or Self Develop Your E-Commerce

Systemo Organizational Readiness and Impacts of

E-Commerceo How to Succeed

The Elements in EC Implementation

Why Justify E-Commerce

Investments? How Can They be

Justified?• Increased Pressure for Financial

Justification• Other Reasons Why EC Justification Is

Needed• EC Investment Categories and Benefits• How Is an EC Investment Justified?

o *Cost–benefit analysiso Cost–Benefit Analysis and the Business

Case• What Needs to be Justified? When

Should Justification Take Place?

Why Justify E-Commerce

Investments? How Can They be

Justified?• Using Metrics in EC Justification

o Metrics, Measurements, and Key Performance Indicators• *Key performance indicators (KPIs)

• *Web Analytics

How Metrics Are Used in Performance Management

Difficulties in Measuring and Justifying E-Commerce

Investments• The EC Justification Process• Difficulties in Measuring Productivity and

Performance Gainso Data and Analysis Issues

• Relating EC and ITS Expenditures to Organizational Performanceo Other Difficulties

• Intangible Costs and Benefitso Tangible Costs and Benefitso Intangible Costs and Benefitso Managing Intangible Benefits

A Model for IT Project Justification

Sources: Based on Gunasekaran et al. ( 2001 ) and Misra ( 2006 ); and the authors’ experience.

Difficulties in Measuring and Justifying E-Commerce

Investments• The Process of Justifying EC and IT

Projects• The Use of Gartner’s Hype Cycle

o What Is Gartner’s Hype Cycle?o *Hype cycleo The five stages of the hype cycle are:

1. Technology trigger2. Peak of inflated expectations3. Trough of disillusionment4. Slope of enlightenment5. Plateau of productivity

o Application of the Hype Cycle

Methods and Tools for

Evaluating and Justifying E-

Commerce Investments• Opportunities and Revenue Generated

by EC Investments• Methodological Aspects of Justifying EC

Investmentso Types of Costs

• Distinguish between initial (up-front) costs and operating costs

• Direct and indirect shared costs• In-kind costs

Methods and Tools for

Evaluating and Justifying E-

Commerce Investments• Traditional Methods for Evaluating EC

Investmentso The ROI Methodo Payback Periodo NPV Analysiso Internal Rate of Return (IRR)o Break-Even Analyseso The Total Costs and Benefits of Ownership

• *Total cost of ownership (TCO)• *Total benefits of ownership (TBO)

o Economic Value Addedo Using Several Traditional Methods for One Projecto Business ROI Versus Technology ROI

Methods and Tools for

Evaluating and Justifying E-

Commerce Investments• *ROI Calculators

o The Offerings from Baseline Magazineo Other Calculators

• Advanced Methods for Evaluating IT and EC Investmentso Financial approacheso Multicriteria approacheso Ratio approacheso Portfolio approaches

Examples of E-Commerce

Metrics and Project

Justification• Justifying E-Procurement• Justifying Social Networking and the Use

of Web 2.0 Tools• Justifying an Investment in Mobile

Computing and in RFIDo Justifying Investing in RFID

• Justifying Security Projects• Justifying Buying Products or Services

from Vendors

The Economics of E-Commerce

• Reducing Production Costso Product Cost Curveso *Production Functiono * Agency Costso * Transaction Costs

1. Search costs 2. Information costs 3. Negotiation costs4. Decision costs 5. Monitoring and policing costs 6. Legal-related costs

Average Cost Curve of

(a) Regular and (b) Digital

Products

The Economic Effects of EC: The Production Function and Agency

Costs

The Economic Effects of EC: Transaction Costs

The Economics of E-Commerce

• Increased Revenueso Reach Versus Richness

• Facilitating Product Differentiationo *Product differentiation

• EC Increases Agility• Valuation of EC Companies

o * Valuation

Reach vs. Richness

E-Commerce System Life Cycle

A Five-Step Approach to Developing an E-Commerce

System• The Essentials of the SDLC: An EC

Applicationo The Five Traditional Steps

• Step 1: Identifying, justifying, and planning EC systems

• Step 2: Creating an EC architecture• Step 3: Selecting a development option• Step 4: Installing, testing, integrating, and deploying

EC applications• Step 5: Operations, maintenance, and updates

• Managing the Development Process

The EC Application Development

Process

Development Strategies for E-

Commerce Projects• There are four popular options for

developing an EC website: 1. Develop the site in-house2. Buy a packaged application3. Outsource the system development4. Lease the application

Development Strategies for E-

Commerce Projects• In-House Development: Insourcing

o *Insourcing• Buy the Applications (Off-the-Shelf

Approach)o * Turnkey approacho Advantages and Limitations of Ready

Made Packages• Outsourcing EC Systems Development

and Applicationso Types of Outsourcing Options

Development Strategies for E-

Commerce Projects• Leasing EC Applications: Cloud

Computing and Software As A Service (SAAS)o * Cloud Computingo Advantages of Cloud Applications

• Other Development Optionso Join an e-marketplaceo Join a consortiumo Join an auction or reverse auction third-

party siteo Form joint ventures o Use a hybrid approach

Development Strategies for E-

Commerce Projects• Selecting a Development Option

o Before choosing an appropriate development option, you need to consider the following factors:• Customers• Merchandising• Sales service• Promotion• Transaction processing• Marketing data and analysis• Branding

Organizational Impacts of E-

Commerce• Improving Direct Marketing and Sales• Transforming Organizations and Work

o Technology and Organizational Learningo The Changing Nature of Worko Disintermediation and Reintermediationo Restructuring Business Processes

• Redefining Organizationso New and Improved Products and Serviceso *Mass Customization and *On-Demand

Manufacturingo The On-Demand Revolutiono * 3D Printing

How Customization Is Done Online: The Case of Nike

Shoes

Organizational Impacts of E-

Commerce• *Change Management• How to Organize an EC Unit in a Company

o Options for Organizing the EC Workforce• Report to the Marketing Department• Report to the Finance Department• Report to the Chief Operating Officer• Distribute the EC Workforce in Several

Departments• Report to the IT Department• Create a New, Possibly Autonomous EC

Department• No Formal Structure for EC Exists

o Create an Autonomous Division or a Separate Online Company

Opportunities For Success In

E-Commerce and Avoiding Failure

• Factors That Determine E-Commerce Successo E-Commerce Failures

• E-Commerce Successeso Strategies for EC Success

• Cultural Differences in EC Successes and Failureso Can EC Succeed in Developing

Economies?

Managerial Issues1. How should the value of EC investments be justified? 2. Which investment analysis method should we adopt

for EC justification? 3. Who should conduct the justification? 4. Should we use the hype cycle? 5. Should we embark on cloud computing products for

our EC initiatives? 6. Which strategy should we choose for vendor

selection: the inside-out or outside-in approach? 7. What kinds of organizational changes may be

needed? 8. Is it possible to predict EC success?

Summary1. The major components of EC

implementation. 2. The need for EC justification. 3. The difficulties in justifying EC investment. 4. Difficulties in establishing intangible metrics. 5. Traditional methods for evaluating EC

investments. 6. Describe the justification of representative

EC projects.

Summary7. EC economic evaluation. 8. The major steps in developing an EC system. 9. The major EC development strategies, along

with their advantages and disadvantages. 10.The variety of EC application development

methods, along with their benefits and limitations.

11.EC application outsourcing strategies. 12.Organizational structure and change

management.13.Reasons for EC success and failure.