E-Commerce_lecture_notes.doc

8/14/2019 E-Commerce_lecture_notes.doc

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UNITI

E-COMMERCE TECHNOLOGYAND

MANAGEMENT

NOTES

FUNDAMENTALOFE-COMMERCE

1.1 INTRODUCTION TO E-COMMERCE

1.1.1 Introduction

Two thousand years ago, Roman roads brought trade and commerce to

Europe in an unprecedented manner.Athousand years ago, the spice routes linked

the cultures of East and West.At the dawn ofthe second millennium, the Internet,

the worlds largest computer network, the network of networks, is making

fundamental changes to the lies of eeryone on the planet!changing foreer the

waybusiness isconducted.

Internet hasbecome animportant mediumfor doing globalbusiness based

on the state of the art technology. "lobal business was conducted ina new way#

electronically, using networks andthe Internet. The aailabilityofInternet hasled

to the deelopment of E-Commerce (Electronic commerce), in which business

transactions take place ia telecommunication networks. E!$ommerce has two

ma%or aspects# economical and technological. The stress ofthis course will show

you how to get started inthe comple& ande&citingworldofElectronic $ommerce.

'ew standards and new facilities are constantly emerging and their proper

understanding is essential for the success ofanoperation and especiallyfor those

who are assigned a duty to select, establish, and maintain the necessary

infrastructure.

1.1. !rie" #i$tor% O" E-Commerce

The history of E!commerce is a history of how Information Technology

has transformedbusinessprocesses. (ome authors will trackback the historyofE!

commerce to the inentionofthe telephone at the end oflast century. The Internet

wasconceied in


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1 ANNA UNIVERSITYCHENNAI


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NOTES )*+*, when the Adanced Research ro%ects Agency -a epartment of efenceorgani/ation0 funded research ofcomputer networking. The Internet could end up

like EI -Electronic ata Interchange0 without the emergence of the World Wide

Web in

)**1s.EI-Electronic ata Interchange0 iswidelyiewedasthebeginningofE!

commerce ifwe consider E!$ommerce asthe networking ofbusiness communities

and digitali/ation ofbusiness information.

EI, which e&panded from financial transactions to other transaction

processing andenlarged the participatingcompaniesfromfinancial institutionsto

manufacturers, retailers, serices, and so on. 2any other applications followed,

ranging from stock trading to trael reseration systems. (uch systems were

described as telecommunication applications and their strategic alue was widely

recogni/ed. With the commerciali/ation of the Internet in the early)**1sand its

rapid growthto millions ofpotential customers, the termelectronic commerce was

coined, and E$ applications e&panded rapidly. 3ne reasonfor the rapid e&pansion

of the technology was the deelopment of networks, protocols, software, and

specifications. The other reason was the increase in competition and other

business pressures. 4rom )**5 to )*** we hae witnessed many innoatie

applications ranging from adertisement to auctions and irtual reality e&periences.

Almost eerymedium! and large!si/edorgani/ation in the 6nited(tates already

has a Web site many are ery e&tensie7 for e&ample, in )*** "eneral 2otors$orporation offered )8,111 pagesof information that included *8,111 links to its

products, serices, and dealers.

1.1.& De"inition O" E-

Commerce'

Electronic commerce is an emerging model of new selling and

merchandising tools in which buyers are able to participate in all phases of a

purchase decision, while stepping through those processes electronically rather

thanina physical store orbyphone -with a physical catalogue0. The processes in

electronic commerce include enabling a customer to accessproduct information,

select items to purchase, purchase items securely, and hae the purchase settled

financially. It is an emerging concept that describes the process of buying and

selling or e&changing of products, serices7 and information ia computer

networksincludingthe Internet.

E!commerce is basically, doing business!as!usual, but across the Internet.


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9ou adertise

your products or

serices onyourWebsite, asyou wouldinanyother media like newspapers, T: or

brochures. Adertising on yourWebsite canbe done intwo ways.



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MANAGEMENT

The first isbyuse ofa relatielysimple Website consisting ofa fewpages

whereby you tell potential customers who you are, what you do, where you

are and how theycancontact you - easiest donebygiing themyour email

address0.

The secondwayofenabling world!wide customers tobuyfromyou isto

proide

them with an On-Line Ctloue of your products which they canbrowse

at their leisure without haing to go to yourplace ofbusiness.

On-Line Catalogue:

3n!;ine $atalogue is that catalogue wherepeople access ia the Internet.

3n! ;ine $atalogue isanintegral part ofwebsite,enabling customers to...

handling charges, ifany. Iftheychoose topaybycredit card, the formincludes

aplace for themtofill in their credit card number.And then, withone press ofa

button, theysend the order to you.

Electronic Commerce under differentperspectives:

;ets see how Electronic $ommerce -E$0 is defined under eachperspectie.

1. Communications Perspective

E$isthe delieryofinformation,products?serices,orpaymentsoerthe

telephone lines, computer networks or anyother electronic means.

NOTES


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NOTES 2. Business Process PerspectiveE$ is the application of technology toward the automation ofbusiness

transactions and work flow.

3. Service Perspective

E$isa toolthat addresses the desire offirms, consumers, andmanagement

to cut serice costs while improing the =ualityof goods and increasing the

speed of serice deliery.

. Online Perspective

E$ proides the capabilityofbuying and selling products and information

onthe internet andotheronline serices.

1.1.* Cl$$i"iction$ o" E-Commerce A++liction$

Electronic $ommerce -e!$ommerce0 is a general concept coering any

formof business transactionor informatione&change e&ecutedusingInformation

and $ommunication Technologies -I$Ts0. E!$ommerce takes place between

companies, between companies and their customers, or between companies and

public administrations. Electronic $ommerce includes electronic trading ofgoods,

sericesand electronic material.

E!$ommerce systems includecommercial transactions on the Internet but

their scope ismuch wider than this7 theycanbe classified byapplication type#

Electronic !ar"ets:

The principle function of an electronic market is to facilitate the search for

the re=uired product or serice. Airline booking systems are an e&ample of an

electronic market.

Electronic #ata $nterc%ange &E#$':

Electronic ata Interchange -EI0 is the electronic e&change ofbusiness

documents in a standard, computer processable, uniersally accepted format

between!trading partners. EI is =uite different from sending electronic mail,

messages or sharing files through a network. InEI, the computer applicationof

boththe sender and the receier, referred to asTrading artners-Ts0 hae to agree

upon the format of the business document which is sent as a data file oer

electronic messaging serices.


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MANAGEMENT

The twokeyaspectsofEIthat distinguishit fromotherformsofelectronic

communication, suchaselectronic mail, are#

). The information transmitted is directly used by the recipient computer

without the need for human interention is rarely mentioned but often

assumed that EI refers to interchange betweenbusinesses. It inoles two

or more organi/ation or parts of organi/ation communicating business

informationwitheachotherina commonagreed format.

@. The repeated keyingofidentical informationinthe traditionalpaper!basedbusiness.

$ommunication creates a number ofproblems that can be significantly

reduced throughthe usage ofEI. These problems include# !

Increased time

;ow accuracy

ighlabour charges

Increased uncertainty.

To takefull adantage ofEIsbenefits, a company must computeri/e its

basic business applications.Tradingpartnersare indiidual organi/ationthat agrees

to e&change EI transactions. EI cannot be undertakenunilaterallybut re=uires

the cooperation and actie participation of trading partners. Tradingpartners

normallyconsistsofanorgani/ations principal suppliers and wholesale customers.

(ince large retail stores transact business with a large number of suppliers they

were among the early supporters of EI. In the manufacturing sector, EI has

enabled the concept of Bust!In!Time inentory to be implemented. BIT reduces

inentoryand operating capital re=uirements.

EI proides for the efficient transaction of recurrent trade e&changes

between commercial organi/ations. EI is widely used by, for e&ample, largeretail groups and ehicle assemblers whentradingwiththeir suppliers.

$nternet Commerce

The Internet -and similar network facilities0 canbe used for adertising

goods and serices and transacting one!off deals. Internet commerce has

applicationforbothbusiness! to!business and business to consumer transactions.

NOTES


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NOTES

T,e t,ree cteorie$ o" E Commerce

1.1. T%+e$ o" e-commerce

There are a number ofdifferent typesofE!$ommerce


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B2B - Business to Business


MANAGEMENT

NOTES

E!commerce has been inuse for =uite a fewyears and ismore commonly

known as EI -electronic data interchange0. Inthe past EI was conducted on a

direct link of some formbetween the two businesses where as today the most

popular connection is the internet. The two businesses pass information

electronicallytoeachother.


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NOTES C2B - Consumer to Business

$onsumer to


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4inancing and

insurance


MANAGEMENT

NOTES $ommercial transactions# ordering, deliery,payment

roduct serice and maintenance

$o!operatie product deelopment

istributed co!operatie working

6se ofpublic and priate serices


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NOTES )o* E-Commerce +or"s

The consumer first moes throughthe internet to the merchants website.

At the web site, the consumer isbriefly gien an introduction to the product or

serices the merchant offers. It is at this point that the consumer makes the

decision to isit the web store by clicking ona link or button located on the web

page -e.g.,


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MANAGEMENT

Inboth scenarios, the process is transparent to the consumer and appears

irtually the same. oweer, the first scenario is a more simplistic method of

setting upa shopping cart applicationand doesnot takeintoconsideration anyback

office issuesthat maydelay shipment -i.e., items out of stock,backorders,orders

submitted after office hours or duringholidays,etc.0. 2anage2ores e$ommerce

2anager reliesonthe secondscenario to handle all ofitsecommerce orders.This

second scenario keeps the consumer accurately informed throughout the entire

orderingprocess.

;et us assume anecommerce implementation that uses the second scenario

mentioned aboe.

There are seeral basic steps you will need to accomplishbefore becoming

$ommerce enabled.

). "etting a 2erchant


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NOTES



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NOTES H. When choosing a merchant accountproider, you should do a little researchon the companys reputation, years in business, and company si/e.

$onstantlychanging to a new merchant account proider when your old one

goes out!ofbusiness canbe costlyandtime consuming.

C. Aoid merchant account proiders that ask for a non!refundable fee before

you get approed.

5. Aoid merchant account proiders that re=uire ) or @ year contract terms.

(ince there are so many merchant account proiders aailable, it doesnt

make sense to lock your companyinto a commitment for anyperiod oftime.

+. E&pect merchant account proiders to hae some formofa signupfee after

being approed only. These fees can come inthe form of anapplication fee,

processing fee, software fee, etc. Typically e&pect to pay around J)11 to

J511 for getting an account setup to accept credit cards and sometimes

electronic checks.

G. 9ou should be able to find a merchant account proider that canoffer you

discount credit cards rates ranging from ).G5D to @.G5D and no more than .

@5 cent per transaction. If not, contact Intellisoft regarding our merchant

account proider affiliates andthe free Intellicharge Interface %ust for signing

upwiththem.

8. 9ou will need a dedicated phone line or data line for processing credit cards

and electronic checks. 'ote# If your computer or local area network is

alreadyconnected to the internet, a separate data line will notbe necessaryifyou use the Intellicharge Interface forelectronicpayment.

+e )osting

Web hosting is a ery important step in this process, as this is how you

gain apresence on the internet inthe first place. There are actuallytwo scenarios

that canbe used for web hosting. (cenario) inoles setting up and maintaining

your own web serer, while (cenario @ inoles farming out all web hosting

administrationto anI(.

An Internet (erice roider -I(0 is a company that proides you with

internet access and limited hard drie space ontheir webserers for hosting your

website.

The followingshouldbe noted whensearching for anInternet (erice roider#

). Always try to find an I( that can proide a local telephone number for you


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to connect tothe internet.



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MANAGEMENT

@. $hoose anI( that is knownfor haing few interruptionsofserice.

H. $hoose an I( that is known for good technical support and has

knowledgeablepeople familiar withecommerce sites.

C. $hoose anI( that consistentlyhasfast connection speeds.

5. As with anycompany you dobusinesswith, make sure the I( is reputable.

The online transactionproiders that offer the actual web store itself can

sometimes be hosted by your same I( or may re=uire a completely different

proider, referred to as a $ommerce (erice roider -$(0. 2any small

businesses tend to choose $(s for creating a webstorebecause it giesthemthe

fle&ibility of choosing a proider that offers competitie pricing and the best

shoppingcart applicationfor their needs.3nline transactionproiders will usually

proide one shopping cart solution they feel isbetter than the many others thate&ist and differ byprice,appearance, layout, functionality, and ease ofuse.

The following shouldbe noted whendealing withshopping cart applications#

). 3nline transactionproiderswill either sell or rent you the use ofanonline

shopping cart application for yourbusiness.


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NOTES



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NOTES /egistering a #omain 0ame

omainnames are the namesfor computersonthe Internet that correspond

to I -Internetprotocol0 numbers to route information to addresses on the Internet

network. omain names sere as a conenient way of locating information and

people onthe Internet. In laymanterms, will it be important to you, for customers

to find your websitebytyping K)@H.)@H.C5+.C5+L or bytyping something simple

to remember like K ww w . m y b i/ .c omML Registering a domain name is one of the

most important decisions you can make for your online identity. 9our domain

name sayswho you are toyour clients, yourpeers! the whole world. The basics

for registering a domain name are#

$ontact a domain name registrar on the internet to register for a domain

name. There are many to choose from, %ust do a web search on Kdomain name

registrarL to get you started.

@. (elect a uni=ue domain name you would likeothersto use for finding your website.

Otaining a #igital Certificate

Adigital certificate, also known as a ((;(erer $ertificate, enables ((;-(ecure (ocket ;ayer encryption0 onthe web serer. ((;protects communications

so you can take credit card orders securely and ensure that hackers cannot

eaesdrop on you.Any ecommerce company thatproides you with an online web

store will re=uire you to hae ((;before you can use their serices. Thankfully,

for most people obtaining a digital certificate isnot aproblem. 4ora minimal fee,

one canusuallyuse the certificate ownedby the webhostingcompanywhere your

page resides. Ifyou are a larger company, howeer, you may want to get your own

digital certificate.

1.1. Arc,itecturl Frme2or3 o" E Commerce

A framework is intended to define and create tools that integrate the

information found in todays closed systems and allows the deelopment of e!

commerce applications. It is important to understand that the aim of the

architectural frame!work itself is not to build new database management systems,

data repository, computer languages, software agent based transactionmonitors, or

communication protocols. Rather, the architecture should focus on synthesi/ing
http://www.mybiz.com/http://www.mybiz.com/


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the dierse resources already in place in corporations to



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facilitate the integration of data and software for better applications. The

electronic commerce applicationarchitecture consists ofsi&layersoffunctionality,

or serices#

)0 applications7

@0 brokerage serices, data or transactionmanagement7

H0 interface, and7 support layersL

C0 secure messaging, securityand electronic document interchange7

50 middle ware and structured document interchange7 and

+0 network infrastructure andbasic communications serices -see Table. ).).8a0.

These layers co!operate toproide a seamless transitionbetween todays

computing resources and those of tomorrow by transparently integrating

information access and e&change withinthe conte&t ofthe chosenapplication.As

seen in 4ig., electronic commerce applications are based on seeral elegant

technologies.


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NOTES 1.1..1 Electronic Commerce pplication Services

The application serices layer of e!commerce will be comprised ofe&isting

and future applications built on the innate architecture. Three distinct classes of

electronic commerce application can be distinguished# customer to business,

business!to!business, and intra organi/ation

Consumer-to-Business ransactions

We call this category marketplace transaction. In a marketplace

transaction, customers learn about products differently through electronic

publishing,buythemdifferently using electronic cash and secure payment systems,

and hae them deliered differently. Also, how customers allocate their loyalty

may also be different. In light of this, the organi/ation itself has to adapt to a

world where the traditional concepts ofbrand

ifferentiationnolongerhold!where K=ualityL hasa newmeaning,whereKcontentL

maynotbe e=uatedtoKproduct,L Where KdistributionL maynot automaticallymeanKphysical

Transport.L In this new enironment, brand e=uity can rapidly eaporate

forcing firms todeelop new ways ofdoingbusiness

Business-to Business ransactions

We call this category market!link transaction. ere, businesses,

goernments, and other organi/ations depend on computer ! to!computer

communication as a fast, an economical, and a dependable way to conduct

business transactions. (mall companies are also beginning to see the benefitsof

adopting the same methods.


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entered at the

point of receipt.

The current manual process of printing, mailing is costly, time consuming, and

error!prone.



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"ien this situationand faced with the need to reduce costs, smallbusinesses are

looking toward electronic commerce asa possible saior.

Intra-organizational Transactions

We call this category market!drien transactions. A company becomes

market drien by dispersing throughout the firm information about its customers

and competitors7 by spreading strategic and tactical decision making so that all

unitscanparticipate7 andby continuously monitoring their customer commitment

by making improed customer satisfactionanongoing ob%ectie.Tomaintain the

relationships that are critical to deliering superior customer alue, management

must pay close attention to serice, both before and after sales. In essence, a

market!drienbusiness deelopsa comprehensie understanding of its customersbusiness and how customers in the immediate and downstream markets perceie

alue.

Three ma%or components ofmarket!drientransactions are

customer orientationthroughproduct and serice

customi/ation7 cross!functional coordination throughenterprise

integration7 and adertising, marketing, and customer serice.

1.1..2 $nformation Bro"erage and !anagement

The information brokerage and management layer proides serice

integration through the notion of informationbrokerages, the deelopment of

whichisnecessitatedby the increasinginformation resource fragmentation.We use

the notion of information brokerage to represent an intermediary who proides

serice integration between customers and information proiders, gien some

constraint such as a low price, fast serice, or profit ma&imi/ation for a client.Informationbrokers, fore&ample,are rapidlybecoming necessary indealingwith

the oluminous amounts of information on the networks. As on!line databases

migrate toconsumer information utilities, consumers and information professionals

will hae to keep up with the knowledge, and owner!ship ofall these systems.

2ostprofessionals hae enoughtrouble keeping trackoffiles of)interest

on one or two database serices. With all the comple&ity associated with large

numbers of on!line databases and serice bureaus, if it is impossible to e&pect

humans to do the

searching. It


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NOTES



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NOTES will hae to be softwareprograms!information brokers or software agents, to usethe more popular term!that act on the searchers behalf. Information brokerage

does more than %ust searching. It addresses the issue of adding alue to the

informationthat isretrieed. 4or instance, inforeigne&change trading, information

is retrieed about the latest currency e&change rates in order to hedge currency

holdings to minimi/e risk and ma&imi/eprofit. In otherwords, the act ofretrieing

the informationisthe input to other transactions. With multiple transactionsbeing

the norm in the real world, serice integrationbecomes critical. Taking the same

foreign e&change e&ample further, serice integration allows one to link the

hedgingprogram -offered on a time!sharingbasisbya third party0 with the search

program-could be another endor0 that findsthe currencyratesfromthe cheapest

on!line serice to automatically send trades to the bank or financial serices

company. In effect, a personali/ed automated trading system can be created

without haingtogoto anyfinancial institution. Thisis%ust one e&ample ofhow

informationbrokeragescanaddalue.

Another aspect of the brokerage function is the support for data

management and traditional transaction serices.


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Although the

notion of

software agents sounds ery seductie, it will take a while to sole the problems

of interregna



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communication, interoperable agents, and other headaches that come with

distributed computing and net!working. To some critics, the prospect ofa single!

agent language like Telescript asa world standard is disturbing. Theyworry that

agents sound a bit too much like computer iruses, which instead of running

errands may run amok. :endors such as "eneral 2agic go to great lengths to

e&plain the precautions it has taken to make this impossible# the limits placed on

the power ofagents, the Kself!destructL mechanism built into theircodes.9et until

electronic commerce serices are upandrunning ona large scale, it is impossible

to know how well software agents will work.

1.1.8.3 Interface and Support Services

The third layer, interface and support serices will proide interfaces forelectronic commerce applications such as interactie catalogs and will sup!port

directory serices! functions necessary for information search and access. These

two concepts are ery different.

Interactie catalogs are the customi/ed interface to consumer applications

such as home shopping.Aninteractie catalog isane&tension ofthe paper!based

catalog and incorporates additional features such as sophisticated graphics and

ideo to make the adertising more attractie. irectories, on the other hand,

operate behind the scenes and attempt to organi/e the enormous amount of

information and transactions generated to facilitate electronic commerce.

irectoryserices databases make data from any serer appear as a local file.A

classic e&ample of a directory is the telephone White ages, which allows us to

locate people and telephone numbers. In the case of electronic commerce,

directorieswouldplayan important role ininformationmanagement functions.4or

instance, take the case ofbuying an airline ticket with seeral stopoers with the

caeat that the time between layoersbe minimi/ed. This search would re=uire

seeral =ueries to arious on! line directories to!find empty seats on ariousairlines and then the aail!ability ofseats would7 be coordinated with the amount

oftime spent inthe air!port terminals.

The primarydifference between the two isthat unlike interactie catalogs,

which deal withpeople, directorysupport serices interact directlywithsoft!ware

applications. 4or this reason, they need not hae the multimedia glitter and %a//

generally associated with interactie catalogs. 4rom a computing perspectie, we

can e&pect that there will be no one common user interface that will gla/e the

surface of all electronic commerce applications, but graphics and ob%ect

manipulation

will definitely

dominate. Tool

deelopers


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NOTES



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NOTES and designers might incorporate common tools for interface building, but theshape of catalogs or directories will depend onthe users desires and functional

re=uirements.

1.1.. Secure !essaging and Structured #ocument $nterc%ange Services

The importance of the fourth layer,securedmessaging, isclear.Eeryone

inbusiness knows that electronic messaging is a criticalbusiness issue. $onsider a

familiar business scenario#

9ou handoer an urgent fa&2ondayand find out Tuesday that its still

sitting on your fa& operators desk. What happenedM

The line wasbusyand he thought hed tryagainlater. 3r, the number waswrong, but he forgot to let you know. 3r youre in;ondonand you need to send a

spreadsheet that details a marketing plan for a product introduction strategy to a

co!worker in 'ew 9ork. This must be done today, not tomorrow when the courier

serice would delier. There is a solution to these common and frustrating

problems. Its called Integrated 2essaging# a group of computer serices that

through the use of a network send, receie, and combine messages, fa&es, and

large data files. (ome better!known e&amples are electronic mail, enhanced fa&,

and electronic data interchange.


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allows the transfer ofmessagesthrough store!and!forward methods.



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Another adantage of messaging is that it is not associated with any

particular communication protocol. 'o pre!processing is necessary, although there

is an increasing need for programs to interpret the message. 2essaging is well

suited forboth client serer and peer!to!peer computing models. In distributed

systems, the messages are treated as Kob%ectsL that passbetween systems.

2essaging is central to work!group computing that is changing the way

businesses operate. The ability to access the right information at the right time

across dierse work groups isa challenge. Today,withthe messaging tools,people

can communicate and work together more effectiely!no matter where they are

located. Whenanemployee sends an electronic mail form, the information traels

alongwiththe form.(oone personcanstart the form, mail it to the ne&t person,

fill it in? sign it, mail it to the ne&t, and so on. This is known asmessage!enabledwork!flow solutions.

The maindisadantages ofmessaging are the new typesofapplications it

enables! whichappear to be more comple&, especially to traditional programmers

and the %ungle of standards it inoles. heR conditions changed!along with the hardware and the software

the organi/ations couldnt cope# The tools were inade=uate, the backlog wasenormous, and the pressure was oerwhelming.And, the users were dissatisfied.

(omething wasneeded to sole all the interface, translation, transformation, and

interpretation problems that were driing applicationdeelopers cra/y.With the

growth of networks, client!serer technology, and all other forms of

communicating between?among unlike platforms, theproblemsofget! ting all the

pieces to work together grew from formidable to horrendous. As the cry for

distributed computing spread, users demanded interaction between dissimilar

systems, networks that permitted shared resources and applications that could be

accessed by

NOTES


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NOTES multiple software programs. Insimple terms,middleware isthe ultimate mediatorbetween dierse softwarepro!grams that enablesthemtalk to one another.

Another reason for middleware is the computing shift from application

centric to data centric.That is, remote data controls all of the applications in thenetwork instead of applications controlling data. To achiee data!centric

computing,middleware sericesfocus on three elements# transparency, transaction

security and management, and distributed ob%ect management and serices.

ransparenc(

Transparency implies that usersshouldbe unaware that theyare accessing

multiple systems. Transparency is essential for dealing with higher!leel issues

thanphysical media and interconnection that the underlying network infrastructure

is in charge of. The ideal picture is one of a KirtualL network# a collection of

workgroup, departmental, enterprise, andinterenterprise ;A's that appearsto the

enduseror client application tobe a seamless and easilyaccessed whole.

Transparency is accomplished using middleware that facilitates a

distributed computing enironment. This gies users and applications transparent

access to data, computation, and other resources across collections of multi!

endor, heterogeneous systems. The strategic architectures of eery ma%or system

endor are now based on some form of middleware. The key to reali/ing the

theoretical benefit ofsucharchitecture is transparency. 6sersneed not spend their

time trying to understand where something is. 'or shouldapplication deelopers

hae to code into their applications the e&act locations of resources oer the

network. The goal is for the applications to send a re=uest to the middleware layer,

whichthensatisfiesthe re=uest anywayit can,using remote information.

ransaction Securit( and !anagement

(upport for transactionprocessing -T0 is fundamental to success in theelectronic commerce market. (ecurityand management are essential to all layers in

the electronic commerce model. At the transaction security leel, two broad

general categories ofsecurity serices e&ist# authentication and authori/ation.

Transaction integritymust be a gien forbusinesses that cannot afford any

lossor inconsistencyin data. (ome commercial sites hae had gigantic centrali/ed

T systems running foryears. 4or electronic commerce, middleware proides the

=ualitiese&pected in


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a standard Tsys!tem# the so!calledA$Iproperties -atomicity, consistency,

isolation, anddurability0.

#istriuted O4ect !anagement and Services

3b%ect orientation isproing fundamental to the proliferation ofnetwork!

based applications for the following reasons# It is too hard to write a net!work!

based application without eithere&tensie deeloper retrainingora technologythat

camouflagesthe intricacies of the network. 3b%ects are defined asthe combination

ofdata and instructions acting on the data. 3b%ects are an eolutionof the more

traditional programmingconcept of functions and procedures.Anatural instance

ofanob%ect in electronic commerce isa document.A document carries data and

oftencarries instructionsabout the actions tobeperformed on the data.Today,thetermob%ect isbeing used interchangeablywithdocument resulting ina newformof

computingcalled document oriented computing. ere, the trend is to moe away

fromsingle data!type documents suchas te&t, pictures, or ideo toward integrated

documents known ascom!pound document architectures.

The best e&ample of this approach is an actie document. If you create a

new document that is an integration of the spreadsheet, word processor, and

presentation package, what youll see inthe ne&t generation ofoperatingsystems

is that asyou scroll throughyour document,the toolbar will automaticallychange

froma spreadsheet toobar, to a wordprocessing tool bar, to apresentationpackage

toolbar.These applications will also be able to access and retriee data fromany

file inthe computing network.

L$t 4ut not t,e le$t i$t,e Net2or3 In"r$tructure5 2,ic,2ill 4e delt in t,i$

unit lter.

1.1.6 Ad7nte$ o" E-Commerce

Electronic $ommerce can increase sales and decrease costs.

Adertising done well on the web can get een a small firms

promotional message out topotential customers ineerycountryinthe

world.


44/571

NOTES



45/571

DBA 1727

NOTES E!$ommerce proides buyers with a wider range of choices thantraditional commerce because buyers can consider many different

products and serices from a widerarietyof sellers.

Electronic payments ofta& refunds, public retirement and welfare

supportcost lessto issue and arrie securelyand =uicklywhentransmitted oerthe

Internet.

1.1.18 Di$d7nte$ o" E-Commerce

(ome business processes such as perishable foods and high!cost,

uni=ue items such as custom!designed %ewelry might be impossible

to inspect ade=uatelyfroma remote location.

$osts,whichare a functionoftechnology, canchange dramaticallyeen

during

short!lied electronic commerce implementation pro%ects because

the technologies are changing so rapidly.

2any firms hae trouble recruiting and retaining employees with the

technological, designandbusiness process skillsneeded tocreate an

effectie electronic commerce presence.

4irms facing difficulty of integrating e&isting databases andtransaction!

processing software designedfor traditional commerce intothe

software that enables electronic commerce.

$ompanies that offersoftware design and consulting sericesto tiee&isting

systems into new onlinebusiness systems can be e&pensie.

$onsumers are fearful of sending their credit card numbers oer the

Internet and haing online merchants. $onsumers are simply resistant

to change and are uncomfortable iewing merchandise ona computer

screenrather than in person.

1. DRI9IN: FORCES OF E-COMMERCE

E!$ommerce is becoming popular, it is worthwhile to e&amine todays

business enironment so let usunderstandthepressuresit createsonorgani/ations

andthe responses used byorgani/ations.


46/571



47/571


MANAGEMENT

1..1 En7ironmentl "ctor$ t,t crete !u$ine$$ ;re$$ure$'

2arket, economical, societal and technological factors are creating a

highly competitie business enironment inwhich consumers are the focal point.

These factors change =uickly, sometimes in anunpredictable manner and therefore

companies need to react fre=uently not only in the traditional actions such as

lowering cost and closing unprofitable facilities but also innoatie actiities such

as customi/ing products, creating new products or proiding superb customer

serice.

Economic Forces

3ne of the most eident benefits of e!commerce is economic efficiencyresulting from the reduction in communications costs, low!cost technological

infrastructure, speedier and more economic electronic transactionswithsuppliers,

lower global information sharing and adertising costs, and cheaper customer

serice alternaties.

Categories of Economic 5orces

Lo2er mr3etin) co$t$' marketing onthe Internet maybe cheaper and

can reacha wider crowd than the normal marketing medium.

Lo2er $le$co$t$' increase inthe customer olume do not needan

increase

instaffasthe salesfunctionishousedinthe computer andhasirtually

unlimited accessibility

Lo2er orderin +roce$$in co$t' online ordering can be automatedwith

checkstoensure that orders are correct before accepting, thusreducing

errors and the cost of correcting them.

Ne2 $le$ o++ortunitie$' the website is accessible all the time andreaches

the global audience which isnotpossible withtraditional storefront.

Economic integration is either e&ternal or internal. E&ternal integration

refers to the electronic networking of corporations, suppliers, customers?clients,

and independent contractors into one community communicating in a irtual

enironment -withthe Internet as medium0. Internal integration, on the other hand,

is the networking of the arious departments withina corporation, and ofbusiness

operations and

processes. This

allows critical

business

information to

be stored in a

digital form that

can be retrieed

instantly and

transmitted

electronically.

Internal

integration isbest e&emplified

by corporate

intranets.


48/571

NOTES



49/571

DBA 1727

NOTES Among the companies with efficient corporate intranets are rocter and "amble,I


50/571

standpoint of

firms? businesses

and consumers, haing only one information proider means lower

communications costs.



51/571


MANAGEMENT

2oreoer, the principle of uniersal access can be made more achieable

with conergence. At present the high costs of installing landlines in sparsely

populated rural areas is incentie to telecommunications companies to install

telephones in these areas. Installing landlines in rural areas can become more

attractie to the priate sector if reenues from these landlines are not limited to

local and long distance telephone charges, but also include cable T: and Internet

charges. This deelopment will ensure affordable access to information eenby

those inrural areasand will spare the goernment the trouble and cost ofinstalling

e&pensie landlines

Societal and environmental forces

To understand the role ofE!commerce intodays organi/ations, itbecomesnecessaryto reiew the factors that create societal and enironmental forces.

$hanging nature ofworkforce

"oernment deregulations

(hrinking goernment subsidies

Increased importance ofethical and legal issues

Increased social responsibilityoforgani/ations

Rapid political changes

1.. Criticl re$+on$e cti7itie$ 4% Orni


52/571

NOTES



53/571

DBA 1727

NOTES competitors fromentering into their territory. There is a arietyofE$supportedstrategic systems. An e&ample is 4edE&s oernight deliery system and the

companys abilityto track the status of eery indiidualpackage anywhere in the

system. 2ost of 4edE&s competitors hae already mimicked the system. (o

4edE& moed the system to the Internet. oweer, the competitors =uickly

followed andnow 4edE&isintroducing newactiities.

Continuous $mprovement Efforts

In order to improe the companys productiity and =uality, many

companies continuously conduct innoatie programs. The efforts taken by

companiesforcontinuous improement are

Improedproductiity

Improed decisionmaking

2anagingInformation

$hange inmanagement

$ustomer serice Innoation and

$reatiity.

4or e&ample, ell $omputer takes its orders electronically and improed

moes themia Enterprise Resources lanning software -from(A $orp.0 into the%ust!in!time assemblyoperation. Intel is taking itsproductsconsumption in))of

its largest customers, using its e&tranets, almost in real time, and determining

productionschedules anddelieries accordingly.

Business Process /eengineering &BP/'


54/571

until its implementationN



55/571


MANAGEMENT

time to marketNisimportant because those who canbe first onthe market

witha product, or who can proide customers with a serice faster than

competitors, en%oya distinct competitie adantage.

Em+o2erment o"em+lo%ee$ndcoll4orti7e 2or3'Empowerment is

related

to the concept of self!directed teams. 2anagement delegates authority to

teams who cane&ecute the work fasterand with fewer delays.Information

Technology allows the decentrali6ation of decision making and authority

but simultaneously supports a centrali/ed control. 4or e&ample, the Internet

and the intranets enable empowered employees toaccess data, information

and knowledgetheyneed for making =uick decisions.

=no2lede mn)ement' Employees canaccess organi/ational know!howia

their companys intranet. (ome knowledgebases are open to thepublic for

a fee oer the Internet, generating income.

Cu$tomer-"ocu$ed ++roc,' $ompanies arebecoming increasinglycustomer

oriented. This can be done in part by changing manufacturing processes

from mass production to mass customi/ation. In mass production, a

company produces a large =uantity of identical items. In mass

customi/ation, itemsareproduced ina large =uantitybut are customi/ed to

fit the desires ofeach customer. Electronic commerce isanideal facilitatorofmass customi/ation.

Business alliances

2any companies reali/e that alliances with other companies, een

competitors canbe beneficial. There are seeral typesofalliances, suchassharing

resources, establishing permanent supplier!company relationships and creating%oint

researchefforts. 3ne ofthe most interesting typesis the temporary%oint enture, in

which companies forma special organi/ationfor a specific, limited!time mission.

1..& E-Commerce Communitie$

What it is that will drie e!commerce in the futureM N in a word, its

community. We certainly hae the technologyto build greatbusiness!to!consumer

and business!to! business ecommerce applications into our business models.And,

yes, attributes such as iable application design, integration with business

processes, and oerallperformance matter.

NOTES


56/571



57/571

DBA 1727

NOTES Asuccessfulcommunity strategymust embrace the idea ofmoing the one!on! one communication that occursoffline into the irtual worldofe!commerce.

(uch a strategy currently re=uires multiple technical approaches. oweer, we

beliee communitysolutions will soonbecome more integrated and far!reaching.

The tools that form online communities include discussion or forum

software, chat functions, instant messaging, two!way mailing lists, online

collaboration tools, audio, ideo, andmore. 9oumay choose to inest slowly at

first andincrease yourcommunitycommitment oertime.

3nline conersation with business partners will also gie net positie

results.A priate discussion area or secured online meetings can go a long way

toward building stronger relationships between companies. This will also sere to

potentiallydrie new business opportunitiesforbothparties.

While some use e!commerce and e!business interchangeably, they are

distinct concepts. In e!commerce, information and communications technology

-I$T0 is used in inter!business or inter!organi/ational transactions -transactions

between and among firms? organi/ations0 and in business!to!consumertransactions -transactionsbetween firms? organi/ationsandindiiduals0.

Ine!business, onthe other hand, I$T isused to enhance onesbusiness. It

includes anyprocess that abusiness organi/ation-either a for!profit, goernmental

or non!profit entity0 conducts oer a computer!mediated network. A more

comprehensie definition of e!business is# KThe transformation of an

organi/ations processes to delier additional customer alue throughthe

application of technologies, philosophies and computing paradigm of the new

economy.L

Threeprimaryprocesses are enhanced ine!business#

1. Production processes, which include procurement, ordering and

replenishment of stocks7 processing ofpayments7 electronic links with

suppliers7 andproduction controlprocesses, among others7



58/571


MANAGEMENT

2. Customer-focused processes7 which includepromotional and marketing

efforts, selling oer the Internet, processing ofcustomers purchase orders

andpayments, and customer support, among others7 and

3. $nternal management processes, which include employee serices,

training, internal information!sharing, ideoconferencing, and recruiting.

Electronic applications enhance information flow between production and

sales forces to improe sales force productiity. Workgroup

communications and electronicpublishing ofinternalbusiness information

are likewise made more efficient.

The Internet economypertains to all economic actiities using electronic

networks asa medium for commerce or those actiities inoled inbothbuilding

the networkslinked to the Internet and the purchase of application serices such astheproision ofenabling hardware and software and network e=uipment for Web!

based?online retail and shopping malls -orKe!mallsL0.

1.& !ENEFITSAND LIMITATIONS OFE-COMMERCE

4ew innoations inhuman history encompass as manypotentialbenefits as

E$ does. The global nature of the technology, low cost, opportunity to reach

hundreds of millions of people -pro%ected within )1 years0, interactie nature,

ariety of possibilities, and resourcefulness and rapid growth of the supporting

infrastructures -especially the Web0 result in many potential benefits to

organi/ations, indiiduals, and society. These benefits are %ust starting to

materiali/e,but theywill increase significantlyasE$ e&pands.

1.&.1 T,e !ene"it$ o" EC

The new markets could be accessed through the online and e&tending

the serice offeringsto customers globally. Internet shrinks the globe andbroaden current geographical parameters

to

operate globally

2arketing andpromotional campaigns canbe done globallyat the

reduced cost.

Retaining the customer and the customer serices could be improed

drastically.

(trengthenrelationships withcustomers and suppliers M

(treamline business processes and administratie functions

NOTES


59/571



60/571

DBA 1727

NOTES 'o added sales staff A catalogue which is =uickly and easily updateable. This means that

whenprices or stocks are changed, youdont hae to hae hundreds or

thousands of obsolete catalogueslying around.9ou dont hae to wait

for theprinter to delier the cataloguebefore the new prices cancome

into effect.

The facilityto adertise daily, weeklyor monthlyspecialsand sales,

or

anyspecial discounts ! and theycan be changed withinminutes,

when and ifnecessary.

9ou canalso add a marketingmessage whichhighlights yourstrengths,such

as the range and =ualityofyour products or serices ! or anything else

you want to tell yourcustomers.

1.3.1.1. Benefits to Organi6ations

Electronic commerce e&pands the marketplace to national and

international markets. With minimal capital outlay, a company can

easily and=uickly locate more customers, the best suppliers, and the

most suitablebusinesspartners worldwide.

Electronic commerce decreases the cost ofcreating, processing,distributing,

storing, and retrieing paper!based information. 4or e&ample, by

introducing an electronic procurement system, companies can cut

the purchasing administratie costsbyas much as85 percent.

Abilityfor creatinghighlyspeciali/ed businesses. 4ore&ample,dogtoyswhich

canbepurchased onlyinpet shops or department and discount stores

inthephysical world, are sold now ina speciali/ed w w w . d ogto y s .c om

Electronic commerce allows reduced inentoriesandoerhead byfacilitating

KpullL!type supplychainmanagement. Inapull!type systemtheprocess

starts from customer ordersand uses %ust!in!time manufacturing.

Electronic commerce reduces the timebetweenthe outlayofcapital andthe

receipt of products andserices.

Electronic commerce initiates business processes reengineering

pro%ects.


61/571

know

ledge

work

ers,

and administrators can increaseby)11 percent or more.

Electronic commerce lowers telecommunications cost!the Internet is

much

cheaper than:A's.



62/571


MANAGEMENT

3therbenefits include improed image, improed customer serice,

newfound business partners, simplified processes, compressed cycle

and deliery time, increased productiity, eliminating paper,

e&pediting access to information, reduced transportation costs, and

increased fle&ibility.

1.3.1.2 Benefits to Consumers

Electronic commerce enables customers to shop or do other

transactions @C hours a day, all year round, fromalmost anylocation.

Electronic commerce proidescustomers withmore choices7 theycan

select.

Electronic commerce fre=uently proides customers with lesse&pensie products and serices by allowing them to shop in many

places and conduct =uick comparisons.

Insome cases,especiallywithdigiti/ed products, E$allows =uickdeliery.

$ustomers can receie releant and detailed information in seconds,

rather than daysor weeks.

Electronic commerce makesitpossible toparticipate inirtual

auctions.

Electronic commerce allowscustomers to interact withother customersin electronic communities and e&change ideas as well as compare

e&periences.

Electronic commerce facilitates competition, which results in

substantial

discounts.

1.3.1.3 Benefits to Societ(

Electronic commerce enables more indiiduals to work at home and to

do less traelling forshopping, resulting inlesstraffic onthe roadsand

lower air pollution.

Electronic commerce allows some merchandise tobe sold at lower

prices, so

less affluent people canbuymore and increase their standard ofliing.

Electronic commerce enablespeople inThirdWorld countriesand rural

areas to en%oyproducts and serices that otherwise are not aailable to

them

.

Electronic

commerce

facilitates

deliery of

public

serices,

such as

health

care,

educ

ation, and

distri

butio

n of

goe

rnme

nt

socia

l

seri

ces

at a

redu

ced

cost

and?

orimpr

oed

=uali

ty.

eal

th!

care

seri

ces,


63/571

for e&ample, can reachpatients inrural areas.NOTES



64/571

DBA 1727

NOTES 1.&. T,e Limittion$ o" EC

The limitations ofE$ can be grouped into technical and non!technical categories.

1.3.2.1 ec%nical Limitations of EC

There is a lack of system security, reliability, standards, and some

communication protocols.

Insufficient telecommunicationbandwidth.

The software deelopment toolsare still eoling and changing rapidly.

It is difficult to integrate the Internet and E$ software with some

e&isting applicationsanddatabases.

9endor$ m% need $+ecil ?e4 $er7er$ nd ot,er in"r$tructure$5in

ddition to t,e net2or3

$er7er$.

(ome E$ software might not fit some hardware, or may be

incompatible with some operating systemsor other components.

1.3.2.2 0on-tec%nical Limitations

3fthe manynon!technical limitationsthat slowthe spreadofE$,thefollowingare the ma%or ones.

Cost and 4ustification# The cost of deeloping E$ in!house can be

ery high, and mistakesdue to lack ofe&perience mayresult indelays.

There are manyopportunitiesfor outsourcing,but where andhowtodo

it is not a simple issue. 4urthermore, to %ustify the system one must

deal withsome intangiblebenefits-suchasimproed customer serice

and the alue ofadertisement0, whichare difficult to =uantify.

Securit( andprivac(# These issuesare especiallyimportant inthe


65/571

facel ess seller -sometimes they do not trust een known ones0, paperless



66/571


MANAGEMENT

transactions, and electronic money. (o switching fromphysical to

irtual storesmaybe difficult.

Ot%er limiting factor:. ;ack oftouch and feel online. (ome customerslike

to touchitemssuch asclothes andlike to know e&actlywhat theyarebuying.

2any legal issues are as yet unresoled, and goernment regulations

and standards are not refined enough for manycircumstances.

Electronic commerce, asa discipline, is still eoling and changing

rapidly.

2anypeople are looking for a stable area before theyenter into it.

There are not enough support serices. 4or e&ample, copyright

clearance centres for E$ transactions do not e&ist, and high!=uality

ealuators,or=ualified E$ ta&e&perts, are rare.

Inmost applications there are not yet enoughsellers andbuyers forprofitable

E$operations.

Electronic commerce couldresult inabreakdownofhuman

relationships.

Accessibility to the Internet is still e&pensie and?or inconenient for

many potential customers. -With Web T:, cell telephone access,

kiosks,andconstant media attention, the critical mass will eentually

deelop.0 espite these limitations, rapid progress in E$ is taking

place. 4or e&ample, the number of people inthe 6nited (tates whobuy

and sell stockselectronically increased from H11,111 at the beginning

of )**+to about )1 million infall )***.As e&perience accumulates and

technology improes, the ratio of E$benefits to costs will increase,

resulting ina greater rate ofE$ adoption. The potential benefits may

notbe conincing enoughreasons tostart E$actiities

1.* DATA MININ:

1.*.1 Introduction to Dt Minin

ata mining, the extraction of hidden predictive information from large

dataases, is a powerful new technology with great potential to help companies

focus on the most important information in their data warehouses. ata mining

toolspredict future trendsandbehaiours,allowingbusinessestomake proactie,

knowledge!driendecisions. The automated, prospectie analyses offered bydata

mining moe beyond the analyses of past eents proided by retrospectie tools

typical of

decision support

systems. ata

mining tools can

answer business

=uestions that

traditionally

were too time!

consuming to

resole. They

scour databases

for hidden

patterns, findingpredictie

information that

e&perts maymiss

because it lies

outside their

e&pectations.


67/571

NOTES



68/571

DBA 1727

NOTES 2ost companiesalreadycollect andrefine massie =uantitiesofdata.atamining techni=ues canbe implemented rapidlyone&isting software and hardware

platforms to enhance the alue of e&isting information resources, and canbe

integratedwithnewproducts and systems astheyare brought on!line.

1..1.1. +%at is #ata !ining8

ata mining is the semi!automatic discoery of patterns, associations,

changes, anomalies,rules,and statistically significant structures and eents in data.

That is, data mining attempts toe&tract knowledge fromdata.

ata mining differs from traditional statistics in seeral ways# formal

statistical inference is assumptiondrien in the sense that a hypothesis is formed

and alidatedagainst the data.ata mining incontrast isdiscoerydrien in thesense that patterns and hypothesis are automatically e&tracted from data. (aid

another way, data mining is data drien, while statistics is human drien. The

branch of statistics that data mining resembles most is e&ploratory data analysis,

although this field, like most ofthe rest ofstatistics, hasbeen focused ondata sets

far smaller than most that are the target ofdata mining researchers.

ata mining also differs from traditional statistics in that sometimes the

goal is to e&tract =ualitatie models which can easily be translated into logical

rules or isual representations7 inthis sense data mining ishumancentered and is

sometimes coupled with human!computer interfaces research.

ata mining is a step in the data mining process, which is an interactie,

semi! automated process whichbeginswith rawdata.Resultsof the data mining

process maybe insights, rules,or predictie models.

The field of data mining draws upon seeral roots, including statistics,

machine learning, databases, andhighperformance computing.

ere, we are primarily concerned with large data sets, massie data sets,

and distributed data sets.


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MANAGEMENT

The focusonlarge data setsis not a %ust anengineering challenge7 it is an

essential feature of induction of e&pressie representations from raw data. It is

onlybyanaly/ing large data sets that we can produce accurate logical descriptions

that can be translated automatically into powerful predictie mechanisms.

3therwise, statistical and machine learning principles suggest the need for

substantial user input -specifying meta!knowledge necessary to ac=uire highly

predictie models fromsmall data sets0.

1.*. T,e Sco+e o" Dt Minin

ata mining deries its name from the similarities between searching for

aluable business information in a large database N for e&ample, finding linked

productsingigabytes of store scanner data Nand mining a mountainfora einof

aluable ore.


70/571

=uantities of data. ;arger databases, in turn, yield improed

predictions. NOTES



71/571

DBA 1727

NOTES 1.*.& Tec,ni@ue$ u$ed in Dt Minin

The most commonlyused techni=ues indata mining are#

Arti"icil neurl net2or3$# 'on!linear predictie models that learn

through training and resemble biological neural networksinstructure.

Deci$ion tree$# Tree!shapedstructures that represent setsofdecisions.

These

decisions generate rules for the classification of a dataset. (pecific

decision tree methods include $lassification and Regression Trees

-$ART0 and $hi (=uare Automatic Interaction etection-$AI0 .

:enetic lorit,m$# 3ptimi/ation techni=ues that useprocesses suchas

genetic combination, mutation, and natural selectionina design based

onthe concepts of eolution.

Nere$t nei,4our met,od# Atechni=ue that classifies each record ina

dataset based ona combination of the classes of the k record-s0 most

similar to it in a historical dataset -where k O )0. (ometimes called the

k!nearest neighbour techni=ue.

Rule induction# The e&traction ofusefulif!then rules fromdata basedon

statisticalsignificance.

2any of these technologies hae been in use for more than a decade in

speciali/ed analysis tools that work with relatielysmall olumes ofdata. These

capabilities are now eoling to integrate directly with industry!standard data

warehouse and3;Aplatforms.

1.*.* #o2 Dt Minin) ?or3$

The techni=ue that is used toperform these feats in data mining is called

modeling. 2odeling is simply the act ofbuilding a model inone situationwhere

youknow the answer and thenapplying it to another situationthat you dont. 4or

instance, ifyou were looking for a sunken(panishgalleononthe highseasthe first

thingyou might do isto researchthe times when (panish treasure hadbeen found

byothers in the past. 9ou might note that these ships often tend to be found off

the coast of


72/571

that era. 9ou

note these

similarities and

build a model that includes the characteristics that are common to the locations of

these sunken treasures. With these models inhand you sail offlooking for treasure

where your model indicates it most likely



73/571


MANAGEMENT

mightbe gien a similar situationinthe past. opefully, ifyoue got a good

model, you find your treasure.

This act ofmodel building is thussomething that people hae beendoing

for a long time, certainly before the adent of computers or data mining

technology. What happens on computers, howeer,isnot muchdifferent thanthe

waypeoplebuildmodels. $omputers are loaded up with lots ofinformation about

a ariety of situations where an answer is known and then the data mining

software onthe computer must run throughthat data and distil the characteristicsof

the data that should go into the model. 3nce the model isbuilt it canthenbe used

insimilarsituations where you dont know the answer.

4or e&ample, say that you are the director of marketing for atelecommunications company and youd like to ac=uire some new long distance

phone customers.9ou could%ust randomlygo out andmail couponstothe general

population!%ust asyoucouldrandomly sail the seaslooking for sunkentreasure. In

neither case would you achiee the resultsyou desired and of course you hae the

opportunity to do much better than random ! you could use your business

e&perience stored inyour database to build a model.

Asthe marketing director you hae access to a lotofinformationabout all

ofyour customers# their age,se&, credit historyand long distance calling usage. The

good news is that you also hae a lot of information about your prospectie

customers# their age, se&, credit historyetc.9ourproblemisthat you dont know

the long distance calling usage of these prospects -since theyare most likelynow

customers of your competition0. 9oud like to concentrate on thoseprospects who

hae large amounts oflong distance usage. 9ou can accomplish this bybuilding a

model. Table ).C.C.-a0 illustrates the data used for building a model for new

customerprospecting ina data warehouse.

T4le 1.*.*.() - Dt Minin "or;ro$+ectin

NOTES


74/571



75/571

DBA 1727

NOTES The goal inprospecting is to make some calculated guesses about theinformation in the lower right hand =uadrant based on the model that we build

going from$ustomer "eneral Information to$ustomer roprietaryInformation.

Test marketing is an e&cellent source of data for this kind of modeling.

2ining the results ofa test market representing abroad but relatielysmall sample

ofprospects can proide a foundationfor identifying goodprospects inthe oerall

market. Table ).C.C.-b0 shows another common scenario for building models#

predict what is going to happen in the future.

T4le 1.*.*.(4) - Dt Minin "or ;rediction$

Ifsomeone told you that he hada model that could predict customer usage

how would you know ifhe reallyhada good modelM The first thing you might try

would be to ask himto applyhis model to your customerbase ! where you already

knew the answer. With data mining,the best wayto accomplish thisisby setting

asidesome ofyour data in a ault toisolate it fromthe miningprocess. 3nce the

mining iscomplete, the resultscan be tested against the data held in the ault to

confirmthe models alidity. Ifthe model works, its obserationsshould hold for

the aulted data.



76/571

1.*. ;ro"it4le

A++liction$


MANAGEMENT

NOTES

Awide range ofcompanies hae deployed successful applications of data

mining. While early adoptersofthistechnologyhae tendedtobe ininformation!

intensie industries such as financial serices and direct mail marketing, the

technology is applicable to any company looking to leerage a large data

warehouse to better manage their customer relationships. Two critical factors for

successwithdata mining are# a large, well!integrated data warehouse and a well!

defined understanding of the businessprocess within which data mining is tobe

applied -such as customerprospecting, retention, campaign management, and so

on0.

(ome successful applicationareasinclude#

Apharmaceutical company can analy/e its recent sales force actiity

and their results to improe targeting of high!alue physicians and

determine which marketing actiities will hae the greatest impact in

the ne&t few months. The data needs to include competitor market

actiityaswell asinformationabout the local healthcare systems. The

results can be distributed to the sales force ia a wide!area network

that enables the representaties to reiew the recommendations from

the perspectie of the key attributes in the decision process. Theongoing, dynamic analysis of the data warehouse allows best practices

from throughout the organi/ation to be applied in specific sales

situations.

Acredit cardcompanycanleerage itsast warehouse ofcustomer transaction

data to identifycustomers most likely tobe interested ina newcredit

product. 6sing a small test mailing, the attributes ofcustomers withan

affinity for the product can be identified. Recent pro%ects hae

indicated more than a @1! fold decrease in costs for targeted mailing

campaigns oer conentional approaches.

Adiersifiedtransportation companywitha large direct salesforce canapply

data mining to identify the best prospects for its serices. 6sing data

mining to analy/e its own customer e&perience, this company can

build a uni=ue segmentation identifying the attributes of high!alue

prospects. Applying this segmentation to a general business database

suchas thoseproided byun

>


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A large consumer package goods company can apply data mining to

improe its sales process to retailers. ata from consumer panels,

shipments, and



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DBA 1727

NOTES competitor actiitycanbe applied to understand the reasons for brandand store switching. Throughthisanalysis,the manufacturercanselect

promotional strategies that best reachtheir target customer segments.

Each of these e&amples has a clear common ground. They leerage the

knowledge about customers implicit in a data warehouse to reduce

costs and improe the alue of customer relationships. These

organi/ations can now focus their efforts on the most important

-profitable0 customers and prospects, and design targeted marketing

strategies to best reach them.

1.*./ Trend$ t,t E""ect Dt Minin

In this section, we describe fie e&ternal trends whichpromise tohae a

fundamental impact ondata mining.

#ata rends.

erhaps the most fundamental e&ternal trendisthe e&plosionofdigital data

during the past two decades. uring thisperiod, the amount ofdata probablyhas

grownbetween si&to tenorders ofmagnitude. 2uch ofthisdata isaccessible ia

networks. 3n the other hand, during this same period the number of scientists,

engineers, andotheranalystsaailable to analy/e this data has remained relatiely

constant. 4or e&ample, the number of new h..s in statistics graduating each

year has remained relatiely constant during thisperiod. 3nly one conclusion is

possible# either most of the data is destined to be write!only, or techni=ues, such

as data mining, must be deeloped, which can automate, in part, the analysis of

this data,filter irreleant information, ande&tract meaningful knowledge.

)ard*are rends.

ata mining re=uires numerically and statistically intensie computations

on large data sets. The increasing memory andprocessing speed of workstations

enables the mining of data setsusing current algorithmsand techni=ues that were

too large tobe mined%ust a few yearsago. Inaddition, the commoditi/ation ofhigh

performance computing through (2 workstations and high performance

workstation clusters enables attacking data mining problems that were accessible

using onlythe largest supercomputers ofa fewyears ago.


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0et*or" rends.


MANAGEMENT

NOTES

The ne&t generation internet -'"I0 will connect sites at 3$!H -)55

2

The primary concept of data warehousing is that the data stored for

business analysis can most effectielybe accessedbyseparating it fromthe data in

the operational systems. A data warehouse is a collection of computer!based

information that is critical to successful e&ecutionof enterprise initiaties. Adata

warehouse ismore thananarchie for corporate data and more than a newwayof

accessing corporate data. A data warehouse is a sub%ect!oriented repository

designed with enterprise!wide access in mind. It proides tools to satisfy the

information needsofthe employees organi/ational leels!not %ust for comple&data

=ueries,but asgeneral facilityfor getting =uick, accurate and ofteninsightful


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DBA 1727

NOTES information.Adata warehouse is designed so that its userscanrecogni/e theinformation theywant and access that informationusing simple tools.

3ne of the principal reasons for deeloping a data warehouse is to

integrate operational data from arious sources into a single and consistent

architecture that supports analysis and decision!making within the enterprise.

3perational systems create, update and delete production data that feed the data

warehouse.Adata warehouse is analogous to a physical warehouse. 3perational

systems create data partsthat are loaded into the warehouse. (ome ofthoseparts

are summarised into information components and are stored in the warehouse.

ata warehouse usersmake re=uestsandare deliered information

productsthat are created from the components and parts stored inthe warehouse.

A data warehouse is typically a blending of technologies, including relational

and multidimensional databases, client? serer architecture, e&traction ?

transformationprograms, graphical user interfaces, and more.

1.. De"inition$

Dt

?re,ou$e'

The term ata Warehouse was coined by


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All data inthe data warehouse isidentified with aparticular time period.



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Non-7oltile


MANAGEMENT

NOTES

ata is stable in a data warehouse. 2ore data is added but data is neer

remoed. Thisenables management to gain a consistentpicture ofthe business.

This definition remains reasonably accurate almost ten years later.

oweer, a single!sub%ect data warehouse is typically referred to as a data mart,

while data warehouses are generallyenterprise inscope. Also, data warehouses can

be olatile. ue to the large amount of storage re=uired for a data warehouse,

-multi!terabyte data warehouses are not uncommon0, only a certain number of

periods of historyare kept in the warehouse. 4or instance, ifthree yearsofdata are

decided onand loaded into the warehouse, eerymonth the oldest monthwill be

Krolled offL the database, and the newest month added.

Ralph Fimball proided a much simpler definition of a data warehouse. A

data warehouse is Ka copyo ftransactiondata specifically structured for =ueryand

analysisL. This definition proides less insight and depththan 2r. Inmons, but is

no less accurate. ata warehousing isessentiallywhat you need to do in order to

create a data warehouse, and what you do with it. It is the process of creating,

populating, and then =uerying a data warehouse and can inole a number of

discrete technologies suchas#

1..& AD9ANTA:ES OFDATA?ARE#OUSE

Implementing a ata warehouse proides significant benefits many

tangible,some intangible.

More co$t e""ecti7e deci$ion m3in - A ata Warehouse allows

reduction of staff and computer resources re=uired to support =ueries and

reports against operational and production databases. This typicallyoffers

significant saings. ainga ata Warehouse also eliminatesthe resource

drain onproduction systems when e&ecuting long ! running, comple&

=ueries and reports.

!etter enter+ri$e intellience - Increased =uality and fle&ibility of

enterprise analysis arises from the multi ! tired data structures of a ata

Warehouse that supports data ranging from detailed transactional leel to

high ! leel summary information. "uaranteed data accuracyand reliability

result fromensuring that a ata Warehouse contains onlytrusteddata.


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DBA 1727

NOTES En,nced cu$tomer $er7ice - An enterprise can maintain bettercustomer relationshipsby correlating all customer data ia a single ata

Warehouse architecture.

!u$ine$$ reenineerin -Allowing unlimited analysis ofenterprise

informationoften proides insights into enterprise processes that may yield

breakthrough ideas for reengineering those processes. Bust defining the

re=uirements for ata Warehouse, results in better enterprise goals and

measure. Fnowing what information is important to an enterprise will

proide direction andpriorityfor reengineering efforts.

In"ormtion $%$tem$ reenineerin - Aata Warehouse that is basedupon

enterprise! wide data re=uirementsproides a cost ! effectie means of

establishing both data standardi/ation and operational system

interoperability. ata Warehouse deelopment canbe an effectie first step

inreengineering the enterprises legacy systems.

1..* T%+e$ o" Dt 2re,ou$e$'

The termdata warehouse iscurrentlybeingused to describe a number of

different facilities each withdierse characteristics.

P%(sical data *are%ouse# This is an actual, physical database into which all the

corporate data for the data warehouse are gathered, along with schemas

-information about data0 and the processing logic used to organi/e, package and

pre!process the data for end user access.

Logical data *are%ouse: This contains all the metadata, business rules and

processing logic re=uired scrub, organi/e, package, andpre!process the data. In

addition, it contains the information re=uired to find and access the actual data,

whereer it actuallyresides.

#ata li.rar(:This isa subset of the enterprise wide data warehouse.Typically, it

performs the role of departmental, regional, or functional data warehouse. As part

of the data warehouseprocess, the organi/ationbuildsa seriesofdata librariesoer

time andeentually links themia anenterprise wide logical data warehouse.

#ecision support s(stems SSs': These systems are not data warehouses but

applications that make use of the data warehouse. Theyare alsocallede&ecutie

information systems -EI(0


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1.. A$+ect$ o" Dt ?re,ou$e

Arc,itecture


MANAGEMENT

NOTES

This list of aspects of architecture that the data warehouse decision maker

will hae to deal with themseles. There are many other architecture issues that

affect the data warehouse, e.g.,networktopology, but these hae tobe made with

all of an organi/ations systems in mind -and with people other than the data

warehouse team being the main decision makers.0

Dt con$i$tenc% rc,itecture

This is the choice of what data sources, dimensions, business rules,

semantics, and metrics an organi/ationchoosesto put intocommonusage. It isalso

the e=ually important choice of what data sources, dimensions, business rules,

semantics, and metrics an organi/ation chooses not to put into common usage.

Thisisbyfar the hardest aspect of architecture toimplement andmaintainbecause

it inoles organi/ationalpolitics.oweer, determiningthisarchitecture hasmore

todowithdeterminingthe place ofthe data warehouse inyour businessthanany

otherarchitectural decision. Inmyopinion, the decisions inoled in determining

thisarchitecture shoulddrie all other architectural decisions.

Re+ortin) dt $tore nd $tin dt $tore rc,itecture

The mainreasons we store data ina data warehousing systems are so theycanbe#

)0 reported against,

@0 cleaned up, and -sometimes0

H0 transported



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DBA 1727

NOTES Dt modelin rc,itecture

This is the choice of whether you wish to use demorali/ed, normali/ed,

ob%ect! oriented, proprietary multidimensional, etc. data models. As you may

guess,it makesperfect sense for anorgani/ationto use a arietyofmodels.

Tool rc,itecture

This is your choice of the tools you are going to use for reporting and for what I

call infrastructure.

;roce$$in tier$ rc,itecture

This isyour choice ofwhat physical platforms will do what piecesof the

concurrent processing that takes place when using a data warehouse. This can

range from an architecture as simple as host!based reporting to one as

complicated.

Securit% rc,itecture

If you need to restrict access down to the row or field leel, you will

probably hae to use some other means to accomplish this other than the usual

security mechanisms at your organi/ation. 'ote that while security may not be

technicallydifficult toimplement, it cancause political consternation.

In the long run, decisions on data consistency architecture will probably

hae much more influence on the returnofinestment inthe data warehouse than

anyotherarchitectural decisions. To get the most return froma data warehouse -or

anyother system0, business practices hae tochange incon%unction withor as a

result ofthe system implementation. $onscious determination ofdata consistency

architecture is almost always a prere=uisite to using a data warehouse to effect

businesspractice change.


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MANAGEMENT

1./ NET?OR= INFRASTRUCTURE REBUIREMENTS

The network infrastructure is the underlying foundation of the system. It

forms the serices that create the operating makeup of your network. In a

$ommunications (erices deployment, determining your network infrastructure

fromthe pro%ect goals ensures that you will hae anarchitecture that canscale and

grow.

1./.1 T,e Ei$tin Net2or3

We need to understand our e&isting network infrastructure to determine

how well it canmeet the needsofourdeployment goals.


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