The Difference Between E-commerce and E-business - Research Paper Example

Chapter Introduction E-business is a major trend in managing business like other important trends like supply chain management or mail order business. E-business stands for internet enabled business and the enabling process is based upon application of internet technologies (Reiss, 2001). E-business requires a powerful platform – the internet – to gather information for business. The internet has changed the economics, markets and industry structure, products and services and their flow, consumer segmentation, consumer values, consumer behavior, jobs, and labor markets (Parreiras, 2005). E-business includes buying and selling of goods and services, servicing customers, collaborating with business partners and conducting electronic transactions within an organization. The e-business framework consist of five support areas – people, public policy, marketing and advertising, support services and business partnerships. An e-business strategy for a company does not imply to rebuild the entire IT infrastructure. It means adapting the existing infrastructure and integrating it with the demands of the e-business (Robertson & Sribar, 1997). Data has to be instantly synchronized so that various points of interaction look and feel the same. Thus an integrated framework is essential for the success of e-business. This paper will highlight the difference between e-commerce and e-business and then discuss the importance of e-business framework. With the help of an organization this paper will establish that a well integrated framework is essential for the success of e-business. Research question E-business requires a framework where all the five support areas - people, public policy, marketing and advertising, support services and business partnerships – have to be well integrated, without which e-business can be a failure. Chapter 2: Literature review E-commerce and e-business E-commerce and e-business are terms that are used interchangeably but they are distinctly different. E-business means conducting any aspect of business online and includes functions like buying, selling, transacting, or exchanging information with customers, suppliers, distributors, resellers, or employees (Robertson & Sribar,1997). E-business can include web-driven applications or web-based commerce and include other functions like back-office, supply chain management, and customer relationship management. E-commerce on the other hand is a subset of e-business and involves transaction-oriented Web-based systems such as online catalogs, purchasing, and payments. It includes all electronically mediated information exchanges between an organization and its stakeholders (Lowson & Burgess, 2003). E-commerce therefore involves only external transactions while e-business is wider than just commercial exchanges. E-business therefore has four perspectives – communication, business process, service, and an online perspective. E-business can be further classified based on transactions or interactions. Online transactions between businesses and individual customers are known as business-to-customer (B2C) and when businesses make online transactions with other businesses it is known as business-to-business (B2B) (Parreiras, 2005). Apart from these there are the B2B2C or e-commerce models where businesses provide some product or service to a client business that manages or services its own customers. Another e-commerce model is the C2B in which individuals use the internet to sell products or services to organizations. E-commerce applications require four infrastructures (Phan, 2002): 1. Common business service – security, authentication, electronic payment) 2. Messaging and information distribution 3. Multimedia content and network 4. Network information superhighway like cable TV, wireless media) The most important function of e-business according to Rodgers, Yen and Chou (2002) is its interconnectivity and system interaction. Human functions get eliminated and efficiency results from faster processing and reduced errors. E-businesses can revolutionize its operations management due to its effective time, resource and cost reduction (Lowson & Burgess, 2003). A typical example of e-business success is Amazon.com. They do not hold much of physical inventory but they can still make their products available online. Such oppurtunities allow economic efficiencies by matching buyers and sellers and facilitating the exchange of information and goods and services. For the success of e-business “policy” matters (Jarvenpaa & Tiller, 1999). The technology and management strategy choices are interlinked with political, social and regulatory environments in which e-businesses operate. These forces can create blocks, increase or decrease regulation, create entry barriers and lower or raise the cost of competition. These policy frontiers have to be managed as a part of the overall strategy of the firm. How e-businesses deal with governments, interest groups, activists, and the public will be an integral part of the strategy and IT choices of the firm. E-businesses will need to design, structure and create relationships that allow dynamic and cost effective options that integrate market, technology and policy. This is further endorsed by the view of Phan (2002) who contends that organizations are not internally self-sufficient. They require resources from the environment and hence are dependent on those elements of the environment with which they transact. To minimize the dependencies organizations develop internal and external strategies. To succeed in e-business have to introduce innovative strategies so that they can capitalize on the power of internet as well as the changes in consumer demands both from the traditional and electronic markets. Such firms have to be responsive and maintain deeper and broader relationship with their customers, distributors and suppliers. Customers and suppliers should be able to gain access to the company website for information and exchanges. Apart from the ease and speed of access, other barriers for customers and suppliers include risk, privacy, confidentiality and security. In fact internet or e-business offers potentially unlimited risk. While it provides much greater access to data to the legitimate users, it also gives access to hackers, aggrieved employees, criminals and corporate spies (Lord, 2002). The greatest benefit of e-business is ‘disintermediation’. The intermediate information processing steps required in a typical brick and mortar business is eliminated. Users have direct and immediate online access to all data and information. Operations can be streamlined and overhead reduced thereby enabling an organization to reduce inventory. However, the more effective an e-business system is, the greater is the need to protect it against unauthorized access. Since e-businesses have to exchange data with their customers, suppliers and distributors, the security mechanisms must be standards based, flexible, and interoperable, to ensure that they work with others’ systems. To provide assurance to the users of the security, international standards have to be used to validate vendors’ security claims against established criteria in formal evaluations. Sharing information requires trust among the partners because only through information sharing and tight control it is possible to leverage the benefits of the e-business system (Lippert and Forman, 2006). Bartilla, an Italian pasta company manages to derive the benefits of e-business. Pasta is a product that has both low demand and supply uncertainties. Demand fluctuations used to be high due to overreaction by the retailers which results in significant waste and losses. Bartilla made use of e-business technology to avoid such losses by initiating information sharing and coordinating replenishment programs. Its inventory dropped by almost 50% and stock-out situations was almost zero. Internet provides a platform whereby the partners benefit through inventory pooling strategies. Information transparency amongst members that share inventory is possible. Saturn Corporation, a major US automobile maker, through the sense and respond model manages its inventory jointly with Saturn dealers (Dawson, 2004). Its service strategy meets the urgency needs of its customers. The demand of parts is highly unpredictable and hence Saturn has adopted the pull system. It does not place orders against forecast demand but replenishes the stocks at the retailers on one-for-one basis. Apart from dealing with suppliers, e-commerce and e-businesses have to be strategic in their approach towards the customers as well. For instance, in this digital economy it is very easy for the customers to get lured by numerous offers on the internet. This requires that the e-businesses should have a system to lock-in the customers. This has been considered essential because it has been found that shoppers are usually free riders (SD, 2006). Shoppers have become sophisticated in their approach; they browse through the informative website and then go and buy from a traditional store. Locking-in customers is hence a challenge for e-commerce. Companies must find ways to motivate the customers for repeat purchase. The solution according to Tse (2007) is to provide the customers with the opportunity to tailor the products, services and information as per individual needs. This strategy helps to enhance the buyer-seller relationship and the customer will be inclined to return to the website for future purchases. Customer relationship is essential to build relationships because a stable customer base is a core business asset (Rowley, 2006). Because of such measure that need to be incorporated, the potential costs and benefits of adopting and implementing e-business solutions (EBS) are both high (Huang, Zhao & Chen, 2007). To combat this problem the authors support the do it yourself (DIY) model for e-businesses. They suggest that SMEs should design, develop, deploy and maintain their own EBS. Chapter 3: Empirical Evidence Case Study – Dell Computers Jackson and Harris (2003) cite Kalakota and Robinson saying that “In the eBusiness world, companies must anticipate the need for transformation and be ready to re-examine their organisations to the core.” Dell Computers, the no. 1 PC makers in the market achieved tremendous success in their B2B concept of selling computers. Dell’s direct sales model was well known and appreciated by the business community. Dell receives orders online and they supply directly to the customers. They have thus eliminated the role of intermediaries or middlemen. They in fact integrated internet into the entire business processes like online sales, procurement, customer support and relationship marketing (Chou, Tan & Yen, 2004). Their super-efficient integration of the business functions helped them to survive the economic slowdown of 2000. Their simple business model of supplying to direct customers helps them to understand the needs of the customers and they could provide the most effecting solution to those needs. By eliminating the retailers they could distribute their computers much more quickly then the slow-moving, indirect distribution channels. Another innovation of this model was that they could move from the traditional build-to-stock model to build-to-order (BOT) model. This new model helped them to cut costs, reduce inventory and production cycles. The suppliers too were integrated into their system. Dell managed to create efficiencies through its material management process. Their procurement process had become so efficient that almost 90% of the company’s procurement could be done online and only two hours of the inventory was left on the factory floor. Dell used the internet to launch e-commerce. Customers could review, configure and price computer systems within Dell’s entire product line. They could not only order online but also track their orders from manufacturing through shipping. Their collaboration with the suppliers was enhanced. They were able to send their forecasts to the suppliers and receive a feedback whether the suppliers would be able to meet the requirement schedule. They added powerful software applications that enable better materials flow and other improvements. In additions they could closely connect its assembly operations with the network of logistics providers that operate the distribution centers. In the past they had to hold substantial inventory to ensure timely delivery. Dell started having to schedule a new manufacturing schedule for each of its plants every two hours that reflected the actual orders received and they also published these schedules as a web service. The hubs always knew its precise requirements and they could deliver the orders at a particular place accordingly. They used event-management Web service and sent out queries to the suppliers to determine the status of the orders. The result of all these efforts was that Dell became the no. 1 PC makers in the world by 2001. The company’s inventory turnover and plant utilization gave them the competitive edge. Dell was able to keep pace with technological advances that continue to accelerate. They could beat competition because they were able to recognize consumer tastes and changing demands. When Dell moved into the broader consumer electronics market in 2003 they were successful in this too because of the direct business model. They soon started dominating home computing, entertainment and all the associated peripherals (Shim, 2003). Along with the low-priced machines they started selling high-priced machines targeting three different types of consumers. This way they created a new market for themselves (Lee, 2005). However this strategy had to be introduced and their direct sales model had to be changed subsequently. Their B2B exchange, through which they had enjoyed several years of success, failed for a number of reasons. The primary reason was the lack of insight into the research and development area. Even though they offered new products and service through their Web presence (online music store, handheld computers with WiFi, computer for the gaming enthusiasts with lots of power and graphic features), they continued to be known as computer manufacturers rather than as selling alternative business products. Dell jumped too quickly at the idea of B2B without proper investigation and study of the concepts that are needed for its success. They were not the top choice for consumers and in 2001 they had to close the B2B exchange because of lack of demand and unwillingness of consumers to participate. Hence they actually offered B2B only for a short period from. They gave up too early as they did not meet their profit expectations. There were no efforts on the part of Dell to prove to the customers that they were not just PC makers. Their choice of suppliers too leaves much to look into. Their suppliers comprised of 3M, Motorola, and Pitney Bowes that were much inferior compared to companies such as Compaq, Hewlett-Packard and Gateway. These three joined hands and together they could offer the customers a wider product range to choose from. Because of these inefficiencies in their planning of B2B they had to start selling through retailers. For the first time they have started selling through Wal-Mart and other stores. They could not sustain competition. Chapter 4: Conclusion To be successful in e-business requires ingenuity in planning. It requires integration, well chosen technology, suppliers and an integration of all functions at all levels. While Dell started off very well with a novel concept, they could not sustain their direct sales model of certain drawbacks. While they had several products on offer, they failed to make the public aware of the wide range of products on offer. The five support areas for success in e-business include people, public policy, marketing and advertising, support services and business partnerships. Dell did not focus on marketing and advertising which resulted in public not being aware of all its products and services. B2B exchange is an opportunity for the company but Dell appears to have just jumped into it with insufficient planning and research. While they claimed to bee looking to customer demands and needs, their choice of suppliers did not give the public the reassurance of the final product. Hence their choice of business partners was also not correct. It also appears that their timing was wrong. They started the B2B exchange when the market place was not yet mature for e-commerce and e-business. The customers were unwilling as the e-business of Dell could not reassure them of the service and quality. It appears that Dell did not make preparation for all the support areas and no e-business can be successful unless all the five support areas are well integrated. 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