The Worldwide Influence of Electronic Commerce - Essay Example

Electronic Commerce Executive Summary E-commerce has been increasing globally at a phenomenal speed. Nowadays it is almost impossible to survive without opting this electronic way of trading. This dot com bust was arrived in the late 1990s when many investors were able to make millions of dollars; while others are simply the losers in the start of the decade. Today that sort of hype is over and now we can analyze that worked at that time and what did not. We are now much more aware of what business and commerce require electronically and about information technology. This paper is an effort to give you a glimpse that what is going in the financial institutions and supply chain with regards to the e-commerce. Introduction Electronic commerce, EC, e-commerce or ecommerce consists primarily of the distributing, buying, selling, marketing, and servicing of products or services over electronic systems such as the Internet and other computer networks. The information technology industry might see it as an electronic business application aimed at commercial transactions. It can involve electronic funds transfer, supply chain management, e-marketing, online marketing, online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. It typically uses electronic communications technology such as the Internet, extranets, e-mail, e-books, databases, and mobile phones. (http://en.wikipedia.org/wiki/E-commerce) Today, it has been proved that opening a website or getting a large number of hits on them is not enough to get the real business – for example, costs and revenues are also countable and not just website hits. An E-commerce business requires special consideration. On the other hand, it is essential to remember that all the business practices that apply in general business are not normally applicable to electronic commence. E-commerce and Security E-commerce can apply to purchases made through the Web or to business-to-business activities such as inventory transfers. A customer can order items from a vendor's Web site, paying with a credit card (the customer enters account information via the computer) or with a previously established "cybercash" account. The transaction information is transmitted (usually by modem) to a financial institution for payment clearance and to the vendor for order fulfillment. Personal and account information is kept confidential through the use of "secured transactions" that use encryption technology. In an effort to further the development of e-commerce, the federal Electronic Signatures Act (2000) established uniform national standards for determining the circumstances under which contracts and notifications in electronic form are legally valid. Legal standards were also specified regarding the use of an electronic signature ("an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record"), but the law did not specify technological standards for implementing the act. The act gave electronic signatures a legal standing similar to that of paper signatures, allowing contracts and other agreements, such as those establishing a loan or brokerage account, to be signed on line. (http://columbia.thefreedictionary.com/e-commerce) Most of today's e-commerce solutions are based upon a "supply chain" business model. Web Services is a technology that many expect to provide excellent tools for implementing e-commerce based upon this model. In the supply chain model, the material needed for final goods flows from one processing stage to another and value is added along the way to create the finished product. When implemented as an e-commerce instance, this model focuses on suppliers and consumers searching for each other using Web Services and requesting bids or placing orders. Optimizing the supply chain means focusing on cost of goods and delivery schedules. (Marc et al 2004) The communication that takes place in financial institutions is not tedious. There are many people who believe that e-commerce is pretty risky when openly use for the supply chain model. The fiduciary responsibilities of financial institutions require that system changes be carefully planned, but e-commerce solutions based upon the supply chain model seem to be at odds with reasonable caution. (Marc et al 2004) When we look at the actual relationships between the processes of financial institutions, we can see that financial institutions relationships are generally more complex than the supply chain model. The internet services are now capable of reducing the capability of it technical difficulties and complexities. Today, when we apply the internet or web services’ tools are applied to the data exchange within the industry, the enhanced quality of e-commerce can be observed. Nowadays, upper-level bank managements want to take technical or competitive advantage of the technological advances so that they can increase their clientele. When we explore the web services implications, we can see that internet or web services have a very positive role in implementing the real world electronic commerce in the finance sector organizations. Many researchers say that it is better to say that it is vital to apply e-commerce in all the businesses or get ready to be kicked out from the market. E-commerce Causal Model of Performance: E-commerce Objectives Outcomes Long-term Corporate Profitability Outputs Customer Acquisition Customer Loyalty and Retention Cost Savings: Related to customer and supplier interactions Channel Optimization: Increased site traffic and sales Value Capture: Increased e-commerce profits Processes Leadership: Commitment and focus on e-commerce initiatives E-commerce Structure: Integration into business unit structure E-commerce Strategy: Coherent and aligned strategy E-commerce Systems: Appropriate processes for effective implementation Inputs Resources: Adequate capital and people Corporate Structure: Appropriate organizational structure Corporate Strategy: Alignment with type of products offered, customers served, and competitive positioning Corporate Systems: Suitable training, information, and processes External Environment: Adapted to external forces Source: (Marc et al 2004) Many industries can be represented using the supply chain model, but not the financial industry. Certainly there is a supply chain of the funds a financial institution uses; however, this model does not represent the complexity of the working relationships within a financial institution, nor does it suit the interrelationships among financial institutions and suppliers of information and information services. (Marc et al 2004) Real Estate Finance Industry If we look at the real estate finance industry with regards to the e-commerce, we have to examine the flow of money (investor to borrower and reverse) and the flow of information needed to analyze and make prudential decisions that can put the lending institution in danger. Let’s look the entire process of a real estate transaction in several phases. Originating Phase In the origination phase, the information is gathered from and dispersed to many individuals and organizations including but are not limited to the following: borrower and his/her employer a credit bureau insurance and mortgage companies taxing authorities appraisers public records repositories investors real estate brokers mortgage brokers and more It is important to know that every institution have a relationship with hundreds of vendors and does not deal with only a single vendor. If one organization is communicating with only one organization than fast and effective communication might be possible without using the internet but when there are dozens of institutions in the process, one should have to go for electronic commerce and communication. On the other hand, every institute or organization wants fast and effective communication. Borrowers are eagerly waiting for decisions and instant results and each member (vendor) of the process wants accurate and timely information and hopes to be paid for their efforts and services with a great speed. Thus, we can easily say that all these goals can be attained with the help of e-commerce. Closing Phase All of the information gathered during the origination phase is combined into document sets that accurately represent the facts, protect the legal interests of the parties, and meet the requirements of a variety of governmental jurisdictions. Sometimes the facts change at the last minute, resulting in communications that are necessary to accommodate the new facts. These facts are important to the lender, but often--because the current post-closing process used to discover whether facts have changed is expensive, labor intensive, and error prone--the lender is the last to find out. (Marc et al 2004) Servicing Phase In the servicing phase, the information and funds flow from the borrower to the institutions and on to the investors. According to estimates, an average service period of a 30-year loan is around 4-5 years. During this period, the information keeps flowing between several institutions such as flood insurance companies, taxing authorities, and other organizations. On the other hand, the conditions and needs of the original borrower are constantly changing. This can be monitored and fulfilled with the help of effective and efficient communication and transactions. E-Commerce Ventures E-commerce was seen by many companies/financial institutions as a trend that would boost sales resulting in unimaginable profits, but not all companies/financial institutions benefited from it. Bank One integrated its online banking operations into the bank, after dissolving Wingspan. Wal-Mart, after many unsuccessful attempts had to suspend its website, which caused Borders to outsource its internet sales to Amazon. In order to estimate the benefits that can be gained from e-commerce it is essential to analyze the long-term impact of managerial actions along with casual relationships. The results of such analysis detail the effectiveness and benefits of any e-commerce initiative that the company/financial institution desire to undertake. For companies that are initiating their first e-commerce venture, or those which are broadening their initiatives, an extensive study of the processes involved, inputs required, outputs expected and outcomes derived is imperative as it enables the concerned company to visualize the costs involved and benefits gained. CIO’s should be able to justify all benefits gained and calculate ROI. Though researchers and managers have made considerable efforts to measure the impact of corporate actions and provide better ROI analysis, appropriate metrics have still not been developed. Development of an effective framework requires the identification of casual relationships that lead to e-commerce success and all related measure. Therefore, analysis carried out to measure the success, or required investments of an e-commerce venture require the involvement of general managers, IT and ecommerce professionals. IT has been growing very rapidly, with the result that companies are adopting new technologies without measuring whether such technology is required by them. Companies must look into the economic rationality of IT expenditure, prior to adopting acquiring latest technologies. Systems that assess e-commerce investment payoffs help senior executives develop strategies and allocate resources to back such e-commerce strategies. Such systems also aide e-commerce managers to analyze current projects and determine which projects will benefit the company on a long-term basis, and which ones will have short-term benefits. Therefore companies must invest in such systems that evaluate the impact of e-commerce initiatives on financial performance and the trade-offs that must be made among competing organizational constraints and barriers to implementation. A detailed analysis of such nature allows the management to demonstrate the impact of e-commerce on corporate profitability and value creation. Higher management, such as the CEO’s and the CFO’s too see a clearer picture based on the full understanding of the benefits and costs of e-commerce. So the main challenge faced by companies when implementing e-commerce is estimating the relation between corporate actions in e-commerce and corporate financial performance. Recently, companies have realized the importance of the development of performance metric to measure and manage the e-commerce performance in a better way. They have started the use of information systems and software programs for this purpose to design and implement a new strategic management system. In this cutthroat competition and IT age, for most companies, implementation of e-commerce system in an effective and timely manner is a big issue. It is a very critical and difficult decision as history shows that poor implementation resulted in a loss of millions of dollars. Thus, there is a need that whenever planning to implement an e-commerce system, first analyzes its each and every aspect, and don’t only look at the aspect that how many hits you can get on the website. 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