E Business PDF

E-business
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E-business
Course Instructions
Please read the instructions given below related to Course "E-business"
There are 5 sections in this course. All sections are mandatory.
In Section 1 of this course you will cover these topics:
The World Of E-Business

E Business Strategy
Spotting E Business Trends
Wireless Technologies For E Business

Enterprise E-Business Systems
Electronic Commerce Systems

Demystifying E-Procurement: Buy-Side, Sell-Side, Netmarkets, And Trading Exchanges
E-Business Network And Web Site Security

E-Business Web Site Management
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E-business > Section 1
Section 1- Instructions
The World Of E-Business

E Business Strategy
Spotting E Business Trends
You may take as much time as you want to complete the topic coverd in section 1.
There is no time limit to finish any Section, However you must finish All Sections before semester end date.
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E-business > Section 1 > Topic 1
Topic 1: The World Of E-Business
T opic Objective:
At the end of this topic, student would be able to:
1. What is E-Business?
2. Characteristics of E-Business
3. Elements of an E-Business Solution
4. E-Business Roles and their Challenges
5. E-Business Requirements
6. Impacts of E-Business
7. Inhibitors of E-Business
Topic Introduction:
Connectivity to the Internet and the effective exploitation of available Internet service technologies is both the
cause and the effect of new ways to conduct business electronically. The potential rewards of doing business
over the World Wide Web (the Web) are limitless as companies extend their reach beyond organizational and
geographic boundaries to allow the organization to exploit local and global markets.
Harnessing the Internet and the technologies surrounding it has the potential to impact several business drivers
such as attracting new customers; retaining customers; streamlining distribution channels, logistics operations
and key business processes; attracting new partners; and improving productivity. The power of the Internet to
support the sales and marketing of products efficiently has led to incredible levels of Web activity. E-Business is a
fast growing area in the new Internet economy and is a critical imperative for business seeking to create or
maintain sustained market advantages in the 21st century. The rapid adoption of e-Business models is shaping
the future of global businesses and driving deep and profound changes in the structure of business practices of
organizations and the interactions between companies.
Topic Overview:
1. What is E-Business?
The term e-business is defined here as the use of electronic means to conduct an organizations business
internally and/or externally. Internal e-business activities include the linking of an organizations employees with
each other through an intranet to improve information sharing, facilitate knowledge dissemination and support
management reporting. E-Business activities also include supporting after-sales service activities and
collaborating with business partners, e.g. conducting joint research, developing a new product and formulating a
sales promotion.
In spite of the distinct terminology that is used, e-business should not be viewed in isolation from the remaining
activities of a firm. Instead, an organization should integrate online e-business activities with its offline business
into a coherent whole.
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1.1 E-Businesses vs. E-Commerce
A particular form of e-Business is e-Commerce. E-Commerce is a term that describes a focus on buying and
selling products and services on the Internet. This can be conducted from a business-to-business (B2B) or
business-to-consumer (B2C) perspective. Compared with e-Commerce, e-Business is a more generic term
because it refers not only to information exchanges related to buying and selling but also to servicing customers
and collaborating with business partners, distributors and suppliers. E-Business encompasses sophisticated
business-to-business interactions and collaboration activities at a level of enterprise applications and business
processes, enabling business partners to share in-depth business intelligence, which leads, in turn, to the
management and optimization of inter-enterprise processes such as supply chain management. More
specifically, electronic business enables companies to link their internal and external processes more efficiently
and flexibly, work more closely with suppliers and better satisfy the needs and expectations of their customers.
Internal or back-office processes include distribution, manufacturing, and accounting while external or front-office
processes include these processes that connect an organization to its customers and suppliers.
Sometimes people still use the term e-Commerce instead of e-Business. Therefore, before we examine the
definition of e-Business any further and deconstruct its meaning, it is useful to understand the differences and
similarities between e-Business and e-Commerce.
http://cssexpression.com/files/2012/01/e-commerce1.png
The meaning of the term electronic commerce has changed over the years. Originally, e-Commerce meant the
facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange
(EDI) to send commercial documents like purchase orders or invoices electronically. Today it includes features
that may more correctly be termed Web Commerce the purchase of goods and services over the Web via a
secure server with e-shopping carts and electronic pay services, like credit card pay authorizations. We may thus
define electronic commerce as the buying and selling of goods and services, and the transfer of funds, through
digital communications. This includes on-line display of goods and services, ordering, billing, customer service and
all handling of payments and transactions. The selling process may include cataloguing of goods and services,
order taking, and billing, however, it does not include key business processes such as Customer Relationship
Management (CRM), Supply Chain Management (SCM), and Enterprise Resource Planning (ERP) integration.
1.2 Critical Factors of E Business

It is important to reemphasize that e-Business supports business process along the entire value chain: electronic
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purchasing (e-Procurement) and supply chain management, processing orders electronically, customer service
and cooperation with business partners. One of the objectives of e-Business is to provide seamless connectivity
and integration between business processes and applications external to an enterprise and the enterprises back
office applications, such as billing, order processing, accounting, inventory, receivables, and services focused on
total supply chain management and partnership including product development, fulfillment, and distribution. In
this respect, e-Business is much more than e-Commerce.
E-Business processes are integrated end-to-end across the company and with key partners, suppliers, and
customers; they can respond with flexibility and speed to customer demands and market opportunities. This
applies to traditional and virtual organizations. Special technical standards for e-Business facilitate the exchange
of messages and combinations of processes between companies.
To succeed in e-Business it is crucial to combine technological developments with corporate strategy that
redefines a companys role in the digital economy while taking into account its various stakeholders. It is
important to understand the issues, evaluate the options, and develop technology orientation plans. An e-
Business strategy helps organizations identify their e-Business concerns, assess their information needs, analyze
to what degree existing systems serve these objectives, pinpoint specific improvements, determine the
development stages of e-Business solutions and attain concrete and measurable results. It is thus clear that e-
Business solutions are not only about technology.
2. Characteristics of E-Business
To emphasize, e-Business is not simply buying and selling but encompasses the exchange of many kinds of
information, including online commercial transactions. E-Business is about integrating external company
processes with an organizations internal business processes; as such, a variety of core business processes
could exploit an e-Business infrastructure. These include among other:
Collaborative Product Development: This is one of the fastest growing technologies in the engineering
manufacturing market, with some form of the solutions being implemented in a range of industries
including automotive, aerospace, office equipment, industrial machinery, agricultural machinery, and
construction equipment. Collaborative product development contributes towards making products within a
short span of time while maintaining quality and reducing cost.
Collaborative Planning, Forecasting and Replenishment: This is a process in which manufacturers,

distributors, and retailers work together to plan, forecast, and replenish products. In e-Business
relationships, collaboration takes the form of sharing information that impacts inventory levels and
merchandise flow. Collaboration points include unit sales forecasts, base inventory requirements,
manufacturing and logistics lead times, seasonal set schedules, new/remodel store plans, promotional
plans to name but a few.
Procurement and Order Management: e-Business has highlighted the importance of procurement as
a strategic issue, given that electronic procurement, or e-Procurement, can achieve significant savings and
other benefits that impact the customer. To support procurement and order management processes,
companies use an integrated electronic ordering process and other online resources to increase efficiencies
in their purchasing operations. They achieve cost savings and better service the end-customer by
controlling the supply base, negotiating effective buying preferences, and streamlining the entire
procurement process.
Operations and Logistics: Logistics, as defined by the Council of Logistics Management, is that part of
the supply chain process that plans, implements and controls the efficient, effective flow and storage of
goods, services and related information from the point of origin to the point of consumption in order to
meet customers requirements. To make this happen, transportation, distribution, warehousing,
purchasing, and order management functions must work together. Logistics in the e-Business era is about
collaboration the sharing of critical and timely data on the movement of goods as they flow from raw
material all the way to the end- user. Operations and logistics processes are based on open
communication between networks of trading partners, where integrated processes and technology are
essential for high performance logistics operations.
3. Elements of an E-Business Solution

The vision of e-Business is that enterprises will have access to a much broader range of trading partners to
interact and collaborate with and not only to buy and sell more efficiently. Also it is expected that e-Business will
contribute to the agility of business organizations and with that to reaching higher levels of customization. In this
way enterprises can maximize supply chain efficiency, improve service to customers and their profit margin. To
accomplish this objective, enterprises must make certain that their mission-critical business information systems
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such as inventory, accounting, manufacturing and customer support not only can interact with each other but
can also become Web-enabled and exposed so that business systems of their partners and customers can
interact with them. In addition, in order to optimize their operational efficiency, enterprises need to develop
newer distributed applications that extract data and launch business processes across many or all of these
systems. An e-Business solution should thus embrace Customer Relationship Management (CRM) systems,
Enterprise Resource Planning (ERP) systems, Supply Chain Management (SCM), and vertical product offerings.
[Figure 1.1: Ingredients of an e-Business Solution]
Forward-thinking organizations automate, organize, standardize, and stabilize the processes and services
offered in order to create and maintain sustainable computer mediated relationships throughout an e- Business
life cycle. This is shown in Figure 1.1, which illustrates the typical ingredients found in an e- Business solution. The
diagram shows the common topology for conducting e-Business from the point of view of a transacting
company. More specifically, it shows how a company interacts with customers, suppliers, distributors, and e-
Markets and sets out the flow of information and materials in an e-Business solution. Basic elements in the e-
Business topology include the following.
3.1 Customer Relationship Management (CRM) Systems

These are front-office systems that help the enterprise deal directly with its customers. CRM is the process of
creating relationships with customers through the introduction of reliable service-automated processes, personal
information gathering and processing, and self-service throughout the supplying company in order to create
value for customers. It attempts to integrate and automate the various customer-serving processes within a
company. CRM typically includes three categories of user application: customer-facing applications, sales force-
facing applications, and management-facing applications. The customer-facing category includes applications that
enable customers to order products and services and obtain customer service and support. The sales force-
facing category includes applications that automate some of the companys sales and sales force management
functions to deliver effective customer service and support and sell products and services to customers. These
applications support the field sales organization with sales-force automation functions and the field service
organization with dispatch and logistics functions. The management-facing category includes applications that
analyze data gathered by the other applications and provide management reports, including calculations and
reports that compute Return on Relationship (ROR) according to a companys business model, competitors,
industry trends, and macro-environmental variables. The demands and increased functionality of the Internet and
Web-based applications fueled a meteoric growth in demand for CRM. CRM systems are obviously an important
element of e-Business.
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3.2 Enterprise Resource Planning Systems (ERP)
These are management information systems that integrate and automate many of the business practices
associated with the operations or production aspects of a company. These typically include manufacturing,
logistics, distribution, inventory, shipping, invoicing, and accounting. Enterprise Resource Planning or ERP software
can aid in the control of many business activities, like sales, delivery, billing, production, inventory management,
and human resource management. They are often called back-office systems indicating that customers and the
general public are not directly involved. This is contrasted with front office systems like customer relationship
management systems that deal directly with the customer. The most successful efforts to manage enterprise
resources are currently based on ERP systems. These systems grew out of earlier Material Requirements
Planning (MRP) and Manufacturing Resource Planning (MRP II) systems of the 1980s. A typical ERP system is
designed around four primary business processes:
Production: manufacturing resource planning and execution process;

Buying a product: procurement process;
Sales of products and services: customer order management process;
Costing, paying bills, and collecting: financial/management accounting and reporting process.
ERP systems extend beyond the bounds of manufacturing to integrate many functions previously performed by
many stand-alone applications for planning, production, asset management, financial control, human resource
management, and workflow management. Some of the reasons for this change are that existing heterogeneous
systems cannot provide either the data quality (accuracy, currency, etc.) and/or the information availability
levels required. ERP can help solve this problem, by combining several critical information systems functions,
particularly in the accounting and financial realms. Enterprise resource planning systems are also extending
beyond the factory walls to address supply chain integration issues. Supply chain management software can
extend the ERP system to include links with suppliers. The most frequently cited benefits of ERP center around
process automation and integration, and the availability of data to support business analysis.
3.3 Supply Chain Management (SCM)

A supply chain is a network of facilities and distribution options that performs the functions of procurement of
materials, transformation of these materials into intermediate and finished products, and distribution of these
finished products to customers. A supply chain essentially has three main parts: the supply, manufacturing and
distribution. The supply side concentrates on how, where from, and when raw materials are procured and
supplied to manufacturing. Manufacturing converts these raw materials to finished products, and distribution
ensures that these finished products reach the final customers through a network of distributors, warehouses,
and retailers.
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3.4 Knowledge Management
This relates to the identification and analysis of available and required knowledge assets and related processes. It
embodies organizational processes that seek synergistic combination of data and information processing
capacity of information technologies, and the creative and innovative capacity of human beings. Knowledge
assets encompass two things, information plus experience. Knowledge assets comprise knowledge regarding
markets, products, processes, technologies, and organizations that a business owns or needs to own, and that
enable its business processes to generate profits and provide value. Knowledge management also includes the
subsequent planning and control of actions to develop both the knowledge assets and the processes to fulfill
organizational objectives.
3.5 E-Markets
An e-Market is an electronic meeting place for multiple buyers and sellers providing many participants with a
unified view of sets of goods and services, enabling them to transact using many different mechanisms available
in the e-Market. An e-Market uses Internet technology to connect multiple buyers with multiple suppliers so that
suppliers, through electronic procurement systems, ERP-based procurement applications, can interact with one
another and conduct business transactions.
4. E-Business Roles and their Challenges

Typically there are two distinctive sides to any e-Business application: the buy side and the sell side. The buy side
represents organizations that use e-Business facilities for their buying needs, such as spot purchasing and/or
addressing their enterprise-wide procurement needs. The sell side, as the name suggests, includes businesses
that sell their products via the transaction mechanisms offered in e-Business applications. Sell-side solutions
allow a companys customers that are other businesses, or the companys distributors, to purchase goods and
services via e-technology. A company can either sell on their own private sell-site or they can connect their e-
catalog to a larger marketplace. These two types of e-Business help define two principal roles: buyers and
suppliers. Buyers are organizations that purchase goods and services directly from suppliers. Suppliers are
organizations that market and sell goods or services directly to buyers or indirectly through diverse sales
channels including Web-based procurement systems and electronic marketplaces. Suppliers typically provide
buyers with Web-based services such as payment, logistics, credit, and shipping necessary for completing e-
Business transactions. Buyers (customers) can thus review product information, receive customer service,
ordering services, and customization support facilities, and can submit or modify orders, learn about order
status, and make payments. An additional role is that of the market makers; who are third-party organizations
that run e-Markets.
Each role has distinct business and technical challenges, but they all coalesce around a common point. For
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Each role has distinct business and technical challenges, but they all coalesce around a common point. For
buyers as well as for suppliers, the primary challenge is the ability to reach a critical mass of trading partners and
transaction volume to sustain their business. In particular, from the suppliers point-of-view, they must be able
to support various types of customers that must be served through new electronic methods, along with internal
systems that must be integrated and leveraged by their sell-side systems to meet the needs of buyers and
suppliers, e-Business strategy and solutions should be built around the following basic principles:
Empowering Suppliers and Buyers: Suppliers have unique characteristics yet also have the common
goal of reaching customers through many selling channels such as multiple e-Marketplaces, procurement
systems, and direct via the Internet. For an e-Business solution to be truly effective for suppliers it must
empower them to sell wherever their buyers are located by providing a wide variety of selling channels
with relatively low investment. As a result, suppliers can reach far more buyers, increasing their revenue
opportunity.
Enabling Suppliers of all Sizes: An understanding that suppliers of all sizes and levels of complexity
exist, from small businesses with relatively low IT capabilities and budget, to the most demanding
enterprises with complex products, services, and integration challenges. And as sales grow, and
technology needs become more complex, it is important to have a solution that can seamlessly scale with
the business. Getting suppliers connected electronically with buyers through flexible solutions is only part
of the challenge.
5. E-Business Requirements
Enterprises, which desire to conduct business-to-business transactions over the Internet, look to e-Business
solutions to improve communications and provide a fast and error-free method of transacting with one another
to address their procurement and supply chain processes. However, before enterprises become e-Business
enabled and successful users of the techniques they need to address several fundamental business and
technology challenges. Typical ones are additional to buy- and sell-side challenges that include the following items
that need to be addressed in the sequence indicated below:
Identify/measure quantifiable business objectives: Companies must accurately measure the impact
an e-Business initiative has on their business processes to ensure that this initiative is worth pursuing and
has sustainable long-term effects.
Ensure organizational/operational flexibility: However well organized the enterprise was before the
deployment of e-Business solutions, the situation will necessarily change because of e-Business initiatives.
For instance, business transaction growth, expanded markets, and increased information accessibility
constitute major change factors for an enterprise. Enterprises must reposition themselves in their mission,
structure and execution to prosper in a substantially more dynamic environment.
Rethink entire company supply chains: Each company in a supply chain must clearly understand the
value propositions of other participants. In particular, companies must rethink their entire supply chains to
optimize performance and value as they seek to better integrate with suppliers and customers, share
information, inter-link processes, and outsource manufacturing logistics systems, on-site engineering, and
maintenance activities.
Transform the company to a process-centric one: It should be possible for companies to be

conceptualized as a set of business processes. Most process-centric companies, like most traditional
organizations, still have departments and divisions. Unlike traditional organizations, however, process-
centric companies place their primary emphasis on maximizing the efficiency of processes, not on
maximizing the efficiency of departmental or functional units.
Define business processes: Companies must create models of existing processes and interactions,
determining the relevant events, time frames, resources and costs associated with business processes.
Only in this way will business processes be well defined and measurable. This model can then help
streamline and evaluate new business models and processes and serve as a benchmark for determining
return on investment.
Understand security requirements: The breadth of access and interaction representative of e-

Business solutions requires the ability to provide controlled and focused access by customers, employees,
suppliers, and, in some cases, applications that can interact directly with each other without human
intervention.
Align business organizations with a flexible IT architecture: In response to demands for end to end
e-Business solutions, companies are expanding their applications to include enhanced integration
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capabilities. The solutions required reflect the need to integrate business processes at a variety of different
levels from applications and data, and finally across (and within) organizations in a way that embraces all
possible sources of complexity. This also includes automating business processes that encompass a
diverse range of packaged applications and systems within enterprises. The grand challenge is forcing the
creation and adoption of new infrastructures and enabling technologies that will be used to facilitate e-
Business integration.
Establish ubiquity within standards: IT vendors have created many integration technologies that bring
value to their customers. However, none of these technologies has achieved complete coverage for the
demands of the IT world. Some technologies were proprietary, which required other integration
participants to have the same technology. This worked well within an organizational unit, but deteriorated
across global enterprises and between separate enterprises. Attempts were made at establishing open
standards for interoperability.
6. Impacts of E-Business
The emergence of e-Business impacts organizations in various ways. Some of the key characteristics of e-
Business are the speed at which transactions can occur, the ability to connect multiple parties at the same time,
the ability to gather and manipulate information in new ways, and the absence of traditional business tools such
as paper forms and face-to-face retail contact. E-Business impacts more than just the sales side of the business.
Electronic connectivity not only improves efficiencies across the full value chain, but also has the power to
transform the traditional business models entirely. There is a wide range of potential benefits motivating todays
enterprises to undertake e-Business initiatives.
Improved operational efficiency and productivity: The most often touted benefit of e-Business is the
potential for tremendous improvements in operational efficiency. By using e-Business technologies to
interact with trading partners, organizations can streamline their operations and increase their
effectiveness at the same time. By eliminating operational waste and the automation of inefficient
business practices, organizations can realize productivity gains.
Reduction in operating costs and costs of goods and services: A major benefit of e-Business is in
savings generated by doing common business functions such as the purchase of goods and services,
processing purchase orders, order and delivery tracking, and so on, more efficiently but also by enabling
collaboration with external partners. Collaboration with suppliers, customers, distributors, and trading
partners raises opportunities that range from basic electronic information exchange to facilitating
transactional exchanges of information. E-Business technologies help lower the cost of communication
and collaboration between trading organizations, in a supply chain.
Penetration into new markets through new channels: For several organizations, e-Business
technologies could prove to be the conduit to new markets. E-Business helps companies extend their
reach beyond organizational and geographic boundaries and reach markets that were previously
considered to be too distant to be practical. With e-Business, location is of no consequence when it comes
to reaching customers.
Improved communications, information, and knowledge sharing: The alignment of key supply chain
partners with an organizations internal strategies helps exploit their expertise and knowledge in creating
value. Collaborative sharing of business information such as forecasting and demand information can
better help plan long-term capacity, inventory, and human resource requirements.
Harmonization and standardization of processes: To provide simple, transparent, and effective

processes for global commerce, it is important not only to exploit advances in information technology, but
also adopt new approaches to trade facilitation based on simplification and harmonization of business
processes. For this purpose, trading companies in a supply chain analyze the interactive and collaborative
roles inherent in performing trade, business and administration activities, define trade, business, and
administration information transaction patterns and flows, and document the specific information
exchanges (business documents) that flow between the respective roles.
Improved internal information access: Quantities and qualitative improvements to internal

information access can yield big payoffs for the business. Business areas such as the development of
business opportunities and business strategy are particularly rich in this respect.
Improved relationships with suppliers and improved customer service: The Internet is an effective
way to maintain relationships with customers and suppliers, and its usefulness for reaching global
customers is significant. E-Business enables the sharing of information and business processes across
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multiple organizations for stronger, more profitable relationships.
7. Inhibitors of E-Business
Counterbalancing the drivers of e-Business adoption is a set of powerful inhibitors. E-Business adoption is closely
linked to a companys perception of the importance of trading on the Internet and how it might impact on their
business. A key indicator that may influence the adoption of e-Business is the size of the firm (the smaller the
firm the less likely it is to use the Internet). It is important to understand that most of the large firms currently
developing and implementing e-Business strategies and solutions typically engage Small to Medium Enterprises
(SMEs) in their supply chains.
We can discern five broad categories of e-Business impediments.
7.1 Management/Strategy Issues
E-Business strategy: The need to develop a strategy is great where e-Business is concerned. The lack
of a clearly defined e-Business strategy is a major inhibitor for companies to espouse e-Business-based
technological solutions. A sound e-Business strategy constitutes the basic foundation that allows
companies of all sizes to move forward and embrace the Internet as a key business tool. Ideally, the e-
Business would seamlessly integrate with the business strategy. This would enable the company to set out
a critical path to success in e-Business. There is always a need for an e-Business strategy and action plan
that has sufficient detail to allow progress to be monitored and measured.
Organizational Changes required by E-Business: Traditional organizational structures may not be

suitable for e-Business as they may fragment customer service, retard market responsiveness, and
constrain improvements in process efficiency. Barriers are often erected between departments to inhibit
sharing of information for example, in banking, debt and equity functions are separated to reduce the
possibility of conflicts of interest. The e-Business implementation process includes evaluating a companys
supply chain, its customer relationship, and an e-Business assessment survey. This enables a company to
benchmark e-Business progress against that of similar-sized companies. To identify business
opportunities, risks, and process improvements, a company requires good understanding of how
suppliers, distributors, retailers, end-users, joint venture partners, and even competitors interrelate. This
requires organizational changes so that companies can better integrate with each other. A special
challenge in this restructuring is finding new approaches to maintain due diligence while dismantling the old
structures.
Management Attitudes and Organizational Inflexibility: These can be more serious in an SME than
in a large firm, because of the traditional leadership and organizational forms in many SMEs. Firms
operating in more traditional sectors also tend to be less innovative. However, this is less of a problem in
new companies where management may be more receptive to technology, or it may be central to the
activity of the company.
7.2 Cost/Financing Issues

The adoption of e-Business is closely linked to company perceptions regarding the importance of Internet
trading, and how they believe it will impact their business in the future. Companies, especially smaller ones,
demand clear proof of the Return on Investment (ROI). This implies that e-Business must be proven as essential
to the competitiveness of their firm.
Costs of Implementation of E-Business: These can be a serious barrier for smaller companies,
especially SMEs. The cost of setting up an e-Business includes preliminary planning, procuring hardware
and/or software tools (installation, training, and subsequent reorganization), and continuous maintenance,
servicing costs, and telecommunications charges. The cost of the initial investment has dropped in recent
years.
Calculating the Return on Investment (ROI): Just as it can be difficult to understand the commercial
advantages of an e-Business model, it can be difficult to calculate the ROI on an e-Business investment.
SMEs often work with limited funding resources and need to see a significant return before they will take a
major decision on e-Business.
7.3 Security and Trust Issues
Security: Many companies are afraid to move to electronic trading systems because of the potential for
theft of business information and funds, alteration of financial documents, as well as the potential for illicit
transactions and concerns over payment security. Potential losses due to inadequate security can be
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crippling as the entire enterprise network can easily be compromised if appropriate security methods and
procedures are not built into the e-Business technology infrastructure.
Trust: One of the most important barriers to the use of e-Business is the level of trust that
organizations are willing to place in businesses selling goods and services on the Internet. Trust can be
defined as the expectation that the trading party will behave in accordance with its commitments,
negotiate honestly, and not take advantage even when the opportunity arises. Trust is an important
commodity in e-Business.
New Partnership Loyalties: Cooperation rather than competition may be the basis for success in e-
Business. E-Business markets may create much larger markets, but can require a great deal of loyalty and
trust building in the new partnerships that they create. The emergence of new and unknown online
intermediaries addressing aggregations adds to the confusion that many companies feel regarding e-
Business.
7.4 Legal Issues

Legal barriers could be defined as a specific legal provision, which prevents enterprises from entering into e-
Business. However, the lack of a legal provision may have the same effect, if it is considered as an important
condition for e-Business. From an enterprise point of view the concept of legal barriers is a highly subjective
concept, reflecting the perception by enterprises of what might constitute a barrier to market access in the wider
sense.
The most important legal issue hampering the growth of e-Business is still a lack of awareness. Few companies
are familiar with the rules and regulations that apply to an online environment, leading to much uncertainty for e-
Business companies and consumers alike. Many enterprises feel insufficiently informed about legal provisions
applicable to e-Business.
Many differences still exist between national legal provisions applicable to e-Business, which are considered by
enterprises as internal market barriers, as they raise legal uncertainties and the cost of compliance with law.
Enterprises would favor fully harmonized rules, which would increase legal certainly in e-Business and encourage
companies to conduct business electronically across the borders.
7.5 Technological Concerns

Business-to-business integration means spanning independent businesses, each with its own set of applications
and users. Some applications are ERP and SCM packages; others are traditional systems running on a
mainframe. In each company, transactions are processed differently. Orders, production scheduling, and other
internal processing are also handled differently. Business-to-business integration is about coordinating the flow of
information among businesses and their heterogeneous business support systems without being tied to one
specific technology. Building integration bridges that span independent organizations and their systems is
challenging as it requires linking the elements of business together into a cohesive whole despite different
computing platforms, operating systems, database technologies and applications. Business to- business
integration raises various technological requirements including reliable messaging, intra- and inter-enterprise
application integration, reusing business logic (no modification of application programs), transformation between
heterogeneous platforms and protocols, and information exchange across disparate application domains.
7.6 Arguments against Investment

Uncertainty about the viability of the initial investment and the rising cost of maintenance services may reduce
the willingness of enterprises to undertake the necessary investments.
Fear of choosing an incompatible system/application the SME needs to have a system which is compatible to
the systems used by large suppliers or customers who may have resources to implement complex IT solutions.
The SME does not have that luxury.
Technology and standardization more than any other business users, SMEs have a strong interest in
standardized and fully compatible ICT solutions that stay relatively stable over time. At present, the complexity
and the lack of robustness of many ICT solutions are discouraging many SMEs. Where software or systems
prove to be incompatible with those of customers and suppliers, there is a high risk that ICT investment may be
lost. SMEs do business with many different clients. Yet they often have to follow the technology and business
standards set by major clients, and hence run the risk of becoming locked-in to a specific technology used by
one contractor but not by others.
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Topic 2: E Business Strategy
T opic Objective:
1. What is E-Business strategy?
2. Strategic Positioning
3. Levels of E-Business Strategy
4. The Changing Competitive Agenda: Business and Technology Drivers
5. The Strategic Planning Process
6. Strategic Alignment
7. The Consequences of E-Business: Theoretical Foundations
Topic Introduction:
The changes brought about in organizations due to the emergence of direct electronic delivery channels have an
obvious impact on industry structure and the general corporate strategy. E-Business has triggered new business
models, strategies, and tactics that are made possible by the Internet and related technologies. In order to
compete in the marketplace it is essential for organizations to establish strategies for the development of an e-
Business. This may include the identification of business opportunities and threats in the external environment,
the assessment of internal strengths and weaknesses, and an understanding of the impact of technological
change. Such an initiative has to build on the strengths of the organization and take full advantage of the
opportunities in the market, meanwhile identifying costly unsuccessful solutions and preventing unwanted market
disturbances introduced by carelessly designed e-Business solutions. Understanding the e-Business environment
will enable organizations to determine strategic goals and objectives or to identify any changes of direction
needed in their current business strategy.
Topic Overview:
1. What is E-Business strategy?
The concept of strategy carries several connotations. In order to position and define e-Business strategy we
focus on two of them. One view defines strategy as plans and objectives adopted to achieve higher-level goals:
in that sense a strategy is developed to achieve a goal like implementing organizational change, or a large
software package such as an ERP-system. Strategy may also relate to plans concerning the long-term position
of the firm in its business environment to achieve its organizational goals. In this sense strategic planning, as
opposed to tactical and operational planning, has to do with the external positioning of the firm in its competitive
environment. Strategic planning here comprises a distinct class of decisions (a plan is a set of decisions made for
the future) and objectives, and has to be positioned next to tactical planning (structuring the resources of the
firm) and operational planning (maximizing the profitability of current operations). From this perspective, an
organizations strategy can be best defined as its chosen role and function in its environment. Strategy thus
defines the future direction and actions of an organization. Through strategic planning an organization defines its
fundamental relationships with key stakeholders, such as customers, competitors, suppliers, stockholders,
employees, the government, the general public.
E-Business strategy is the set of plans and objectives by which applications of internal and external electronically
mediated communication contribute to the corporate strategy. A firm can decide to implement an e-Business
strategy for a variety of reasons. The goal of the implementation can be, e.g. purely tactical. This is the case
when the effect of the Information Technology applied is to replace existing systems and procedures. For
example, instead of sending orders and confirmation through regular mail, traditional EDI (electronic Data
Interchange) or more modern Internet-based XML EDI can be used to transfer information about orders and
confirmations. The possible effect of this technology is a reduction in cost levels associated with the ordering
process and thus an increased efficiency. Usually this type of application also leads to improved data quality
which will result in a higher level of effectiveness in the ordering process, e.g., because the information
transferred will contain fewer (preferably no) mistakes. This type of application of e-Business technology
conforms to the early applications of information technology as generally conceived.
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E-Business strategy should support not only corporate strategy objectives but also various functional strategies,
like marketing and supply chain management. This is shown in Figure 2.1, which indicates a possible connection
between e-Business and other strategies, such as functional strategies, which encompass supply chain
management (SCM), marketing, purchasing and human resources (HR) strategies, and information systems (IS)
strategy. Out of functional strategies we especially emphasize SCM and marketing strategies because these are
closely related to e-Business. However, one should also bear in mind that other functional domains, such as
Human Resources and Finance may have an impact on or may be impacted by e-Business strategies. Double-
ended arrows indicate the relationships between strategies and imply that strategies will inform and impact each
other.
[Figure 2.1: Relationship between E-Business and Other Organization Strategies]
Supply Chain Management Strategy: It is based on value chain analysis for decomposing an
organization into its individual activities and determining value added at each stage. In this way an
organization can assess how efficiently resources are being used at various points within the value chain.
The relevance of information technology is that, for each element in the value chain, it may be possible to
use IT to increase the efficiency of resources in that area. Supply chain management strategy also
requires an understanding of the procurement process and its impact on cost savings and implementation,
e.g., integrated e-Procurement where the aim is to integrate with suppliers systems.
Marketing Strategy: It is a concerted pattern of actions taken in the market environment to create
value for the firm by improving its economic performance, as is the case when the firm offers a new
product or lowers prices in competition with its rivals. Marketing strategies are often focused on capturing
market share or improving profitability through brand building, investment, and efficient contracts. A key
factor driving e-Business and marketing strategy objectives concentrates on the current and future
projections of customer demand for e-Business services in different marketplace segments.
IS Strategy: It is a set of goals and plans with regard to the use of information systems in an
organization to support the objectives of that organization in the long run. An IS strategy consists of two
components: a demand strategy and a supply strategy. The basic goal of an IS strategy is to ensure the
alignment of information systems and technology development with enterprise priorities, and to facilitate
the infusion of advanced technology products in the enterprise context. IS strategy helps an organization
transform the way it interacts with customers, suppliers, employees, and institutional partners by
developing an information technology strategy that integrates a companys business planning initiatives,
optimizes current technology investments, incorporates new information management technologies,
complies with regulatory reforms, and fosters the reengineering of key business processes. The IS
strategy and its information technology strategic plan serve as a road map to guide capital investments
over a multi-year period. It conducts benchmarking studies of important IT strategy development
processes, and also provides a review of the current information technology strategic plan, projects
already in the planning stage, and/or perform return on investment analyses.
The strategy of e-Business is based on corporate objectives such as which markets to target and targets for
revenue generation from electronic channels such as e-Business. This not only supports corporate strategy, but
should also influence or impact it. There are many alternative ways that Figure 2.1 can be interpreted by different
organizations depending on their perception of e-Business. For instance, if a company achieves most of its
business in the physical world of manufacturing, supply chain management and marketing strategies are more
important than the e-Business strategy. Alternatively, if a company is a services-based one, then the nature of
the product lends itself to electronic communications to streamline the value chain.
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2. Strategic Positioning
Companies can become more profitable than the average performer in their industry sector by achieving a
sustainable competitive advantage, i.e., by operating at a lower cost, by commanding a premium price, or by
doing both. One way of achieving cost and price advantages is through strategic positioning. Strategic positioning
means that a company is doing things differently from its competitors, in a way that delivers a unique type of
value to its customers. This may mean offering a different set of products, a different type of services, or
different logistical arrangements. The Internet affects strategic positioning in very different ways as it opens new
opportunities for achieving or strengthening a distinctive strategic positioning.
Porter suggests six fundamental principles that companies need to follow in order to establish and maintain a
distinctive strategic position:
i. A company must start with the right goal: superior long-term return on investment. Only by grounding
strategy in sustained profitability will real economic value be generated. Economic value is created when
customers are willing to purchase a product or service that exceeds the cost of producing it.
ii. A companys strategy must enable it to deliver a value proposition, or set of benefits, different from those
that its competitors offer. Strategy defines a way of competing that delivers unique value for a particular
set of customers.
iii. Company strategy needs to be reflected in a distinctive value chain. To establish a sustainable competitive
advantage, a company must perform in ways that are different from its rivals or perform similar activities
in different ways. A company must configure the way it conducts manufacturing, logistics, service delivery,
marketing, human resource management, and so on, differently from its rivals and tailored to its unique
value proposition.
iv. Robust company strategies involve trade-offs. A company may have to abandon or forgo some product
features, services, or activities in order to be unique at others. Such trades-offs, in the product and in the
value chain, are what make a company truly distinctive.
v. Company strategy defines how all the elements of what a company does fit together. A strategy involves
making choices throughout the value chain that are interdependent; all a companys activities must be
mutually reinforcing. A companys product design, for example, should reinforce its approach to the
manufacturing process, and both should leverage the way it conducts after-sales service. Element fit not
only increases competitive advantage but also makes a strategy harder to imitate.
vi. Company strategy involves continuity of direction. A company must define a distinctive value proposition
to which it will abide even if that means forgoing certain opportunities. Without continuity of direction, it is
difficult for companies to develop unique skills and assets or build strong reputations with customers.
3. Levels of E-Business Strategy

Strategies will exist at different levels of an organization. Strategic levels of management are concerned with
integrating and coordinating the many activities of an organization so that the behavior of the whole is optimized
and its overall direction is consistent with policies that are identified in its institutional mission. However, the
subjects that are dealt with in strategic plans vary with the corporate level at which they operate.
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Ultimately, e-Business is about communication, within business units, between business units of the same
enterprise, and between independent organizations. To make electronic communication possible, agreements
between the parties that communicate about the information systems used are necessary. In general, the
development and implementation of IS strategies, therefore e-Business plans to support the competitive
strategy of the firm, require action at three levels of strategy:
The Supply Chain or Industry Value Chain Level: E-Business requires a view of the role, added value,
and position of the firm in the supply chain (industry value chain). Important issues that need to be
addressed here include who are the firms direct customers, what is the firms value proposal to those
customers, who are the suppliers, and how does the firm add value to those suppliers? What is the
current performance of the industry value chain in terms of revenues and profitability, throughput times,
inventory levels etc, and, more importantly, what are the required performance levels, and what is the
firms contribution to it? What are current problems in the chain? These are issues that need to be
effectively addressed in order to understand the current and future position of the firm in the chain. This
analysis gives an impetus to insight in upstream (supplier side) and downstream (customer side) data and
information flows, and in the kind of shared IT infrastructure (so-called Inter-Organizational Systems) that
is required to enable e-Business developments in the supply chain. This analysis also creates an
understanding of how a firms position in the chain might potentially be affected by new Internet based
technologies. Industry value chains evolve into networks of interrelated organizations.
The Line of Business or (Strategic) Business Unit Level: Understanding the position in the value
chain is a starting point for further analysis of how Internet-related technologies could contribute to the
competitive strategy of the individual line of business. This is the level where the competitive strategy in a
particular market for a particular product, and so the strategic positioning, is developed. There are four
generic strategies for achieving a profitable business: differentiation, cost, scope, and focus. Differentiation
strategy refers to all the ways producers can make their products unique and distinguish them from those
of competitors. Adopting a strategy for cost competition means that a company primarily competes with
low cost: customers are primarily interested in a acquiring a product as inexpensively as possible. Success
in such a market usually implies that the company has discovered some unique set of business processes
or resources that other firms cannot apply in the marketplace, which make it possible to deliver a product
or service at the lowest possible cost. A scope strategy is a strategy to compete in markets worldwide,
rather than merely in local, regional or national markets. A focus strategy is a strategy to compete within
a narrow market segment or product segment. This is a specialization strategy with the goal of becoming
the premier provider in a narrow market.
The Corporate or Enterprise Level: For each firm that encompasses a collection of (strategic)
business units. This level addresses the problem of synergy through a firm-wide, available common IT
infrastructure. Commonality of e-Business applications is basically needed for two reasons. From efficiency
point of view, having different applications for the same functionality in different lines of business is
needlessly costly. This calls for central development or acquisition, which may be combined with local
deployment that takes into account local differences. From an effectiveness point of view there is the
need for cross Line of Business communication and share-ability of data.
4. The Changing Competitive Agenda: Business and Technology Drivers

If an enterprise decided to expand its market, it did so by making incremental, planned modifications to its
organization and strategy. When it modified organizational design, it considered and managed the impact on
customers and employees in an attempt to maintain the enterprise equilibrium. Now, however, change is at the
top of almost every business agenda. Today, it is the external competitive environment that mandates most
internal change.
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Business and technology factors are driving this change in a strategic context. Business drivers are the shift in
the balance of power between consumers and corporations, as much by fiercer competition in many industries,
also known as hyper competition. Economies are getting transformed from supply oriented to demand oriented.
So it is not what a business can deliver but what customers are expecting that becomes the starting point of any
business planning.
The Internet has created a highly competitive market environment. Information technology incorporated through
the Internet is reducing much of the transaction and coordination costs associated with old economy business
operations, and restructuring value chains allowing firms to forwardly integrate and bypass intermediaries. The
global nature of the Internet makes competition even fiercer as competitors come across geographic
boundaries. Hence, Internet companies operate in an ever more crowded market space, and look for ways to
reduce this crowdedness by closing out competition.
As e-Business is introduced into an existing organization, there will be various areas that have to be taken into
account when developing a strategy. In addition to elements of traditional strategy approaches, innovative
techniques to achieve competitive advantage must be incorporated. One area of particular importance is the
strategic impact of IT.
Specific characteristics make the Internet a technology of interest in respect of potential strategic effects. This is
affected through its:
Pervasiveness: It supports direct electronic linkages with businesses and end-consumers all day and
every day, all over the world, thus enabling totally new ways of doing business.
Interactive Nature: This not only enables linear transaction communication, but also all kinds of
reciprocal relationships which are characteristic for tasks related to, e.g., problem solving, collaborative
planning, and negotiation. Through this technology these relationships become time and location
independent.
Virtual Nature: This brings business actions from a physical marketplace to a market space.
Businesses will have to learn how to deal with the implications of online and screen-based trading for
appropriate business models, trust, service delivery, branding, etc.
A lot of the attention that e-Business receives tends to concentrate on the technologies involved. There is no
doubt that selecting the right technology, and implementing it well, is crucial. However, the impact those
technologies can have on company business processes, relationships, and organization can have much larger
ramifications than the technology implementation itself. Inadequately addressing business processes,
relationships, and organizational impacts can greatly impede the success of an e-Business program. For e-
Business to succeed, the technology and processes must work well together.
5. The Strategic Planning Process

Organizations employ strategic planning as a way to move toward their desired future position. Strategic
planning is the process of developing and implementing plans to reach goals and objectives. Strategic planning,
more than anything else, is what gives direction to an organization.
Most strategic planning methodologies are based on a situation, target, and path process:
Situation: Where a company is right now and how did it get there?
Target: Where does a company want to be?
Path: How can it get there?
In general terms, the basic approach to strategic planning requires an industrial organization approach that is
based on economic theory and deals with issues such as competitive rivalry, resource allocation, economies of
scale. Its basic assumptions focus on rationality, self-interested behavior, and profit maximization.
The strategic planning process involves a sequence of steps taken by management to develop new plans, modify
existing plans that may require revision, and discontinue plans that are no longer justified functionally or
financially. The strategic planning process requires first the establishment and then the maintenance of a plan of
action that everyone in the organization is expected to follow.
The strategic planning process has four key elements: mission statement, strategic analysis, strategic choice,
and strategy implementation. Figure 2.2 illustrates activity flow as new strategic plans are developed and existing
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plans are monitored, modified, and possibly replaced if they are no longer considered a good match with current
conditions or management objectives. After an organizations mission statement is established, analysis of
relevant information succeeds and leads to the development of strategic plans and their subsequent
implementation by the organization. Feedback links assure the continuous incorporation of new information at all
steps of the strategic planning process.
[Figure 2.2: The Strategic Planning Process]
The strategic planning process starts with the establishment of the organizations mission statement, which is a
basic description detailing the fundamental purpose of the organizations existence and encompasses strategy
development, including determination of the organizations vision and objectives. It is developed at the highest
level of the organizations management and ownership structure, and is fairly stable over longer periods of time,
while providing a general sense of direction for all decision making within the firm.
Strategic Analysis: It involves situation analysis, internal resource assessment, and evaluation of
stakeholders expectations. It will include environmental scanning, industry or market research, competitor
analysis, analysis of marketplace structure, and relationships with trading partners and suppliers, and
customer marketing research. Information is delivered from the analysis of factors that are both internal
and external to the firm. These factors are considered important environmental forces acting upon
customers, current strategies, and new plans still under development. External factors include socio-
cultural, technological, legal and regulatory, political, economic, and competitive forces. Internal factors
include the organizations human, material, informational, and financial resources; structure; operational
style; culture, and other characteristics that are internal to an organization. Any realistic new plan will have
to reflect the reality of both the external world and the internal dynamics of the organization.
Strategic Choice: It is based on the strategic analysis and consists of three parts: Generation of
strategic options, highlighting possible courses of action, evaluation of strategic options on their relative
merits, and selection of strategy, which is the selection of those options that the organization will pursue.
Strategic choice results in strategic planning, which is concerned with the organizing and detailing of all the
strategies that will be undertaken throughout the organization and their expected target objectives as well
as their expected results. Planning includes strategy specification and resource allocation and is organized
in a hierarchical top-down fashion. It commences with corporate-level planning and objectives that
determine the overall direction for the organization. Corporate-level planning drives division (or strategic
business unit) level planning which deals with major areas or groups of related products offered by an
organization. Division level plans in turn become the starting point for operating (or functional) level
planning, which involves more local plans within specific departments of the organization.
Implementation: Implementation relates to the actual tasks that must be executed in order to realize a
plan and translates strategy into action. It includes monitoring, adjustment, control as well as a feedback
that can direct useful information to the various levels of the organization that are involved in the ongoing
planning process. Control refers to how well an intended objective is likely to be realized, given the current
conditions. Feedback refers to the evaluation of activities that are reported back to management decision
makers.
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The above discussion assumes that strategies are purposefully designed action plans leading to a consistent
pattern of actions and so to consistent behavior over time. With this assumption comes the supposition that all
(successful) actions today are the result of a purposeful planning activity somewhere in the past, so-called
intended strategies. However, in real life situations, not all realized strategies have been intentional. Some appear
simply to have emerged over time, due to a sequence of unanticipated steps: so called emergent strategies. In
business practice, strategies are almost always a mix of intended and emergent strategies. The field of
information systems and e-Business is particularly one where emergent strategies are important. New
technologies that come up are tested in ongoing business processes and, if successful, result in a change of that
process.
[Figure 2.3: Forms of Strategy]
6. Strategic Alignment
In the 1980s the concept of alignment between business and IT was developed. According to this concept it is
not only feasible to design and build a technically sophisticated (inter-organizational) infrastructure for e-
Business, but also to formulate business strategies that complement and support this infrastructure. If a firms IT
strategic and operational objectives are not in alignment with its business strategies and operations, then this
infrastructure is bound to fail. Due to lack of alignment between business and IS strategies, organizations fail to
get value out of their IS/IT investments.
One of the major issues regarding an enterprises investment in information technology is whether this is in
harmony with its strategic objectives (intent, current strategy, and enterprise goals) and thus building the
capabilities necessary to deliver business value. This state of harmony is referred to as alignment. Alignment is
complex, multifaceted and almost never completely achieved. It is about continuing to move in the right direction
and being better aligned than competitors.
Alignment encompasses more than strategic integration between the (future) information technology
organization and the (future) enterprise organization. It is also about whether information technology operations
are aligned with the current enterprise operations. Obviously, it is difficult to achieve IT alignment when enterprise
units are misaligned.
Any e-Business strategy should articulate an enterprises intention to use information technology based on
business requirements. Linkage to business aims is essential for information technology to deliver recognizable
value to the enterprise. When formulating the IT strategy, the enterprise must consider:
Business objectives and the competitive environment;

Current and future technologies and the costs, risks, and benefits they can bring to the business;
The capability of the information technology organization and technology to deliver current and future
levels of service to the business, and the extent of change and investment this might imply for the whole
enterprise;
Cost of current information technology, and whether this provides sufficient value to the business;
Lessons learned from past failures and successes.
Once these issues are clearly understood, the IT strategy can be developed to ensure all elements of the IT
environment support the strategic e-Business objectives. This is illustrated in Figure 2.4.
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[Figure 2.4: Information Technology Supporting e-Business Strategic Objectives]
It is important that the plan for implementing the company strategy be endorsed by all relevant parties. It is also
important that the implementation plans be broken down into manageable parts, each with a clear business case
incorporating a plan for achieving outcomes, and realizing benefits. Management should ensure that the strategy
is reviewed regularly in the light of technological and operational change.
7. The Consequences of E-Business: Theoretical Foundations

The effects of e-Business form the subject of various organization theories. As e-Business is an information
technology-enabled organizational phenomenon with economic consequences, economic theories appear to be
particularly useful for analyzing the business effects.
When analyzing the business effects of e-Business we will consider the following approaches:
The theory of competitive strategy;
The resource-based view;
The theory of transaction costs.
7.1 Theory of competitive strategy

According to Porter the structural attractiveness of a firm is determined by five underlying forces of competition:
The bargaining power of customers.

The bargaining power of suppliers.
The barriers to entry for new competitors.
The threat of new substitute products or services.
The competition among existing firms in the industry.
In combination, these forces determine how the economic value created by any product, service technology or
way of competing is divided between companies in an industry as well as customers, suppliers, distributors,
substitutes, and potential new entrants.
The bargaining Power of Customers: A firm could, for instance, depend on the degree of product
differentiation, and the size of demand and supply. Switching costs too are very important: they answer
the question of how much will it cost the customer to change to another supplier. In cases of high
switching costs, the customer may be in a lock- in position.
The Bargaining Power of Suppliers: The bargaining power of suppliers is dependent on a variety of
factors, such as relative size, number of suppliers that can deliver a critical resource, and so on. In
addition, information technology can lead to lock-in positions and additional switching costs in the
specifications of IT suppliers. The Internet causes another specific threat from the perspective of suppliers:
they may bypass their customer and directly approach his or her clients. Servicing a final customer
directly, and not through an intermediary organization, is an option which may be considered in many
industries.
The barriers to entry for new competitors: It depends on how difficult it is to join the industry.
Economic and technology thresholds may prevent outside potential competitors from coming in.
Economies of scale, necessary capital, and specialized expertise are important factors in this respect. New
Internet-based business models, which do not necessitate investments in bricks and mortar may
facilitate an easy entrance and thus create unexpected competitors.
The Threat of Substitute Products: The threat of substitute products depends on the question of
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whether other products can deliver added value for consumers instead of current products in the absence
of switching costs.
The Level of Competition among Existing Firms in the Industry: The level of competition among
existing firms in the industry will depend on various factors like type of market, existing competitive
behavior, and so on. The Internet may affect market competition in a number ways. As explained before,
through its pervasiveness it supports direct electronic linkages with businesses and end consumers.
Significantly reduced search costs will thus contribute to a much higher market transparency. Profitable
market positions based on information asymmetry will be threatened.
Analyzing these five forces of competition clarifies an industrys fundamental attractiveness, exposes the
underlying drivers of average industry profitability, and provides insight into how profitability can evolve in the
future. The five competitive forces still determine profitability even if suppliers, channels, substitutes, or
competitors change.
Achieving success in any competitive environment in Porters view depends on a chosen competitive strategy
which is either based on a firm being a low cost producer (customers buy from you, because you are the most
inexpensive supplier) or on a differentiation from competitors in quality offered, as perceived by the customers
(customers buy from you because of the quality you offer). These strategies can be pursued either throughout
the market or by concentrating on a particular niche.
Various authors, including Porter himself, have applied these concepts to explaining the strategic effects of
information technology. More recently, with the help of these models, Porter analyzed the impact of the Internet
on industries and individual organizations. An examination of a wide range of industries in which the Internet is
playing a role revealed some clear trends. Positive trends from the perspective of producers/suppliers include:
The Internet tends to dampen the bargaining power of channels by providing companies with new, more
direct avenues to customers.
The Internet can also boost an industrys efficiency in various ways, expanding the overall size of the
market by improving its position relative to traditional substitutes.
However, the Internet also strengthens the position of customers (both buying companies and end customers).
For instance:
Internet technology provides buyers with easier access to information about products and suppliers, thus
bolstering buyer bargaining power.
The Internet mitigates the need for such things as an established sales force or access to existing
channels, reducing barriers to entry.
By enabling new approaches to meeting needs and performing functions, the Internet creates new
substitutes.
Because the Internet is an open system, companies have more difficulty maintaining proprietary
offerings, thus intensifying the rivalry among competitors.
The use of the Internet also tends to expand the geographic market, bringing many more companies into
competition with one another.
7.2 The Resource-Based View

According to this theory of economic development, innovation is the source of value creation. Technological
development is viewed as discontinuous change and disequilibrium resulting from innovation. Several sources of
innovation (hence, value creation) are identified including the introduction of new goods or new production
methods, the creation of new markets, the discovery of new supply sources, and the reorganization of
industries. Innovation emphasizes the importance of technology and considers novel combinations of resources
(and the services they provide) as the foundations of new products and production methods. These, in turn, lead
to the transformation of markets and industries; and hence to economic development.
Resource-based view (RBV), which builds on the theory of economic developments perspective on value
creation, regards a firm as a collection of resources and capabilities. In contrast to theories about company
performance, which emphasize external strategic positioning, Barneys resource-based view considers internal
resources and competencies as sources of potential competitive advantage, instead of looking at the market
and making strategic plans accordingly. The resource-based view looks at available resources first to see how a
position in the business environment can be acquired with them. According to this view, a firm can build a
strategic position by picking the right resources and building competencies that are unique and difficult to imitate.
Resources are considered the raw material for building competencies.
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7.3 Transaction Cost Economics
Transaction cost economics attempt to explain firms choices between internalizing and buying goods and
services from the market. According to transaction cost theory, exchanges with external firms entail a variety of
coordination costs associated with various aspects of inter-firm transactions. These include search costs to find
the right trading partner (or supplier of a good or service), as well as negotiation, monitoring, settlement, and
various after sales services associated with the exchange. When conditions in the market cause these
coordination costs to grow such as when suppliers are hard to find, or there is a potential for them to behave
opportunistically, firms may choose to internalize the production of the needed good or service. Hence, they
trade off production costs for coordination costs, using internal management rather than the market as a
governance mechanism.
At its core, transaction cost theory is concerned with explaining the choice of the most efficient governance form
given a transaction that is embedded in a specific economic context. This choice is explained on the basis of the
costs associated with these transactions. According to transaction cost economics, a firm has two options for
organizing its economic activities: an internal hierarchical structure where it integrates the activity into its
management structure, or a market-like relationship with external firms. When the market mechanism is at
work, the flow of materials and services takes the form of external transactions and is coordinated by market
forces. Later scholars have extended the scope of transaction cost economics to include quasi-hierarchical and
quasi-market structures as alternate governance forms that a firm can opt for. However, the basic concept
remains the same: a firm decides to rely on a governance form that is closer to the hierarchical end of the
spectrum than the market end when the transaction costs that arise from market coordination outweigh
production cost benefits which arise from economies of scale and scope that come with outsourcing to
specialized firms. Outside procurement is favored when the sum of external production costs and transaction
costs are lower than the sum of internal production and coordination costs.
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Topic 3: Spotting E Business Trends
T opic Objective:
1. Trends Driving E-Business
2. Customer-Oriented Trends
3. E-Service Trends
4. Organizational Trends
5. Employee Megatrends
6. Enterprise Technology Trends
7. General Technology Trends
Topic Introduction:
Trends that transform the business world are not new. The technological revolution of the late nineteenth and
early twentieth century is a classic example. During this period, the world economy underwent a turbulent
process of shifting labor and capital from a slow-growth agricultural economy to one dominated by new
technologies, such as the internal combustion engine and electrification. More recently, during the 1970s and
1980s, the most significant trends included increasing global competition, greater demand for quality and process
improvement, shorter product life cycles, and the need for a more flexible work force. Many of these trends are
now considered boilerplate, and experienced managers understand them well. Technology is shifting power to
buyers.
E-Commerce is changing the channels through which consumers and businesses have traditionally bought and
sold goods and services. What are the benefits to this change? The e-channel provides sellers with access to a
global audience, the ability to operate with minimal infrastructure, reduced overhead, and greater economies of
scale; consumers, with a broad selection, convenience, and competitive pricing. Consequently, a growing
number of consumers are embracing the Web, buying products, trading securities, paying bills, and purchasing
airline tickets. But remember: e-Commerce is in its infancy. Consumers encounter such problems as browsers
crashing and call-waiting features interrupting their dial-up connections. For e-commerce to realize its full
potential, it must offer overwhelming value to compensate for the short-term technological deficiencies.
Topic Overview:
1. Trends Driving E-Business
The business world is transitioning from a physical reality based on atoms to a digital one of bits. As this
transition from a focus on material to information occurs, the opportunities for revolution are many and largely
unexplored. How should an entrepreneurial manager begin this exploration? By looking for ways to anticipate
consumer and technological trends and envisioning new organizational forms that optimally serve consumer
needs. A lot of what we find surprising and unpredictable is in fact a series of events played out in pretty much
the same way in industry after industry. Once we see such a pattern, we can understand and predict change.
From this understanding, we can build a new set of operating assumptions to build the strategy.
The savvy entrepreneurial manager must learn to distinguish true social, economic, or technical trends from
flavor-of-the-month fads. Fads catch on quickly, spread, and then die a fast death. Eileen Shapiro defines fad
surfing as the practice of riding the crest of the latest management panacea and then paddling out again just in
time to ride the next one; always absorbing for managers and lucrative for consultants; frequently disastrous for
organizations. With fad surfing, managers and consultants have a difficult time focusing on the proper
opportunities and instead tend to approach e-business initiatives chaotically.
Trends often start slowly but spread like wildfire as consumers and companies fan the flames with their
demands. Trends may evolve dramatically. For instance, consumers are changing their buying habits and
embracing e-commerce faster than anyones wildest prediction. Trend spotting isnt just for entrepreneurs
looking to start new companies or for marketers attempting to sell old products in new packages. It is useful for
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identifying new business opportunities as well.
2. Customer-Oriented Trends
2.1 Faster Service: For the Customer, Time Is Money

Customers count speed of service as a key reason for doing business with certain companies. Therefore,
compress the number of steps it takes to serve customers. Customers hate delays; moreover, they hate
waiting for service. Just look at the success of drive-through oil changes, drive-through fast food, and other
quick turnaround businesses. As their time quotas shrink, customers look for companies that provide faster
service. Look at new trends in online and offline retailing. The message to the marketplace is clear: To succeed,
companies must reduce the processing time of search, selection, order entry, and order fulfillment. Delays at any
step of the process are unacceptable.
When you consider the challenge of meeting the demands of busy, time-starved, dissatisfied consumers in an
environment of hostile competition, low margins, and countless sales outlets selling similar products, it becomes
clear that changing the entire business model is the only plausible strategy. E-Business applications must cut the
time customers wait for service. Business processes, regardless of the applications supporting them, must also
be reoriented to expedite customer service. Customers now penalize companies that infringe on their time
through delays, mistakes, or inconveniences. If a company doesnt expedite its processes, customers will go to
one that does. If a company doesnt make it easy for the customer to do business, another one will.
Its very important that managers understand and diagnose the cause behind service delays. Managers need to
analyze whether an integrated system can speed service, and if so, they need to strategize, design, and
implement it as soon as possible. Unfortunately, some managers wake up too late to heed the sound of
customers fists pounding on the counters for faster service, and their companies wont be in business for long.
2.2 Self-Service: Empowered Customers

Today, millions of people no longer reach for the car keys when they need to purchase clothes, gifts, or
computer products but instead reach for their keyboards. Customers are looking for self-service solutions that
not only save them time but also empower them. Theyre embracing 24 - 7 - 365 (24 hours a day, 7 days a
week, 365 days a year) self-service solutions as they look for information and merchandise without the aid of
sales personnel.
The drivers of the self-service wave are obvious. Consumers are able to shop anytime, anywhere, as long as
theyre connected to the Internet. Trips to the mall are eliminated, along with parking hassles and long checkout
lines. In the United States, a nation of families with two full-time workers, consumers generally have too much
to do and too little time in which to do it. Therefore, any technology or service that helps reduce shopping time
has enormous economic value.
Self-service has impacted a huge sector of the business work force: the intermediary, or middlemen. From real
estate, insurance, travel, and car purchases to auctions, parts sourcing, and retailing, very few intermediaries are
left standing when buyers and sellers realize that they can meet directly online. For some, extinction is almost
certain. Others are finding fresh opportunities on the Web, although virtually all will have to change how they do
business.
E-Commerce takes self-service to a quantum level unforeseen by Sam Walton and the originators of retail self-
service. Market leaders are giving customers the means to serve themselves whenever possible.
The benefits of self-service are clear and proven. Before a company can realize these benefits, it must first build
a new infrastructure and design new protocols to streamline the self-service process. Enterprise-wide integration
of business processes will be essential for serving the customer well. The inflexibility of mature companies puts
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them at a severe disadvantage. The emergence of self-service as a core customer requirement means that
companies need to act quickly to transform and integrate existing applications, processes, and systems to
enable self-service: no small task.
2.3 More Product Choices: More Personalization

As buyer power increases and customer attention span dwindles, companies are scrambling to increase the
number of products and services offered and to customize them. Online retailers triumph over brick-and-mortar
companies in one area: breathtaking product selection. Consumers, especially in the United States, seem to love
one-stop locations that offer everything under one roof.
Customers are gravitating toward solutions that have large product selections presented in an easy-to-use
manner. The most successful online portals are amassing a tremendous amount of product information and
making it available to consumers on an easy-to-access, as-needed basis. When broadband access to the
Internet becomes widespread, video content will be available for many products and services, visually enhancing
the trend toward information at the point of purchase.
At the same time, navigating a vast selection requires personalization: knowing and tracking a buyers unique
purchasing habits. In contrast to the traditional brick-and-mortar firms, e-business companies will eventually be
in a position to personalize the shopping experience for every consumer. By inducing consumers to leave profile
information, tracking consumer click-stream movement, and segmenting shopper preferences, online retailers
have access to far more customer data than traditional retailers do. This data can be used to personalize each
shoppers experience, such as e-mail alerts for new merchandise theyll be interested in, or tailored storefronts
that meet the tastes and preferences of individual consumers.
2.4 Integrated Solutions, Not Piecemeal Products

The past decade has seen an interesting shift toward integrated solutions. A good example of an integrated
solution is the Microsoft Office Suite. The Office Suite product is one of the biggest moneymakers Microsoft has
because customers love its integrated functionality. Microsoft is betting that this demand for integrated products
will continue. In fact, a core design objective in many of its products is seamless integration.
It is quite extraordinary how quickly consumers have moved away from point, or best-of-breed, solutions
toward integrated solutions. This trend can be observed in retailing. In todays time-strapped society, shopping is
a low priority on peoples to-do lists. Increasingly, customers are demanding one-stop, all under- one-roof
solutions. In response, the retail industry has created various models: one-stop life-needs providers (Wal-Mart),
one-stop lifestyle providers (the Gap), and one-stop life-path providers (Toys RUs).
The life-needs integration trend can be observed in the success of the Wal-Mart superstore, an integrated retailer
for the busy, price-sensitive shopper. Wal-Marts execution of one-stop shopping has increased customer
loyalty, the number of items sold per transaction, and the average transaction size. Other retailers, such as
Target, have noted this successful formula and are pursuing strategies that include selling more to the same
customer out of the same store or Web site and making shopping more convenient.
Consumers dont need another retailer or another electronic distribution channel. They want integrated-service
businesses that solve their one-stop shopping needs. There are too many choices, products, and stores. To
solve the choice problem, customers increasingly seek integrated solutions because they make the decision
process easier.
3. E-Service Trends
3.1 Integrated Sales and Service: Customization and Integration

The need to attract, acquire, leverage, and retain customers is still of primary concern to most businesses.
Revenue growth through customer acquisition and retention remains a major requirement for competing
successfully.
To improve customer retention, companies are developing and managing customer relationships via better
sales/service integration and new technology. The concept of maximizing customer relationships as a
competitive differentiator gained attention in the late 1980s. Managers realized that customers do not exist in a
featureless aggregate any more than do products. A one-size-fits-all philosophy, therefore, doesnt work. Sales
and service messages need to be tailored to each customer. Therein, of course, lays the problem.
Customer relationships are the key to business growth. Firms must take absolute responsibility for customers
satisfaction throughout the want-it-buy-it- and-use-it experience. This requires learning and tracking
customers needs, behaviors, and lifestyles and using this information to create a specific value proposition. This
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strategy is the path to consumer loyalty, and its called relationship selling.
The purpose for implementing technology is not just about customer acquisition or retention. Its use extends to
generating revenue by selling more to existing customers through cross-selling and up-selling, as detailed
information about customer preferences and buying habits is readily captured and available at the point of
service or sales interaction. This strategy dictates selling to customers while serving them. You can see it at your
local bank when the teller tries to sell you a new product while youre making a deposit. Service becomes a
sales-prospecting activity. In other words, the bank is attempting to become an integrated sales and service
environment. However, most companies view sales and service as separate functions. A sale occurs during the
sales cycle, and service is an after-sale activity. Where a prospect or customer is in this cycle determines which
department in the company he or she must contact. However, cross-selling and up-selling are closing the gap
between sales and service.
4. Organizational Trends
4.1 Outsourcing Management: Flatten the Organization

The modern business climate demands that companies live and breathe flexibility in order to survive. Such
flexibility is often reflected in a firms decision to outsource specific business processes. Business process
outsourcing (BPO) is the delegation of one or more business processes to an external provider to improve
overall business performance in a particular area. For example, utility companies are outsourcing their cost
centers (human resources and purchasing functions) in order to concentrate on their core competence: making
and selling energy.
BPO offers businesses innovative ways to save money and to enter or create new markets rapidly, without a
significant up-front investment. BPO provides a modular environment in which it is possible to scale up and ramp
down, depending on seasonal cycles and production needs. The market trends driving the adoption of BPO
strategies include pressure to increase earnings and reduce costs and an increased need to create and maintain a
competitive edge.
Often, the processes being outsourced are considered support functions accounting, IT, administrationthat
are the core competencies on which the company is based. This flattening of organizations is inverting
operations from vertical strategic business units into horizontal business processes.
Traditionally, outsourcing has been used as a cost-control technique. However, as globalization spreads and
networking technology becomes more widespread, companies see outsourcing as a way to create a virtual
enterprise, change corporate culture, gain access to premium thinkers, and implement world-class capabilities
and technologies. Process owners are outsourcing entire processes for business performance rather than IT
efficiency.
4.2 Contract Manufacturing: Become Brand Intensive

Many old-line manufacturers are attempting to copy the success of companies in the computer industry and
others that contract out much of their manufacturing. Contract manufacturing worked so well in the high-tech
industry that it spread to other industries. The trend toward specializationmarketing versus manufacturing
means that companies are focusing on what they do best. The goal of these firms is to move from a
capital/asset-intensive focusmanufacturingto a knowledge and marketing-intensive one.
4.3 Virtual Distribution: Become Customer-Centric

New intermediaries, called virtual distributors, are emerging in many multi-seller/ Multi-buyer markets. Many Web
entrepreneurs have identified potential virtual-distributor opportunities in various industries and quickly
established Web sites. For example, in the chemical industry, e-commerce is changing the principles governing
aspects of production planning, strategic thinking, and sales and marketing. The industry has long made a sharp
distinction between commodity and specialty chemicals. But e-commerce blurs the line because it makes all
products a specialty by allowing other attributes to be layered onto the basic offering. Similarly, the chemical
industry has, throughout its history, experienced boom-and-bust cycles, but now e-commerce provides the
potential for matching supply more closely to demand. Furthermore, large producers now find it easy to build
direct relationships with smaller customers traditionally served by distributors.
New, virtual distributors can make chemical markets more efficient. Its estimated that anywhere from 10
percent to 90 percent of a chemicals cost occurs after it leaves the production plant. Significant cost cuts will
result from companies moving to e-commerce for buying and selling chemicals.
E-Commerce comes to the chemical industry just in time to provide a solution, allowing suppliers to deal directly
and cost-effectively with even the smallest customer. One of the reasons the chemical industry has been slow to
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move to electronic trading is the interwoven nature of trading links.
5. Employee Megatrends
5.1 Hiring the Best and Brightest

The e-Business roadmap: vision, planning, execution. In order to follow this map, you must have motivated
employees. In the tight labor market, its become very difficult to hire people with e-commerce skills. E-
Commerce demands that companies continually grow, deliver better service, or reduce prices.
Large companies moving into e-business are finding that recruiting talented employees is next to impossible.
Many of the best and brightest executives, developers, and support staff are choosing the high-risk, high-reward
route of Internet start-ups over stable corporate careers. Owing to the long-running bull market, many top
executives are trading in corporate perks for stock options, resulting in fewer qualified candidates available and
intense competition for them. In this snooze-you-lose environment, companies with slow, cumbersome
selection procedures dont stand a chance at hiring the best employees. But beefing up their recruitment and
selection processes isnt enough. Companies have to make better use of technology to attract and select the
best candidates. Remember, many new era companies are based on innovation, speed, and creativitygoals
that established companies must adopt.
5.2 Keeping Talented Employees

Sustainable innovation depends on motivated and empowered employees. With changing technology and
business trends, management worries about employee retention are understandable; nothing is more critical to
long-term success. Retaining talented employees depends on
Better incentives and compensation: Pay and bonuses should be tied to continuous improvement for
both employees and the organization.
Earned advancement: Promotions must be based on the proven ability to lead and manage a strong
group of people. If employees are given the hope that they can move up in the company, they will stay
longer and work harder.
Better motivation: Real, tangible commitments must be made to employees. If people believe that
theyre working so that senior management can get a bigger bonus, change will not happen. The work
force has to be self-motivated to continuously improve processes and themselves.
Supporting and sustaining a culture that can succeed and innovate is not only a requirement but also a
prerequisite for doing e-business. The old ways of command and control over knowledge workers no longer
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work well. Technology is a key weapon in employee recruiting and motivation. New opportunities await
employee-friendly companies.
6. Enterprise Technology Trends
6.1 Integrated Enterprise Applications: Connect the Corporation

Traditionally, most companies separated their business applications, creating specialized functional areas:
accounting, finance, manufacturing, distribution, and customer service. Its a matter of divide and conquer: If a
job can be defined specifically enough, a specialized application can optimize functions in that particular area. And
if all functional links in a company are optimized, the company as a whole will function optimally. In recent years,
however, business theorists have challenged this best-of-breed strategy. They recognize that if a chain of
processes is to perform at a high level, the individual business functions and the applications supporting them
must be tightly linked with other processes around them.
However, integration is difficult. Over the past decade, the notion of a corporation whose optimized business
processes rested on a backbone of well-integrated application software has had great appeal. It will continue to
do so far into the future. Enterprise applications are offered by packaged software vendors.
6.2 Multichannel Integration: Look at the Big Picture

The brick-and-mortar office was for a long time the only service channel available to customers for conducting
business. Then came the telephone. Today, access alternatives and capabilities are exploding: the Web, direct
dial-up, interactive voice response (IVR), and wireless. With all these service channels proliferating, customers
are demanding multichannel service integration. Service integration means providing standardized high-quality
customer service across all the firms service channel media. Multichannel integration is critical because
customers expect consistent service when they interact with a company, no matter which channel they use.
Multichannel service integration is not a technical issue but rather a management issue. It is managements
responsibility to review the entire scope of the firms service channels. The success of each individual channel
part must be defined in sync with the overall system. Otherwise, each delivery channel may be successful on its
own, but the delivery system as a whole will not be. Most businesses have a number of managers responsible
for monitoring each channel, but few are assigned responsibility for looking at the overall picture.
6.3 Middleware: Support the Integration Mandate

A business has not had compelling reasons to endure the cost, complexity, and risk of integrating stovepipe
applicationsuntil now. The heat of competition is forcing organizations to broaden their views on application
integration, just as many customer-care initiatives are forcing companies to present a single view of the
customer relationship. In addition to business trends, such as globalization, several technology mini trends
Internet/intranet architectures, quick and inexpensive data access, multimedia capabilities, open standards, the
increasing demand for distributed applicationsare driving the need for robust, distributed applications scalable
and reliable enough to run mission-critical business applications.
To meet business and technology integration needs, a new class of technology, called middleware, is emerging.
Integration based on middleware makes financial sense. Customers are reluctant to throw away their existing
legacy investments, because the old systems cannot be easily replaced. Most major mission-critical operations
still run on mainframe-based systems, owing to concerns about security, reliability, and speed. Therefore,
companies are looking for robust connectivity and seamless interoperability between their mainframe and
Internet applications. As they respond to these demands, corporations and vendors are discovering that
middleware provides the essential glue that enables large, complex business software, such as multichannel
service applications, to run effectively and reliably.
7. General Technology Trends
7.1 Wireless Web Applications: M-Commerce

Business of the future will be mobile, integrated, and personal. With the widespread rollout of a wireless
infrastructure, a new wave of consumer and business applications will begin using airwaves for much more than
just phone calls. These powerful, convenient wireless applications and the decreasing cost of wireless use will
increase the efficiency of performing everyday tasks, such as organizing business and personal affairs, sending e-
mail, making phone calls, and even finding the best restaurant within walking distance.
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7.2 Handheld Computing and Information Appliances
Technological innovation has enabled the e-business revolution. The traditional workspace imagewith its PC-
centric box with monitor interactive platform is shattering. With the emergence of a multitude of access
device options, from advanced digital cable set-top boxes (WebTV) and handheld mobile devices to auto PCs
and netphones, consumers will be able to access the information content they need when they need it.
The handheld computing and information appliance industry is growing rapidly. Mobile users increasingly demand
easier access to critical personal and professional information, interaction with Internet-based information
resources, and mobile voice and data communications. This increased need for productivity and connectivity
anywhere, anytime has led to a wide array of handheld devices.
7.3 Infrastructure Convergence: Voice, Data, and Video

Its time for IP everywhere. A major trend in the infrastructure for e-business is the convergence of various data
and voice networks. Worldwide telephone, cable TV, wireless, and computer data networks are ceasing to be
separate, isolated systems. Instead, theyre converging into a powerful, unified network based on the Internet
Protocol (IP), the packet-switching network layer that has proved to be a versatile workhorse that can transmit
any kind of information quickly and cheaply.
7.4 Application Service Providers (ASPs): Software as Rentable Services

The decision to make versus buy has become that of make versus buy versus rent. Until recently, companies
wanting to implement Internet applications had to develop their own software applications or customize existing
packages, making each implementation unique and costly. This approach also made implementation time frames
and costs unpredictable. Customers have forced software vendors to lower the cost of implementation by
offering standardized packages accessible via the Internet.

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E Business Relationships
E-Business Technological Infrastructure
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Topic 4: E Business Relationships
T opic Objective:
1. Modeling Interdependent Business Activities: The Value Chain
2. Business Processes and their Management
3. Business Process Management
4. Characteristics of Business Processes
5. Types of Business Processes
6. Role of IT in Business Processes
7. Types and Characteristics of e-Business Relationships
8. Electronic Links and the Value Chain
Topic Introduction:
Relationships in the supply chain can be categorized as either business to- business (e-Business) or business-to-
consumer. Business-to-business relationships concern themselves with inter-company relationships, while
business-to-consumer relationships refer to the very last component of the supply chain and its relation to the
end customer.
Topic Overview:
1. Modeling Interdependent Business Activities: The Value Chain
During the current decade economic realities are demanding that companies become customer-driven
organizations that can identify and address customers needs from a variety of perspectives at every point in
the value chain. Moreover, entire value chains consisting of powerful business alliances are emerging and will
compete as single entities for customers. To help readers understand these business trends we define the
concept of value chain and analyze its attributes in this section.
1.1 The Business Unit Value Chain

To understand and represent how firms developed a competitive position we first need to understand the
concept of value chain that was proposed by Porter. Porter states that: every firm is a collection of activities
that are performed to design, produce, market, deliver, and support its products or services. Value chains can
only be understood in the context of the business unit. The value chain is a model that describes a series of
value-adding activities connecting a companys supply side (raw materials, inbound logistics, and production
processes) with its demand side (outbound logistics, marketing, and sales). The value chain model provides
managers with a tool to analyze and, if necessary, redesign their internal and external processes to improve
efficiency and effectiveness. His classic internal value chain for any firm is shown in Figure 4.1. The actual value
chain is different for every organization.
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[Figure 4.1: The Value Chain]
A value chain usually describes a major line of business and encompasses two types of activities, primary
activities and support activities. The primary activities are those that have a direct relationship, potential or
actual, with the organizations customers. They contribute directly to getting goods and services to the
customer, e.g., inbound logistics, including procurement, manufacturing, marketing, and delivery to buyers.
Support activities provide the inputs and infrastructure that allows the primary activities to be performed. The
primary activities are:
Inbound Logistics: All processes associated with receiving, storing, and disseminating inputs to the
production process of the product or service.
Operations: All processes associated with transforming the inputs into outputs.
Outbound Logistics: All activities concerned with distributing the products or services to customers.
Marketing & Sales: Activities, which provide opportunities for the potential customer to buy the product
or service, and offer inducements to do so. This section of the value chain includes such processes as
advertising, pricing, tendering, sales force management, selection of distribution channels, etc.
Service: All processes concerned with the provision of service as part of the deal struck with customers.
They are those activities that enhance or maintain the value of the product or service once the customer
has bought it. These activities include repairs, maintenance, spare parts supply, product upgrades, follow
up services, training and installation, and so on.
As Figure 4.1 illustrates the execution of primary activities requires support activities:
Firm Infrastructure: This activity encompasses administration and (general) management for overall
planning and control.
Human Resource Management: This function refers to all those activities associated with the
recruiting, training, developing, appraising, promoting, and rewarding of personnel.
Product / Technology Development: This function includes all activities that relate to product and
process development.
Procurement: This function is responsible for purchasing goods, services, and materials required as
inputs for the production process.
The original value chain model is applicable to organizations with a physical goods flow, like manufacturing and
trading companies. For service organizations, like banks, insurance companies, tour operators, the original
model needs to be adapted to the characteristics of that particular type of company. However, independently of
the type of organization under consideration, the basic idea of the model applies: the analysis of how activities
add value and the distinction between activities that directly add value to the customer and those that indirectly
add value (through the primary activities).
According to Porter, a value chain includes everything that contributes to a major organizational output. By
adding up all the costs associated with each activity in a value chain, and subtracting the total from the revenue
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derived from the output, an organization can determine the profit margin. Enterprises may have from one to few
value chains. Organizations typically support from three to fifteen value chains. A financial organization may, for
example, support four value chains such as individual checking and savings, business checking and savings, new
savings product development, and business loans. This is shown in Figure 4.2.
[Figure 4.2: Value Chains in a Financial Organization]
Supply chain is a network of facilities and distribution options that necessarily performs the functions of
procurement and acquisition of material, processing and transformation of the material into intermediate and
finished tangible products and finally the physical distribution of the finished tangible products to the customers.
Supply chains exist in both manufacturing as well as in service organizations.
A companys supply chain consists of geographically dispersed facilities where raw materials, intermediate
products, or finished products are acquired, transformed, stored, or sold, and transportation links connecting the
facilities along which products flow. There is a distinction between plants, which are manufacturing facilities where
physical product transformations take place, and distribution centers, which are facilities where products are
received, sorted, put away in inventory, picked from inventory, and dispatched, but not physically transformed.
The company may operate these facilities, or they may be operated by vendors, customers, third-party
providers, or other firms with which the company has business arrangements. While, in the past, companies
focused primarily on manufacturing and quality improvements within their four walls, now their efforts extend
beyond those walls to encompass the entire supply chain.
1.2 Value Chain Analysis

Porters value chain framework analyzes value creation at the organization level. It does so by addressing two
main questions:
What activities should a firm perform, and how?

What is the configuration of the firms activities that would enable it to add value to the product and to
compete in its industry?
Value chain analysis starts by identifying the activities of the firm and then studies the economic implications of
those activities. It includes four general steps:
i. Defining the strategic business unit.

ii. Identifying critical activities.
iii. Defining products.
iv. Determining the value of an activity.
Porter defines value as the amount buyers are willing to pay for what a firm provides them. Value is measured
by total revenue. Value can be created by differentiation along every step of the value chain, through activities
resulting in products and services that lower buyers costs or raise buyers performance. Drivers of product
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differentiation, and hence sources of value creation, are policy choices (what activities to perform and how),
linkages (within the value chain or with suppliers and channels), timing (of activities), location, sharing of
activities among business units, learning, integration, scale and institutional factors. According to Porter a firm is
profitable if the value it commands exceeds the costs involved in creating a specific product.
The analysis of a business units value chain in relation to the competitive strategy of the firm helps to
understand how enterprise information systems, such ERP, CRM, and SCM, can contribute to the firms
competitive position. Firstly, enterprise information systems may help each activity to be performed well.
However, the eventual value generated at the level of the final customer not only depends on the functioning of
each individual (functional) activity, it also depends on the coordination of all activities involved. For example,
cycle time in production may be reduced; however, if suppliers have unreliable delivery times, the eventual
delivery time for the final customer remains long and unreliable. So, secondly, enterprise information systems
should also support the horizontal flow of information through the business to support overall performance
towards the customer. However, traditionally, very often, information systems have been set up to satisfy the
demands of vertical functional departments and much less to support horizontal coordination between
departments. The general idea is that for all activities the performance measures and levels set by the market
(the customers) drive the way they are executed. It is the alienation from the final market that makes functional
departments emphasize internal performance measures, and levels that optimize internal efficiency and
effectiveness, losing sight of what the customer really wants.
Value chain analysis can be helpful in examining value creation in virtual markets. A virtual value chain may
include a sequence of gathering, organizing, selecting, synthesizing, and distributing information. While this
modification of the value chain concept corresponds better to the realities of virtual markets, and in particular to
the importance of information goods, there may still be room to capture the richness of e-Business activity
more fully. Value creation opportunities in virtual markets may result from new combinations of information,
physical products and services, innovative configurations of transactions, and the reconfiguration and integration
of resources, capabilities, roles, and relationships among suppliers, partners, and customers.
1.3 Value Stream Analysis

Value stream is a concept closely related to the value chain. Value stream analysis considers how the whole
production and delivery process can be made more efficient. To conduct value stream analysis, companies map
every activity that occurs in creating new products and delivering products or services to customers, and then
categorize them as those that create value as perceived by the customer, those that create no value, and those
that do not add value. The last two categories are eliminated.
The value stream is the set of all the specific actions required to bring a specific product through the three critical
management tasks of any business: 1) Problem-solving (from concept to production launch); 2) Information
management (from order-taking to delivery); 3) Physical transformation (from raw materials to finished
products delivered to the customer). It should be noted that tasks 2 and 3 are traditional value chain activities
but task 1 is not.
The starting point is that the end customer determines value. This means identifying what the customer is willing
to pay for, what creates value for him or her. The whole process of producing and delivering a product should
be examined and optimized from the customers point of view. So once value is defined, we can explore the
value stream, being all activities both value-added and non-value added that are currently required to bring
the product from raw material to end product to the customer.
1.4 Unbundling the Business Unit Value Chain

Competitive pressures force companies to reconsider their business model. Concentration on what is considered
a unique and core competence and outsourcing the rest contributes to a more agile and efficient organization. It
is no coincidence that technology companies, with high velocity product cycles and swings, have aggressively
embraced outsourcing and specialization; 70% of electronics manufacturing use contract manufacturing.
As a result of these developments, traditional business unit value chains become unbundled. Primary activities,
like logistics, operations, and support activities, and parts of the firms infrastructure (e.g. accounting, financial
services, and human resources) get outsourced. Often, in multi-business-unit firms, a first step to outsourcing is
setting up Shared Service Centers for specific activities, like human relations. Outsourced activities have to be
procured from one or more external suppliers. Unbundling of the value chain contributes to more complex e-
Business relationships. Efficiency of the relationship, e.g., through low transaction costs, is or should be an
argument when considering the outsourcing movement. It is clear that e-Business technology has an important
role to play in this respect.
1.5 The Industry Value Chain
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Every business unit value chain is part of a larger industry value chain (also called the value system) is a
collection of individual business unit value chains that together produce and deliver the goods and services to the
final customer. The value system is a model that helps a company to position itself relative to other companies.
The idea is to make explicit the role of a company in the overall activity of providing a product to a customer.
The value system specifies the suppliers and the immediate customers and defines the sales channels of the
given company. It allows understanding of whether all the companies involved in the sales process can
potentially collaborate or whether there are conflicts of interests.
How effective (meeting the objectives) and how efficient (meeting the objectives at minimal cost) the industry
value chain is able to meet the demands of the final customers, is dependent on both the performance of each
individual business unit, and the combined action of all the companies involved in the industry value chain.
Availability of supply and demand information at each stage is key for producing the required goods and services
as efficiently as possible. Typical information exchange in the industry value chain will relate to regular business
transactions (orders, order confirmations, invoices, and payments). Basic e-Business technology applications can
improve the efficiency of these processes, by just automating the existing procedures or eventually making
possible a complete reengineering of the process. Besides information about existing orders, also information
about customer demand for the businesses in the chain and available products, services, and production capacity
for the intermediate and final customers is challenged by e-Business technology.
The value system approach stresses the relative position of a business unit as a part of a larger chain. Related
concepts are logistics and supply chain. The need to manage an organization as flows of goods, services, and
information in contrast to as isolated activities has been recognized by what is called logistics . Logistics may be
defined as the process of planning the flow of goods and related information, including purchasing, storage,
transportation, and manufacturing, from suppliers through the organization to final customers. Logistics is an
integrative planning concept that develops a system view of the firm to focus on the coordination of material
and information flows across the organization to satisfy the needs of end customers at optimal conditions.
Logistics aims at avoiding sub-optimization that occurs when inventories, purchasing, manufacturing,
transportation are being planned as isolated activities. Logistics is closely related to the concept of the value
chain.
Whereas logistics focuses on a single firm and its relations to suppliers and customers, the supply chain
encompasses a more comprehensive view by looking at the collection of firms that are involved in producing and
delivering an end product to the final customer. Supply chain management is basically an extension of logistics
management by adopting a higher-level view when considering all the downstream and upstream relations
between the organizations involved in taking a product to the customer. The aim is to do so in optimal
conditions from a total supply chain point of view. When individual organizations in the supply chain manage their
operations independently of each other, overall supply chain performance, in terms of eventual customer value,
will be low. Inventories will be excessive, products will require delivery times etc. By collaborating in the supply
chain which means that the different supply chain members make plans together about manufacturing,
inventories, delivery schedules etc overall supply chain performance can be dramatically improved in terms of
value delivered to the customer. The latter process is known as supply chain integration.
2. Business Processes and their Management

The focus on the final customer as opposed to the focus on vertical functional activities has led in the 1990s to
an increased interest in processes and their management. A process is an ordering of activities with a beginning
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and an end; it has inputs (in terms of resources, materials, and information) and a specified output. We may
thus define a process as any sequence of steps that is initiated by an event, transforms information, materials,
or business commitments, and produces an output [Harmon 2003c]. Processes can be measured, and different
performance measures apply, like cost, quality, time and customer satisfaction. To manage processes properly,
new functions and new areas of responsibility have to be introduced, like case managers and process owners.
A business process consists of one or more related activities that together respond to a business requirement
for action. A (business) process view implies a horizontal view of a business organization, and looks at
processes as sets of interdependent activities designed and structured to produce a specific output for a
customer or a market. Most analysts use the term activity rather informally to refer to a small-scale process
that consists of one or a few closely related steps. A process defines the results to be achieved, the context of
the activities, the relationships between the activities, and the interactions with other processes and resources. A
business process may receive events that alter the state of the process and the sequence of activities. A
business process may produce events for input to other systems or processes. It may also invoke applications
to perform computational functions, and it may post assignments to human work lists to request actions by
human actors.
As a general rule, business processes are the core of an enterprises identity; they are the steps taken to create
a new product, manufacture an item, assemble multiple parts into a finished good, synthesize a raw material for
production, answer a customer enquiry, procure supplies, negotiate a partnership, or deliver a product to the
market. Each enterprise has unique characteristics that are embedded in its processes. Most enterprises perform
a similar set of repeatable routine activities that may include the development of manufacturing products and
services, bringing these products and services to market, and satisfying the customers who purchase them.
Automated business processes can perform such activities.
An e-Business application is an application that aims at automating some or even all of the tasks involved in the
execution of a business process. The various levels of processes are ordered in a process hierarchy. Figure 4.3
shows a business process hierarchy. The largest possible process in an organization is the value chain. The value
chain is decomposed into a set of core business processes and support processes necessary to produce a
product or product line. These processes are subdivided through various levels of sub-process. Sub-processes
can be seen as reusable business services. For example in an order entry business process, there will be a step
to identify a customer. As input we may have the customer number, and as output the shipping address and
other details. The sub-process used to inquire about a customer could be reused in another business process, for
example, the processing of incoming payments. A sub-process on its own can consist of the integration of
multiple applications running on different systems. Sub-processes are in turn divided into activities. Activities span
two categories: simple activities that only have a single step, and compound activities, that include multiple
steps. A simple activity could be approve orders, where an office worker picks up an order, reads it, and either
approves or rejects it. An example of a compound activity could be prepare blueprints, where an architect
works through a large number of steps to prepare the blueprints for a house. Activities will inevitably vary greatly
from one company to another and from one business analysis effort to another. A business process activity may
invoke another business process in the same or a different business system domain.
[Figure 4.3: Process Definition Hierarchy]
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At runtime, a business process definition may have multiple instantiations, each operating independently of the
other, and each instantiation may have multiple activities that are concurrently active. In general, instances of a
process, its current state, and the history of its actions will be visible at runtime and expressed in terms of the
business process definition, so that users can determine the status of business activities, and business specialists
can monitor the activity and identify potential improvements to the business process definition.
Process views may be adopted at different levels of analysis: e.g., at the level of handling a request for service
by a customer, and at the company level when considering the integrated logistics process. As the total process
performance depends on coordinated action of a number of activities, information and enterprise information
systems play an important role in this respect, of course dependent on the information intensity of the process.
For example, the role of IT will differ between insurance companies and healthcare organizations. The process
view applies in both, however. IT developments related to process orientation include workflow systems,
workflow management systems, and enterprise resource planning systems.
Processes may cross organizational boundaries. Traditional examples are purchasing and sales processes jointly
set up by buying and selling organizations, supported by EDI and value added networks. The Internet is now a
trigger for the design of new business processes and the redesign of existing ones. For instance, new
expectations have arisen from the setting up of Web services, which aim at the design of standardized business
process based solutions, which act independently of software and hardware environments.
3. Business Process Management

Traditionally, organizations were built around functional departments, attempting to benefit from economies of
scale and the specialization of the workforce. However, the concentration of similar activities into one
organizational unit has a price: coordination between activities belonging to different organizational units
becomes more difficult. This is not a problem when the organizations environment is stable and predictable. The
required coordination is tackled by the common hierarchy, which is empowered to make the right decisions, and
by formal procedures. The latter are needed to prevent the hierarchy from being flooded by routine questions.
However, when the business environment becomes more volatile the combination of coordination by hierarchy
and procedures is not sufficient to tackle all the coordination problems.
Besides a structure, an organization, like any biological system, has processes. Processes, like fulfilling a
customer order, determine how well an organization functions. Typically, processes are not contained within one
functional department. Consequently, the effective execution of a business process is the responsibility of more
than one department, and has to deal with differences in functional objectives and priorities. In dynamic business
environment coordination problems will become apparent and will trigger the need for a more horizontal (as
opposed to a vertical functional) view on the organization.
Typically, processes have internal and external customers and will cross organizational boundaries, both intra-
organizational departmental boundaries and inter-organizational company boundaries. The latter are known as
e-Business processes. Processes can be identified by a beginning and an end, and by the organizational units
involved; they interface with other processes or deliver to the final customer. It is very important that processes
can be measured. Quality of the output, costs caused by the process, throughput time, and flexibility are
examples of performance measures, which drive the management of the processes.
Closely related to business processes are workflows. We may define a workflow as the sequence of processing
steps (execution of business operations, tasks, and transactions), during which information and physical objects
are passed from one processing step to the other. Software products that support workflow applications have
evolved from various origins like document management systems, image management application systems, and
pure workflow software.
4. Characteristics of Business Processes

Business processes can be specified by a number of characteristics. First, processes exist within an environment,
which is both the internal business environment in which the process operates, and the external organizational
environment that can trigger the process. It is important to include the environment in the process description.
The environment determines the reason for existence of the process, by determining the characteristics of the
required output, and the conditions under which it operates, like degree of stability and predictability. From the
environment the processes receive their inputs, such as physical goods, information, energy, etc.
Second, every process has a customer and is initiated by a customer order. The customer may be external,
such as the final customer for whom a service or product is produced, or internal, such as another process for
which the output of the process under consideration forms an input. Not every process and workflow is directly
triggered by a customer order. It is possible that a process is triggered by a standard procedure: e.g., salary
payments are triggered by a date in the month, but are eventually meant to satisfy a customer, in particular the
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employee.
Third, every business process implies processing: a series of activities (processing steps) leading to some form
of transformation of data or products for which the process exists. Transformations may be executed manually
or in an automated way. A transformation will encompass multiple processing steps. For example, the process
authorizing invoices will encompass the steps checking whether the invoice has not been paid yet, checking
the agreed purchasing conditions, checking the receiving report, checking calculations, and checking name,
address, and bank account of the creditor. If and only if all the checkpoints are correct, the invoice will be
registered in the accounts payable administration.
By describing the processing steps in a workflow the functionality of the workflow is specified. Especially with
regard to data, we may distinguish:
Geographic Transformation: Documents or other carriers of data are transported from one place to
another.
Technological Transformation: Data are transferred from one carrier to another, e.g., from a physical
document to some electronic form.
Linguistic Transformation: Data are transformed from one language to another, e.g., translated from
Dutch to English.
Syntactic Transformation: Data are transformed from one data structure to another or a standard
representation of well-known constructs, e.g., invoice descriptions. Data could also be transformed from
one currency or metric system, e.g., dollars, to another, e.g., Euros.
Semantic Transformation: Assessments and judgements, mathematical operations leading to some

form of decision and/or change in contents of data.
Fourth, communication is an important part of any business process. Communication will take place both within
the process and with the environment. There are planned communication and unplanned communication. The
latter may be the result of quality problems with the output of the workflow. Also, the more uncertainty under
which the process operates, the more communication there will be. It is important to include a specification of
the type of communication and the amount of data involved with it, in the design of the process.
Fifth, workflows have inventories or queues; these are locations where steps in the workflow are waiting to be
processed. There are multiple reasons for the existence of queues, for example: 1) Lack of processing capacity;
2) Geographic transformation, which may take time; 3) Availability (or lack of) of all data to accomplish the
process.
To some extent allowing queues is a process design decision, e.g., there is a tradeoff between processing
capacity and queuing. Controlling queues requires that, like the process, they are modeled and managed. Sixth,
processes and workflows have decision points. Decisions have to be made with regard to routing and allocation
of processing capacity. In a highly predictable and standardized environment, the trajectory in the process of a
customer order will be established in advance in a standard way. Finally, every process delivers a product, such
as a mortgage or an authorized invoice. The extent to which the end product of a process can be specified in
advance and standardized impacts the way that processes and their workflows can be structured and
automated.
5. Types of Business Processes

Business processes and their workflows have several characteristics that impact the way they are structured and
the extent to which they can be automated. Characteristics that are particularly important are: type of activity
physical or informational of the processing steps, the degree of repetition of the process, the expertise
required to execute the process, and the level of anticipation of the stimulus that triggers the process.
5.1 Workflows where Information Processing Supports a Physical Process and Workflows where
Information Processing is the Process Itself
First we distinguish between workflows where information processing supports a physical process and workflows
where information processing is the process itself. In a manufacturing environment, handling a customer order
requires that physical products have to be produced, picked out of a warehouse, and delivered to the customer.
There is a close link between the information component and the physical component of the workflow; e.g. the
final and correct delivery on time not only depends on the execution of the physical activities but also on the
efficient execution of informational activities. Decisions have to be made; documents will flow from one
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department to the other, etc. For this type of business processes, workflow systems will basically concern the
management of the process. In an insurance company, processing a mortgage application consists basically of
processing information about the customer who is applying for the mortgage, about the object (the house) that
is to be mortgaged, and about the risks involved. Both the management and the execution of the workflow
consist of processing information. Here, workflow systems will typically encompass both.
5.2 Degree of Repetition

Next the structuring of workflows will differ, depending on the degree of repetition and on the level of expertise
or knowledge required to execute the process. Workflows that have a low degree of repetition may not have a
very fixed structure, may be ad hoc, especially when no particular expertise is required. The required level of
expertise determines the type of expert knowledge that is needed to successfully execute the process. For
example, to process an insurance claim, the assessment by damage experts may be needed. The more different
types of expertise that are needed, the longer (the more steps) the workflow will be (and consequently the
more difficult it will be to manage the workflow). In case of low repetition with a high level of expertise required,
processes will be organized as projects around experts. An example is a request by a company to a bank to
finance a complex and potentially risky investment. A high degree of repetition will make it economically feasible
to implement a structured, formalized workflow. If no specific expertise is required the customer order can be
processed as an uninterrupted continuous flow. An example is the processing of routine tax returns by the
Internal Revenue Service. If, however, specific expert judgment is required, processes tend to differ with respect
to the content. In these situations possibly different experts are needed and again the process is more difficult to
manage.
5.3 The Level of Anticipation of the Stimulus that Triggers the Process
A last characteristic concerns the level of anticipation of the stimulus that triggers the process. This determines
the extent to which an organization can be prepared for the timely execution of a specific process. In particular,
in case of highly customized services and products as opposed to standardized services and products, the level
of anticipation is low.
Mintzberg developed a typology of organizations dependent on the complexity and uncertainty of the
environment in which they operate. This is illustrated in Figure 4.5.
[Figure 4.5: Mintzbergs Typology of Organizations]
Traditional bureaucratic structures operated under stable and consequently routine conditions and tend to have
stable processes with a high degree of repetition. In simple environments, the responsibility for work execution
tends to be centralized (machine bureaucracy), and in complex environments the responsibility for work
execution is delegated to professionals (professional bureaucracy). The former implies processes for which little
specific expertise is needed; the latter on the contrary are organizations with experts, who execute their tasks
according to standard professional rules.
6. Role of IT in Business Processes

IT and business processes have a recursive relationship. IT supports the process, and business processes are
impacted by the capabilities that IT can offer. As for the latter (IT impacts the process), IT may be considered as
a key enabler of business process reengineering.
IT is expected to impact business processes in one or more of the following ways:
Transactional: With the help of IT unstructured processes can be transformed into highly structured and
routinized procedures.
Geographic: Through its electronic communication effect, IT can transport data across large distances
swiftly and at low cost, which makes processes independent of any geographic location.
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Automated: IT may replace or reduce human labor in a process.
Analytic: IT can bring complex analytic tools and methods into a process.
Informational: IT can bring large amounts of detailed data into a process.
Sequential: IT can bring about changes in the sequence of steps in a process; tasks that used to be
executed sequentially can be worked on simultaneously;
Knowledge Management: IT can allow the capture and dissemination of formal (explicit) knowledge,
which can improve the process.
Tracking: IT allows detailed tracking of status etc of a process;
Disintermediation: IT can connect two parties in a process who would otherwise work through an
intermediary.
To a large extent the effect that IT may have on a process depends on the way that functions are orchestrated
to accomplish the outcome of that process. For this purpose we may analyze a process along two dimensions:
the degree of mediation and the degree of collaboration.
The degree of mediation refers to the sequential flow of different functions involved in the process. Each function
has inputs and outputs, which consist of physical products or of information. The outputs either form inputs to
other functions or contribute directly to the final process outcome. A process may encompass a series of steps
that are sequentially related to each other and so contribute indirectly to the process outcome, with, of course,
the last step contributing directly to the process outcome. Some business processes (such as buying complex
products) involve many indirect steps, and are at the high end of the mediation dimension. Business processes
may also consist of several functions, which contribute directly to the process outcome, without forming
intermediary steps. For example, for accepting a customer order, the manufacturing planning function, the
warehouse, and the financial department need to provide inputs. These processes are at the low end of the
mediation dimension.
Many business processes have been reengineered from an indirect pattern, with many intermediate steps, to a
more direct pattern allowing a set of functions to work independently. IT can be particularly helpful because
many inputoutput relationships are often dictated by the logical sequence of steps and the supporting flow of
documents of the process. For example, shared databases, client server technology, and imaging technology
have helped to turn many indirect processes into direct ones. When processing loan applications several bank
employees can directly work on the digitized image. One employee checks the employee status of the applicant,
another works on the credit inquiry, and another performs a credit scoring.
The degree of collaboration indicates the extent of collaboration between functions involved in a particular
process. Collaboration involves a reciprocal relation between functions and involves communication and mutual
adjustment.
Also this dimension can vary from very low (functions are completely insulated) to extensive (there is a highly
collaborative relationship between functions). Contrary to the sequence of input output relations, which is
dictated by the process, the degree of collaboration across participants in a process may be at their discretion.
Functions may or may not decide to contact each other and make adjustments. Especially in an uncertain
environment where planning ahead is difficult, collaboration is necessary react and adjust to current conditions.
E-mail and telecommunication-based groupware especially are applications that can stimulate new patterns of
collaboration in a process by providing a shared environment for teamwork. It is clear that innovative uses of IT
will enable firms to realize new, coordination-intensive structures, making it possible to coordinate activities in
ways that were not possible before. As shown in Figure 4.6 that two dimensions can be combined into one
framework is exemplified below.
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[Figure 4.6: A Functional Coupling Framework]
The high mediation/high collaboration side of the quadrant offers the most opportunities for BPR. Functions
participate in the process sequentially and with mutual information exchange. A situation like this may be
expected under conditions of relatively high uncertainty. An example is the development and manufacturing of a
highly customized product, which needs interaction between product development, engineering, and
manufacturing.
The low mediation/high collaboration side of the quadrant represents a situation where functions contribute
directly to the process outcome (with no sequential relationships) and have an intensive collaboration. Typically,
these situations will involve a high level of uncertainty and complexity. A product development with many
engineers working on the same product may have these characteristics. The use of CSCW applications, shared
databases may offer opportunities for speeding up the process.
In the high mediation/low collaboration side of the quadrant, we find those processes where functions
participate in the process sequentially, however, with no mutual exchange of information. These are typically
highly proceduralized processes that face by definition very little uncertainty in their execution. These situations
often offer opportunities for improvement.
Under conditions of relative certainty, functions have a good view on what is expected from their output by
other functions. These interdependencies can be established in a set of procedures that basically takes care of
coordination, without the need of communication. The left side of the framework represents this situation. Under
conditions of increasing uncertainty, what functions expect from each other in terms of input and output may be
subject to more or less important changes. To achieve a coordinated action between the functions,
communication, and mutual adjustment are necessary. Given the increased volatility of the business
environment, we may expect that many business processes will move to the right side of the quadrant.
7. Types and Characteristics of e-Business Relationships

E-Business is about inter-business relationships. Businesses are related to each other as they sell and buy goods
and services from each other, and as they may be engaged in different types of collaborative processes, like
collaborative planning, joint product design and so on. Products and services sold to the final customer consist of
a variety of components or subservices.
7.1 Types of e-Business Relationships

In the supply chain, e-Business relationships have been changing in the past decades and became part of the
companys longer term planning processes. At first independence prevailed. Companies were buying products,
components, piece parts, and services on the basis of current needs and on the expectation that a supplier
would exist that could deliver the products and services needed. Products and services offerings to the market
were also based on expectations (forecasts) of existing demand. These types of e-Business relationships can be
characterized as operational-level relationships. Companies decide internally what they need, and next look
outside to see who can deliver at the lowest possible price. There exists no sharing of information between the
buying and selling organization; the only information exchanged concerns the orders placed.
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[Figure 4.7: Levels of Business Relationship]
Independence has its advantages, such as flexibility, possibility to change quickly if a supplier does not perform
satisfactorily; however, it also has its price. The price is uncertainty, and therefore the absence of opportunities
to plan ahead. Companies deal with uncertainty by imposing long delivery times on their customers, by keeping
high inventories, having idle production capacity (so a lower utilization level per production unit), and by selling as
standardized a product as possible (as customer specific components can only be ordered after the customer
order has been received). When competition put pressure on efficiency, delivery times, and customization of
products, a different way of working is needed, and inter-company collaboration based on longer-term
relationships is developed. Then the e-Business relationship moves to the tactical level. Tactical inter-firm
relationships include agreements for some period about amount and type of products to buy (or sell),
manufacturing series and reservation of production capacity, moments of delivery, inventories to be kept (and
by whom). As a result both organizations benefit from a more stable supplier/buyer relation, reduced uncertainty
and so reduced inventory levels (e.g., safety stocks), and improved delivery times. Tactical relationships lead to
collaborative planning.
In a subsequent step companies develop relationships on a strategic level. They decide to act collaboratively in a
specific market where they produce one (or more) specific products. The supplier, by way of specific expertise
and skills, develops, designs, and produces specific components for the buying organization. These types of
inter-firm collaborative relationships are called Value Added Partnerships. With Value Added Partnerships the
stability in the relationships increases even further. The collaboration is built around complementarities of
competences, and there is a high level of information sharing.
The interplay of operational, tactical and strategic inter-company relationships is shown in Figure 4.7 where it is
implied that operational and tactical level processes will be embedded in strategic level relationships between
companies. Companies that have a strategic relationship will also be engaged in tactical level planning processes
and in operational level processes.
7.2 Types of Business Relationships and Information Exchange

Different types of relationships are operational, tactical, or strategic and are characterized by differing exchanges
of information.
An operational relationship typically concerns direct ordering of specific products or services. Usually quality
requirements will be known (unless the order involves some customizing), a price has to be determined, and a
delivery schedule has to be agreed upon. A purely operational relationship will start with a selection of the
supplier, will incorporate an agreement and will end with the delivery of the order. The transaction can be
characterized as spot buying and selling. The data exchanged will be typical order related (type, quality
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specifications, amount, price, delivery moment and location). The operational level of supply chain management
is concerned with the very short term decisions made from day to day.
A tactical relationship before the operational stage has a phase of mutual planning, exchange of longer-term
planning data, etc. Instead of hoarding this information, which typically would be the case in an operational
relationship, there is a sharing of information and joint planning. Typically, procurement and manufacturing
planning departments of both organizations will be involved. On the tactical level, medium-term decisions are
made, such as weekly demand forecasts, distribution and transportation planning, production planning, and
materials requirement planning.
A strategic relationship has a deeper impact on both organizations and may include collaboration between design
and development departments, joint decision making on investments, market approach, and so on. After
agreeing on type and design of products, tactical planning of necessary resources will follow, eventually leading
to an operational relationship. On the strategic level, long-term decisions are made. These in the case of supply-
chains are normally related to location, production, inventory, and transportation.
With differences between types of e-Business relationships also, the technology solutions for supporting these
will differ. Relationships, which are purely operational and so highly temporal, require a highly flexible support with
little or no relation-specific investments. Tactical relationships, which will be longer term and may even last very
long, are tighter, stable, and will justify investments in relation-specific technologies.
Finally, strategic relationships, with as expected the highest degree of stability, next to tactical applications, may
include collaborative design platforms. The dynamic value networks require a type of support, which allows for
highly flexible relationships, which are also able to support straight through processing within a given group of
companies. Given the strategic nature of the partnerships, specific investments in technological solutions are to
be expected.
7.3 Characteristics of e-Business Relationships

Relationships in the industry value chain can be categorized as either e-Business or business-to-consumer e-
Commerce. Both are quite different from each other and impact the e-Business technology that can be applied
differently. In e-Business markets, purchasers try to optimize their internal supply chain efficiency by finding the
right supplier(s) that are able to deliver the right products, of the right quality, at the right time, at the right place,
and at an acceptable price. Buying decisions are the result of a multiphase process. In general, relationships
between suppliers and (organizational) buyers are much more complex, long term, contractual, and involve a
much larger amount of money. In the following sections, we discuss some characteristic differences between e-
Business and business-to-consumer e-Commerce trends:
Economic value per individual company, and per transaction: firms in different industries procure up to 50-60%
of their revenues on procurement. The money value per order is high.
Buying Processes: Whereas in business-to-consumer e-Commerce markets purchases may be impulse

driven and spot transactions, e-Business orders involve many participants and are governed by complex
business rules of the buyer and seller. E-Business buyers will compare multiple sources of supply to ensure
availability at an acceptable price. Most purchases, after careful selection of a supplier, will be followed by a
series of repeat buys.
Products may be highly customer specific, requiring specific product development activities and tooling.
Modern logistic concepts, which aim at avoiding inventories, require complex logistic planning.
Buying expertise: Buyers in e-Business markets are well informed professionals. The complexity of the
products, and the processes for which they are needed require often deep industry expertise.
Pricing: In business-to-consumer e-Commerce markets buyers will often accept a fixed pricing
structure. In e-Business markets different price discovery mechanisms exist: fixed price, negotiated prices,
sealed bid systems, auctions.
IT-infrastructure: Companies have an IT infrastructure in place which is an impediment for a rapid

deployment of new e-Business technology. Restructuring of systems and processes is expected to take
years.
The way that companies interact has led to the following three temporal relationships between companies
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A company can buy and sell on a spot-market. This means that products and services are procured and
sold whereas the relationship with the supplier or the customer lasts as long as the transaction. Although
little or no internal information is exchanged, both parties will be very well informed about each others
reputation. Spot market transactions are typically found in markets for basic raw materials and agricultural
products.
If a company has a regular need for specific products, a relationship may become longer term. In general
there is a contract, specifying conditions and a delivery volume. Repeat orders are placed within the
conditions set by the contract. Exchange of information will be needed for planning purposes.
Finally, the relationship may evolve into a partnership, where trading partners work together for the
longer term and even pursue a joint competitive strategy in their industry. An extensive exchange of
information will be the result.
Application of e-Business technology may contribute to increased efficiency in the buyer seller relationship. In
general, there exist three potential problems for which e-Business technology can provide solutions:
Most interactions between businesses are complex and information intensive.

Supply chains suffer from inefficiencies because of the inability to forecast the right products volumes and
mixes.
Markets are fragmented and lack transparency.
Every order requires multiple actions at the buyers side as at the sellers side before it can be completed. Such
actions include approval, negotiation, scheduling delivery, backorder information, settlement. These actions are
labor and information intensive, and if wrongly organized, lead to waste of resources. E-Business technology has
the potential to streamline these activities through reengineering of business processes.
8. Electronic Links and the Value Chain

Driven by the ability of information technology to produce cheaper unit costs for coordination, organizations are
implementing, increasingly rapidly, new links for relating to each other. These links take many forms, such as
electronic data integration, just-in-time manufacturing, electronic markets, strategic alliances, networked
organizations, and others. The new links for relating organizations indicate an ongoing transformation of value
chains due to technological change.
Within a given industry value chain, each business will search for transactions that will provide advantage over its
competitors and competitive differentiation to explore the value chains potentials.
Transportation of physical goods and information are required by e-Business. Transportation of goods requires a
physical transportation infrastructure. Electronic links provide a transportation infrastructure for information. It is
clear that electronic links make new distribution modes for products that consist of information possible, but
they will also impact the distribution of physical products. Electronic links will impact:
Producers of information, including computer software, books, movies and music. Using electronic
channels these information products can be sold, transported and delivered on demand at almost no
(variable) cost.
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Producers of physical goods, including all manufactured goods. The impact of the Internet will not only
relate directly to the support of sales processes, but is also expected to affect the level of possible
customization of the products and services.
Electronic retailers that use the Internet to offer, represent, and sell products.
Physical and electronic markets
Physical distribution networks, which may be simplified by disintermediation effects leading to the
movement of products from the manufacturer to the consumer directly, or coordinated by an electronic
retailer.
Access to buyers and sellers through electronic channels; cable providers, telephone, cellular and electric
utility industries, all can provide access.
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Topic 5: E-Business Technological Infrastructure
T opic Objective:
1. Technical E-Business Challenges
2. Basic Infrastructure: Client/Server Technology
3. Web Technologies and Applications
4. Client-Side Programming
5. Server-side programming
6. Collaborative Technologies
Topic Introduction:
Defining an adequate e-Business infrastructure to achieve process integration is vital to all companies adopting e-
Business. The infrastructure refers to the combination of systems inside an enterprise such as client/servers, the
networking facilities used to link an enterprises internal systems with those of its partners, and the technology
used to integrate systems and processes between collaborating enterprises. The infrastructure directly affects
the quality of the service experienced by end customers.
Topic Overview:
1. Technical E-Business Challenges
E-Business means automating business processes across an extended enterprise. In an e-Business environment
both inter-organizational and intra-organizational relations are supported by modern information technologies.
As a result, in an e-Business environment, businesses will reconsider their position in the market. They will place
their focus on core competencies; possibly outsource all non-core aspects of their business to others, such as
suppliers, distributors, and even customers (for order placement).
Business process integration is what is widely regarded as the ultimate objective of e-Business. With business
process integration, interactions between enterprises are achieved electronically according to some predefined
process which ensures that the business transaction is both meaningful and reliable. Typically, an e-Business
transaction such as transmitting an electronic purchase order, requires both interacting partners public processes
(the external processes that take place between enterprises) to be closely coordinated, together with a detailed
exchange of messages in an agreed format.
Providing end-to-end process integration is not an easy undertaking. A major effort is required to leverage public
processes to back-end applications, such as procurement, customer service, order processing and fulfillment,
payroll processing, financial accounting (accounts payable/receivable), delivery, and so on. Most enterprises do
not have this type of environment. Until the advent of e-Business, the resulting inefficiencies, inaccuracies, and
inflexibilities did not matter. Customers had few options, and all competitors were equally inept. However, with
the advent of e-Business, end-to-end process integration becomes of paramount importance.
Some of the most important underlying technologies and infrastructure for e-Business are shown in Figure 5.1.
In particular, this figure summarizes how the different technologies examined in this chapter relate to each other.
These technologies can be seen as different layers that built upon each other. The bottom layer includes
networking topologies, the Internet, and protocols such as the Transmission Control Protocol/Internet Protocol
(TCP/IP). Internet protocols define, in general, the standards by which the different components in a distributed
system communicate with each other and with remote components. Internet protocols, just like other
conventional protocols, define the format and the order of messages exchanged between two or more
communication entities, as well as the actions taken on the transmission and/or receipt of a message or event.
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[Figure 5.1: Technology Stack for e-Business]
The layer above the networking facilities is called the basic infrastructure layer and contains such as client/ server
and tiered architectures. The layer above the basic infrastructure is called the Web technologies and applications
layer, and contains the technologies that are required to develop Web-based applications. Finally, the top layer
contains collaborative technologies such as workflow systems and EDI.
2. Basic Infrastructure: Client/Server Technology

Distributed computing has evolved significantly over the past decades in self-contained and distinct stages. Each
stage introduced new architectural modes and new sets of protocols. Initially, time sharing systems were
introduced to support daily business operations by means of a central, high performance host computer and
database servers. With such mainframe architectures, user interaction could be accomplished using PCs or Unix
workstations. Mainframe architectures promoted a single-tier approach whereby the code that implements the
business rules in an application, and automates business processes was lumped together with user interface
and data access functions in a single, large, monolithic application. These monolithic applications did not easily
support graphical user interfaces or access to multiple databases from geographically dispersed sites. The file
sharing architectures that followed the mainframe architectures solved some of the problems mainframes had
with GUI support, but also introduced a lot of limitations of their own. Their main problems were that they could
only work with low volumes of shared usage, low update contention, and low data transfer volumes.
http://www.interprise.co.uk/images/server_client.png
Computers in networks with distributed processing have replaced standalone computers with centralized
processing. Centralized processing accomplishes all processing in one central computer; in distributed processing,
the processing work is executed by different computers, like mainframes, midrange computers, and PCs linked
together. A widely applied form of distributed processing is client/server computing. The client/server architecture
is one of the common solutions to the conundrum of how to handle the need for both centralized data control
and widespread data accessibility. Client/server is a computational architecture that involves client processes
(service consumers) requesting service from server processes (service providers). For instance, a client can be
some computer that requests a service such as a data on the stock in an inventory, Web page or printing a file,
while a server is a computer that carries out the service request. In the previous example we can differentiate
between three types of servers that can service client requests: file servers (for the file printing client request),
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database servers (for the data retrieval request), and Web server (servicing the request that references a Web
page).
Although the client/server concept can be used by applications within a single computer, as already explained
above, it is far more important in a network. In a network the client/server model provides a typical way to
interconnect programs that are distributed across different locations. There are different ways in which
processing tasks can be divided between the client and the server. Possible arrangements range from thin
clients, with heavy servers to servers that only contain common data with all the processing executed at the
level of the client. Database transactions using the client/server model are very common. In practice solutions
chosen will depend on specific requirements of each application, such as local vs. central control, number of
users, processing needs etc. Figure 5.2 provides a high-level view of a simple client/server model.
[Figure 5.2: Client/Server Architecture]
The basic features of the client/server model can be summarized as follows:
Clients and servers are functional modules with well defined interfaces, i.e., they hide internal information.
The functions performed by a client and a server can be implemented by a set of software modules,
hardware components, or any combination.
Each client/server relationship is established between two functional modules, where one module, the
client, initiates service requests and the other module, the server, responds to these requests.
Information exchange between clients and servers, i.e., requests and responses, are strictly through
messages.
Message exchange is typically interactive.
Clients and servers may run on separate dedicated machines connected through a network. Client/server
applications provide a reasonable mechanism for organizations to design applications that fit their business
needs. Client/server applications use architectures that are dictated by the tools employed in their
construction.
As a result, most of the conventional applications use two-tier client/server architecture. The tiers in a client/
server application refer to the number of executable elements into which the application is partitioned, not the
number of platforms where the executables are deployed. Thus the tiers into which an application is partitioned
are commonly referred to as the logical partitioning of an application as opposed to the physical partitioning
which refers to the number of platforms where the application executables are deployed. The tiers are connected
network-based protocols such as the TCP/IP which has become the de facto standard for enterprise networks
and the Internet. The main design goal of TCP/IP was to build an interconnection of networks that provided
universal communication services over heterogeneous physical networks. The clear benefit of such an
interconnected network is the enabling of communication between hosts on different networks typically
separated by large geographic areas.
The most typical variant of the two-tier client/server architecture performs most of the code that implements
the graphical user interface and business application logic, and rules on the client-side of the tier, while it
implements the database access mechanisms on the server tier. Logic in the server might include simple
constraints, such as foreign key constraints, or non-null constraints. These database constraints disallow
operations that would cause obvious data integrity problems.
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[Figure 5.3: Two-Tier Client/Server Architecture]
The client in such a two-tier system is known as fat client while the server is commonly referred to as the
database server. Such systems are still very common and constitute a flexible solution since the client/server
conversation occurs at the level of the servers database language. In this type of architecture, a properly
designed client can be modified to reflect new business rules and conditions without modifying the server, as long
as the server has access to the database schema needed to perform these transactions.
Although the introduction of client/server computing consisted of a significant advancement over the host-based,
centralized computing models, the level of integration remained insignificant. Client front-ends provided a
friendlier user interface, but actual access data, data flow, and the effectiveness of applications showed little
improvement. The two-tier architecture has several drawbacks, which are especially problematic for large and
distributed applications. These include:
Scalability Problems: A key concern with the two-tier model is scalability. Application performance can
degrade rapidly when the number of concurrent users reaches a threshold between a few hundred and
one thousand users. This is true even for large database servers.
Poor Business Logic Sharing: In client/server architecture business logic is kept on the client. When
business logic is in the client it is usually very difficult to re-use it between applications and amongst tools.
Since the business rules are tightly integrated with the user interface code, the code implementing the
business logic and rules must be deployed on the same platforms as the user interface. This means that
the entire workstation-resident portion of the application must be redeployed when either a business rule
or the user interface changes.
Client Reliance on the Database Structure: Applications that access the database server become
dependent on the existing database schemas and structure. This makes it more difficult to redesign the
database since other applications are intimate with the actual database schemas and structure.
Limited Interoperability: The two-tier architecture uses stored procedures to implement complex
processing logic, such as managing distributed database integrity. These procedures are normally
implemented using a commercial database management systems proprietary language. This means that
processing modifications and interoperation with more than one DBMS cannot happen unless applications
are rewritten.
High-Maintenance Costs: If the number of workstations in typical client/server architecture is high, or

the workstations are geographically dispersed, the maintenance costs for two-tier applications escalate
rapidly. Application changes have to be distributed to each client. When there are a large number of users,
this entails considerable administrative overhead.
The three-tier architecture emerged to overcome the limitations inherent in the two-tier architecture. In the
three-tier architecture, a middle tier is introduced between the user system interface client environment and the
database management server environment. Hence, the application is partitioned into three logical tiers: the
presentation tier, the processing tier (or middle tier), and the data tier. Figure 5.4 shows three-tier architecture.
If the processing tier is to be implemented in one or more layers or distributed in one or more places, this
architecture is referred to as multi-tier architecture.
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[Figure 5.4: Three-tier Client/Server Architecture]
The presentation tier is responsible for the graphical user interface (GUI) layer usually in the form of a Web
browser. The processing tier contains the business logic and is responsible for the processing associated with the
applications supported. Finally, the data tier holds the permanent data associated with the applications
supported. This layer contains various Enterprise Information Systems, including modern and legacy application
databases and transaction management applications, and will interpret requests from a client and route them to
a suitable data resource.
The processing tier enables developers to isolate the main part of an application that can change over time: data
and relationships inherent in the data. In this tier, we can find business objects that correspond to entities in the
business domain such as sales orders, invoices, products and sales notes, and so on. This tier has the effect of
logically and physically decoupling business logic from the presentation and database functions. The ramifications
for application development and maintenance are compelling. Customized code can be replaced with
standardized APIs to interface business logic with presentation code and database access protocols. When
properly implemented, the hardware and software for each of the three layers can be scaled and upgraded
independently.
The topology used for e-Business application integration must leverage an enterprises existing resources and
provide a common infrastructure to enable systems integration and connectivity to external applications
originating from customers, suppliers or trading partners. The three-tier topology examined above improves the
functionality of distributed computing, and can be used as a basis for developing and deploying e-Business
applications. More specifically, the partitioning introduced by the three-tier application architecture makes it easier
to integrate new applications in the environment.
3. Web Technologies and Applications

Technically speaking, the World Wide Web (Web) is a collection of middleware services that operates on top of
TCP/IP networks, i.e., the Internet. Conceptually, the Web can be viewed as a vast information system
consisting of software applications or processes that exchange information and that act on behalf of a user or
another application. Identification, data formats, and protocols are the main technical components of Web
architecture. This architecture consists of:
Identifiers: A single specification to identify objects in the system: the Uniform Resource Identifier
(URI).
Formats: A non-exclusive set of data format specifications designed for interchange between agents in
the system. This includes several data formats used in isolation or in combination (e.g., HTML, XHTML,
Xlink, RDF, and so on), as well as technologies for designing new data formats (XML schemas and
namespaces).
Protocols: A small and non-exclusive set of protocol specifications for interchanging information
between agents, including HTTP, SMTP, and others. Several of these protocols share a reliance on the
Multipurpose Internet Mail Extensions (MIME) Media Type, a metadata/packaging system. The Web is a
universe of resources. A resource is defined to be anything that has identity. Examples include documents,
files, menu items, machines, and services, as well as people, organizations, and concepts.
Web architecture starts with a uniform syntax for resource identifiers, so that one can refer to resources, access
them, describe them, and share them. The Uniform Resource Identifier (URI) is the basis for locating resources
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on the Web. A URI consists of a string of characters that uniquely identifies a resource. The W3C uses the newer
and broader term URI to describe network resources rather than the familiar but narrower term, the Uniform
Resource Locator (URL). URI is all inclusive, referring to Internet resource-addressing strings that use any of the
present or future addressing schemes [Berners-Lee 1998]. URIs includes URLs, which use traditional addressing
schemes such as http and ftp, and Uniform Resource Names (URNs), a newer Internet addressing scheme. URNs
address Internet resources in a location-independent manner; unlike URLs, they are stable over time.
The Web organizes inter-linked pages of information residing on sites throughout the world. Web pages rely on
markup languages to tag text files for display at Web browsers. Hypertext Markup Language (HTML) defines the
display characteristics of those Web pages, and the HTTP protocol delivers pages between servers and client
applications. Hyperlinks within document pages provide a path from one document to another. The hyperlinks
contain URLs for the needed resources. Interwoven pages can simply be traversed by following hyperlinks. An
HTML document comprises elements and tags. The elements are the HTML encoding that specifies how a
document or part of a document should be formatted and arranged on the display screen. HTML also uses tag
encodings that indicate where an HTML element should start and where it ends to define elements.
The Web is designed to create the large-scale effect of a shared information space that scales well and behaves
predictably. Hypertext Transfer Protocol (HTTP) is an application-level protocol specially designed for Web users.
HTTP is a text-based protocol intended for collaborative, distributed, hypermedia information systems. HTTP
uses an extremely simple request/response model that establishes connection with the Web server specified in
the URI, requests a specific Web page, retrieves the needed content (document), and closes the connection.
After the requesting application (client) establishes connection with a receiving application (server), it sends a
request message to the server. The request message contains the URI identifying the resource in question, a
request method, protocol version, request modifiers, client information, and possible body contents. The request
method is the most important element of the message as it shows the type of operation that needs to be
performed. HTTP offers a variety of ways to interact with a resource, including GET, POST, PUT, and DELETE.
3.1 Web-Based Applications

Web sites provide the content that is accessed by Web users. For example, Web sites provide the commercial
presence for each of the content providers doing business over the Internet. Conceptually, a Web site is a
catalog of information for each content provider over the Web. In reality, a Web site consists of three types of
components: 1) A Web server; 2) Content files (Web pages); 3) and/or gateways (programs that access non-
Web content such as databases).
A Web server is an application (technically a server process) that receives calls from Web clients and retrieves
Web pages and/or receives information from gateways. Web browsers are the clients that typically use graphical
user interfaces to wander through the Websites. At present, Web browsers such as Netscape and Internet
Explorer provide an intuitive view of information where hyperlinks appear as underlined items or highlighted
text/images. If a user points and clicks on the highlighted text/images, then the Web browser uses HTTP to fetch
the requested document from an appropriate Website through its underlying Web server. A user can connect to
resources by typing the URL in a browser window or by clicking on a hyperlink that implicitly invokes a URL.
Eventually, the requested document is fetched, transferred to, and displayed at the Web browser.
Web-based applications are applications that leverage Web clients, such as Web browsers, Web application
servers, and standard Internet protocols. They also typically leverage existing applications and data from
external sources. The major elements involved in a Web application topology are the following:
Web clients (typically browsers but also Web applications) through which users communicate with Web
application servers using Internet protocols such as TCP/IP, and HTML to access business data and
logic. The primary function of the client is to accept and validate user input, and present the results
received from the Web application server to the user.
Web application servers that administer the entire information content intended for publication on the
Web and dispense files that contain Web pages, images, sound and video clips, and other media. The main
function of the Web application server is to process requests from the clients by orchestrating access to
business logic and data and returning Web pages composed of static and dynamic content back to the
user or client application. The Web application server provides a wide range of programming, data access,
and application integration services for developing the business logic part of Web-based business
applications.
Infrastructure services that equip the Web application server with caching, directory and security services.
Included in these services are firewalls that protect an organizations network and resources from being
compromised.
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External services that consist of existing (non-Web) mission-critical applications and data internal to an
enterprise as well as external partner services, e.g., financial services, payment services, information
services, and so on, and external partner business applications. Most of these existing services control an
enterprises core business processes.
3.2 Types of Web Applications

There are many types of Web documents that are displayed on a Web site. These include not only HTML pages
but also other content types such as GIF and JPEG format images, MPEG-format video, and so on. Usually these
document types are presented to the user as subsidiary parts of the HTML page. However, from the servers
perspective, all Web documents are equal in that they require the server to respond to a unique request. The
server may handle that request by delivering a file, e.g., an HTML page stored in the file system, which is found
on the server system, or by executing another program to dynamically generate the requested resource. The
distinctions between the documents found on a file, and are known as static documents, and documents that
have an interactive and usually time-sensitive nature, and are known as dynamic documents, are important.
3.3 Construction of Web Applications

Purely dynamic documents are generated when the Web server invokes gateway programs. The Web gateway
receives user input associated with the document and generates the document along with any important
information that identifies it. Web gateways are used as a means to generate Web content, i.e., HTML pages,
and provide access to non-Web content such as databases. In general, Web gateways to non-Web resources
are mechanisms used to bridge the gap between Web browsers and the corporate applications and databases.
Web gateways are used for accessing information from heterogeneous data sources (e.g., relational databases,
indexed files, and legacy information sources) and can be used to handle resources that are not designed with an
HTML interface. The gateways are used to provide access to non- HTML information and convert it to HTML
format for display at a Web browser.
[Figure 5.5: Generating Dynamic Web Documents]
The traditional way of adding functionality to a Web server is the Common Gateway Interface (CGI), a language-
independent interface that allows a server to start an external process on behalf of the client. This external
process gets information about a request through environment variables, the command line, and its standard
input stream, and writes response data to its standard output stream. Most scripts generate a new Web page as
output, which is then returned to the client. CGI is the earliest and most basic attempt to create dynamic page
effects by executing programs entirely on the application server side, and, as a result, this approach has several
limitations:
For high-volume sites, performance is one of the most serious CGI limitations. In a traditional CGI
environment, the Web server spawns a new process every time a client requests a CGI application,
loading and executing a Perl interpreter for each request. This can cause severe performance problems for
the server if many users submit requests concurrently and also makes it cumbersome to manage
persistent data.
A CGI program does not get stored in memory between requests. Thus, a CGI program needs to be
loaded and started for each CGI request.
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The CGI interface is supported on a wide variety of Web servers. However, CGI programs themselves
are not inherently portable across platforms, so careful design is required to construct portable CGI
applications. The limitations of CGI are addressed by newer Web approaches which dynamically generate
content for Web pages, such as, for example, Java Server Pages and PHP. Java Server Pages avoid this
limitation. Each program is compiled once, remaining in memory for subsequent requests.
3.4 Architectural Features of Web-Based Applications

Web-enabled applications are a special case of client-server applications where the client is a standard Web
browser like Netscape Communicator or Microsoft Internet Explorer. Modern Web-enabled applications leverage
the three-tier architecture. With Web-enabled applications the middle tier in the three-tier architecture is divided
into two units with different functions. The reason is that clients in Web-enabled applications are typically used to
generate Web pages and dynamic content using HTML and XML, while application servers are written in C++ or
Java. Hence, the gap between these thin clients, which contain almost no application logic and the application
servers, is too big to link them together. To remedy this situation the classical presentation tier of the three-tier
architecture is subdivided into a client tier and a new presentation tier. The needs of this new presentation tier
are addressed by an infrastructure known as a Web server. The Web server is implemented in a scripting
language and its function is to receive requests from client applications and generate HTML using the services
provided by the business (processing) tier. This additional tier provides further isolation between the application
layout and the application logic.
[Figure 5.6: Multi-tiered Architecture for Developing Web-based Applications]
The client tier of a Web application is implemented as a Web browser running on the users client machine. Its
function in a Web-based application is to display data and let the users and client applications enter/ update data.
The client may also perform some limited dynamic HTML functions, such as hiding fields no longer applicable fields
due to earlier selections, rebuilding selection lists according to data entered earlier in the form, and so on, using
JavaScript or other browser scripting languages. The client tier may use a variety of clients, such as Web
browsers, client-applications, e.g., Java applications, and even hand held devices.
The presentation tier generates Web pages in which it includes dynamic content. It supports different types of
clients such as pure HTML and Java-capable clients. The dynamic content typically originates from a database,
for instance, a list of matching products, a list of transaction conducted over a specific time period, and so on.
The other task that a Web-server needs to perform is to find the client application or user-entered data in Web
pages coming back from the client and forward it to the business logic tier.
One advantage of this type of middle tier processing is simply connection management. A set of servlets could
handle connections with hundreds of clients, if not thousands, while recycling a pool of expensive connections to
database servers. The presentation tier is generally implemented inside a Web server such as Apache Web
Server, IBM Websphere, or Microsoft IIS.
As expected most of the application logic is written in the processing or business logic tier. Business logic includes
performing all required calculations and validations, managing workflow and all data access for the presentation
tier. An application server is typically a component-based product that resides in the middle tier of a server
centric architecture. It provides middleware services for security and state maintenance, along with data access
and persistence. The application server handles the network connections, protocol negotiation, class loading, and
other advanced functionality such as transaction management, security, database connection, pooling and so
on.
4. Client-Side Programming
There are two types of programming approach associated with the development of Web applications: client side
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programming and server-side programming. The former involves associating program code with Web pages that
are downloaded into a client running a Web browser, with the code being run on the client installation. The latter
involves code being stored on the Web server and being executed when a particular event as, for instance, a
Web page being demanded, occurs.
4.1 Applets
The main mechanism for client-side programming in Java is the applet. Applets are snippets of Java code that
are firmly anchored in a Web document and run on the client side. An applet can be sent with a Web page to a
user. As soon as an applet-supporting browser loads the Web document, the applet displays the results in a pre-
assigned position in the document. The execution then is done through the client, which must be Java-enabled.
Java applets can perform interactive animations, immediate calculations, or other simple tasks without having to
send a user request back to the server because of security problems, applets loaded over the Internet are
prevented from reading and writing files on the client file system, and from making network connections except
to the originating host. In addition, applets loaded over the net are prevented from starting other programs on
the client, and also not allowed to load libraries, or to define native method calls.
4.2 JavaScript
JavaScript statements are directly embedded in the HTML code. This code interacts with the browser. This is in
contrast to the applets approach where the code is found on the server, referenced in the HTML, downloaded
onto the client, and executed.
JavaScript has a number of features including conventional data types and operators, arrays, control structures,
functions, and the ability using a technology known as dynamic HTML (DHTML) to interact with the elements
that make up a Web page. In this way, we can access the elements of an HTML form, or change the look of a
textual element.
5. Server-Side Programming
Several technologies have been developed to alleviate the problems with CGI programming. The main
approaches for server-side programming include Java servlets and JavaServer Pages.
5.1 Servlets
These are modules of Java code that run in a server application to answer client requests [Java servlets]. A
servlet is a Java component that can be plugged into a Java-enabled Web server to provide server extensions in
the form of customized services. Such services include the development of new features, runtime changes to
information content, and presentation, the inclusion of new standard protocols (such as FTP), and new custom
protocols.
Similar to a GCI program, servlets can receive client requests, handle them, and send a response. If a servlet is
called through HTTP, the response is typically an HTML flow. Unlike CGI programs that are loaded in memory
each time a client makes a request, a servlet is loaded in memory once by the application server, and can serve
multiple requests in parallel using threads. By using servlets as a server-side programming model, developers
have access to the full range of Java APIs. In addition servlets perform better than CGI programs (because they
are preloaded and initialized), do not run in separate processes (this avoids creating a new process for each
request as is the case for CGI programs), are more scalable (unlike CGI, servlets are multithreaded), and
portable.
Servlets are a popular choice for building interactive Web applications. The Java Servlet API includes several Java
interfaces, and fully defines the link between a hosting server and servlets. Servlets have access to the entire
family of Java APIs, including the JDBC API to access enterprise databases, and can also access a library of
HTTP-specific calls. More importantly, because servlets plug into an existing server, they leverage a lot of existing
code and technology. When servlets run on the Web server, they act as a middle tier between a request coming
from a Web client (browser) or other HTTP client and databases, and applications hosted on the back-end
server. As servlets are located at the middle tier, they are positioned to add a lot of value and flexibility to a
Web-enabled system.
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[Figure 5.7: Servlets]
Third-party servlet containers are available for Apache Web Server, Sun ONE Web Server, Microsoft IIS, and
others. Servlet containers can also be integrated with Web-enabled application servers, such as BEA WebLogic
Application Server, IBM WebSphere, Sun ONE Application Server, and others.
5.2 JavaServer Pages

JavaServer Pages (JSP) technology is an extension of the servlet technology created to support authoring of
HTML and XML pages [JSP]. JSP technology enables rapid development of Web-based applications that are
platform independent and makes it easier to combine fixed or static template data with dynamic content. It
allows Java code to be embedded into Web pages to carry out the display of information dynamically on as and
when needed basis. The full JSP syntax lets developers insert complex Java code fragments in HTML, declare
variables, create methods, or influence the code generated by the JSP compiler.
JSP technology allows Web developers and designers to rapidly develop and easily maintain information rich,
dynamic Web pages that leverage existing business systems [JSP]. As JSP technology separates the user
interface from content generation it enables designers to change the overall page layout without altering the
underlying dynamic content.
JavaServer Pages technology uses XML-like tags to encapsulate the logic that generates the content for the
page. Additionally, the application logic can reside in server-based resources (such as JavaBeans component
architecture) that the page accesses with these tags. When a Web page is first requested, JSP is parsed into a
Java source file which is then compiled into a servlet class. Formatting, e.g., HTML or XML, tags are passed
directly back to the response page. By separating the page logic from its design and display and supporting a
reusable component-based design, JSP technology makes it faster and easier to build Web-based applications.
[
Figure 5.8: JavaServer Pages]
6. Collaborative Technologies
The objective of collaborative technologies is to eliminate the manual trading processes by allowing internal
applications of different companies to directly exchange information and documents. In traditional commerce,
both customers and vendors may be automated internally, but their systems are usually isolated from an ability
to communicate with each other. Therefore, trading partners must traverse the gulf between each system by
manual processes such as mail, e-mail, fax, meetings, and phone calls. The objective of collaborative
technologies is to minimize this manual gulf between trading partners.
Business transactions have many parties which are interested in products or services, payments arrangements
or monitoring and control, and all have in common the need for information for their decisions, their actions, and
for the synchronization of these actions. It is the purpose of collaborative technologies such as Electronic Data
Interchange and workflows to facilitate information flows within and across enterprise boundaries. The purpose
of such collaborative technologies is to provide and manage smooth and efficient flows of goods and payments,
detect any inaccuracies and errors in the information flow, and report disturbances or exceptional situations, for
instance, in production or transport, to the consignees automatically.
6.1 Electronic Data Interchange (EDI)

International trade transactions involve many transacting parties some twenty parties to a transaction are not
uncommon. The interest of these parties in the transactions may be the products or services, payments
arrangements, or monitoring and control, but they all have in common the need to use information for their
decisions, their actions and for the synchronization of these actions. While the physical transport and handling of
goods constitute a flow made up of a straightforward series of activities, the corresponding information flow
shows a more varied and complex pattern.
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The purpose of the information flow is to provide and manage smooth and efficient flows of goods and
payments. To this end, the information in each step has to be accurate and reliable. It has to meet the needs of
each recipient and be presented in an appropriate form and in a timely manner. Any inaccuracies and errors in
the information flow may have immediate consequences for the recipients ability to proceed with his or her part
of the trade transaction. This may, for instance, result in enhancements in goods movement in the various ways
modern integrated logistics chains are organized. These chains normally involve several parties, as in the
manufacturing, assembly or sales of commodities. Together they develop sophisticated goods flows to keep
inventory and buffers in production low. Examples of such strategies include Just-in-time (JIT) manufacturing and
Quick Response (QR).
The development of EDI was motivated by the realization that simple cross-organization business processes
such as purchasing, shipment tracking, and inventory queries were tremendously inefficient. Two business
partners were likely to each have enterprise systems that provided internal support for these processes. Yet,
when it came to make a purchase order, the order itself and all associated documents would be transmitted and
processed using inefficient manual processes and slow delivery mechanisms such as postal mail.
EDI thus focused initially on producing electronic versions of traditional business documents such as purchase
orders and invoices, and then enabling automated processing and transmission of those documents. By
introducing EDI systems, organizations were able to transform processes that could take as much as a week
and perform them in hours.
There are two key elements in basic EDI. Firstly, electronic documents replace their paper counterparts.
Secondly, the exchange of documents takes place in a standardized format. Using these two basic concepts,
enterprises can enter the world of EDI and begin taking advantage of electronic business.
6.2 Workflow Systems

A workflow system automates a business process, in whole or in part, during which documents, information, or
tasks are passed from one participant to another for action, according to a set of procedural rules. Workflows
are based on document lifecycles and forms-based information processing, so generally they support well-
defined, static, clerical processes. They provide transparency, since business processes are clearly articulated in
the software, and they are agile because they produce definitions that are fast to deploy and change.
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[Figure 5.8: The Workflow Management Coalition Diagram of Process Flow across Applications]
A workflow normally comprises a number of logical steps, each of which is known as an activity. As Figure 5.9
illustrates, an activity may involve manual interaction with a user or workflow participant, or might be executed
using diverse resources such as application programs or databases. A work item or data set is created,
processed, and changed in stages at a number of processing or decision points to meet specific business goals.
Most workflow engines can handle a very complex series of processes.
A workflow can depict various aspects of a business process including automated and manual activities, decision
points, and business rules, parallel and sequential work routes, and how to manage exceptions to the normal
business process. A workflow can have logical decision points that determine which branch of the flow a work
item may take in the event of alternative paths. Every alternate path within the flow is identified and controlled
through a bounded set of logical decision points. An instantiation of a workflow to support a work item includes
all possible paths from beginning to end. Business rules at each decision point determine how workflow-related
data are to be processed, routed, tracked, and controlled. For instance, one rule might generate e-mail
notifications when a condition has been met, while another rule might implement conditional routing of
documents and tasks.
Workflow technology enables developers to describe full intra- or inter-organizational business processes with
dependencies, sequencing selection, and iteration. It effectively enables the developers to describe the complex
rules for processing in a business process, such as merging, selection based on field content, time based delivery
of messages, and so on. Moreover, it not only streamlines and accelerates business processes but also allows
people to be deployed more productively within an organization. It is a major ingredient that, when combined
with middleware, provides an enabling infrastructure for e-Business applications.
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Wireless Technologies For E Business

Enterprise E-Business Systems
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Topic 6: Wireless Technologies For E Business
T opic Objective:
1. Wireless E-Business
2. A Brief History of Wireless Communications
3. Short-Range Wireless Technologies
4. Wireless LANs
5. The Wireless Web
6. Effects of Wireless Technologies on E-Business
Topic Introduction:
Wireless Technology: A technology, such as cell phones, that uses radio waves to transmit and receive data. It
is used increasingly for data transmission.
Topic Overview:
1. Wireless E-Business
Wireless communications are increasingly part of everyones personal and professional lives. Probably the most
familiar type of wireless transmission is a radio broadcast. But, the term wireless technologies also refers to
things such as: a wireless LAN where a laptop computer can transmit a document to a printer three feet away;
information transmitted between two PDAs; location positioning from an automobile; and medical images
transmitted anywhere in the world via satellite networks. One of the most important wireless devices are digital
cellular phones, which are morphing into hybrid devices some call smart phones. These devices are able to
browse the Web, connect to corporate databases, hold voice or video calls, and conduct e-business
transactions. Figure 6.1 illustrates some popular uses of wireless technologies.
[Figure 6.1: Wireless Transmissions]
The growth of wireless e-business services hinge on the powerful advantages wireless technologies offer,
including:
Immediacy: Wireless communications are immediate, in the sense that they provide instant
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gratification, anytime, anywhere. E-businesses can offer immediate services via a wireless device. Need to
buy movie tickets while driving to the theater? Use your wireless device to buy them from an online
ticketing service.
Personalization: Wireless devices are very personal, even more so than personal computers. Because
few people share a cell phone or other wireless device. Because wireless devices are highly customizable
in terms of style, color, and so forth many users see them as extensions of their personality. In Europe
and Asia, for example, wireless devices are more likely to be considered personal accessories than
communication tools. E-businesses can exploit this personalization by tailoring information about products
and services to specific groups of wireless users. Like to stay informed about current events? News
headlines via opt-in text messaging delivered over your wireless device can keep you up to date.
Localization: Wireless users can be localized, meaning a wireless users specific physical location can be
determined through a wireless device. E-businesses can take advantage of localization to guess what a
consumer might be interested in based on his or her physical location and then send the consumer
advertising and special offers from nearby businesses. Wireless e-business transactions and other
activities (such as purchasing airline tickets, getting stock quotes, playing games, checking bank balances,
sending e-mail, downloading video, or buying a soft drink from a vending machine) via a hand-held
wireless device are, as of this writing, still more promise than reality.
The reasons for the lag between the expectations for wireless e-business and todays reality are complex.
Among other things, this lag is due to the different ways wireless technologies developed globally, challenges to
delivering data to wireless devices with greater speed, wireless security issues, challenges to presenting graphical
Web-based information on a small device instead of a large computer monitor, and most importantly the lack of
a killer wireless application. A single wireless application that is so compelling that it alone would drive user
adoption (in the same way e-mail drove adoption of business and personal Internet access).
2. A Brief History of Wireless Communications

For hundreds of years, humans have tried various ways of communicating with others over long distances,
including messenger relays, talking drums, vocalization across mountain passes and valleys, smoke signals from
hill top fires, and messages attached to birds trained to fly to specific roosting places. The foundation for wireless
technologies used to communicate over long distances was laid in the mid-nineteenth century.
2.1 Origins of Wireless Technologies

In 1865, James Clerk Maxwell published his theory of electromagnetic radiation, which described waves of
radiating energy (light) passing through the air. In 1873 Heinrich Hertz corroborated Maxwell s theory when he
proved that electricity could be transmitted via electromagnetic waves. In 1895, a young inventor named
Guglielmo Marconi began experimenting with radio waves to send messages. As the twentieth Century dawned,
scientists began to learn more about electromagnetic radiation and the different components of the
electromagnetic spectrum and the name for all types of electromagnetic radiation.
2.2 The Electromagnetic Spectrum

Electromagnetic radiation is represented as a wave that cycle up and down in a pattern of energy peaks and
valleys. The number of complete waves or cycles per second is referred to as a waves frequency. Frequency is
measured in Hertz, with one Hertz equal to one complete wave- one peak and one valley - each second. Two
peaks and two valleys equal two Hertz per second, and so on. Various types of electromagnetic radiation have
different frequencies. The useful part of the electromagnetic spectrum starts at a frequency of about 1,000,000
Hertz, or one Megahertz (MHz) for AM radio waves and ranges up to 1x10^20
(100,000,000,000,000,000,000, or 100 billion billion) Hertz for Gamma rays. Visible radiation, or light, occupies
only a tiny fraction of the spectrum at about 1x10^15 (1,000,000,000,000,000, or one million billion) Hertz.
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[Figure 6.2: The Electromagnetic Spectrum]
Wavelength, the distance between peaks, is another defining feature of electromagnetic radiation: the longer the
wavelength, the lower the frequency, and the lower the energy radiated. Figure 6.2 and the following list identify
the components of the electromagnetic spectrum from the lowest frequency and longest wavelength to the
highest frequency and shortest wavelength:
Radio: Radio waves have the lowest frequency and the longest wavelength. Television, FM and AM radio
transmissions, use radio waves. Microwave: Microwaves have the next shortest wavelength. Youve
probably used them to cook food quickly. Astronomers study microwaves generated throughout the
universe.
Infrared: Infrared (IR) waves have a slightly longer wavelength than visible radiation and are used today
for wireless communications between computers and other devices and television remote controls.
Visible light: Visible light is that portion of the electromagnetic spectrum that can be seen by the human
eye. The range of colors that make up visible light (visible radiation) correspond to a range of frequencies,
with red having the lowest frequency and violet having the highest. As frequency increases through the
reds, yellows, greens, and blues of visible light, the energy of the radiation increases.
Ultraviolet: Ultraviolet radiation is just beyond the violet end of the visible spectrum. At some point on
the visible spectrum, violet light darkens and seems to disappear, but this is only because our eyes can no
longer perceive the electromagnetic waves at this frequency.
X-rays: X-rays have a very short wavelength and thus high-energy. As you know, X-rays are used by
doctors and dentists to create pictures of bones and teeth. Both ultraviolet radiation and X-rays can be
damaging in high doses.
Gamma Rays: Gamma rays have the highest energy, shortest wavelength, and highest frequency
radiation and are generated by radioactive materials.
Wavelength and frequency are related concepts. To understand this relationship, consider what happens as
visible radiation changes from blue to indigo to violet. The change in color corresponds to a change in the lights
wavelength: blue light has a longer wave length than violet, so as light changes from blue to violet, the lights
wavelength decreases. As the wavelength shortens, more waves can pass a point in space in a second, so we
also say that the frequency increases. Thus, a long electromagnetic wave travels at a low frequency, while a
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short wave travels at a high frequency.
3. Short-Range Wireless Technologies

One set of wireless technologies covers what might be called the range of convenience about 10 feet. Do you
lack a cable connection to send a document from your laptop to a printer just a few feet away? Do you need to
transmit your business card from your PDA to a business associates PDA across a conference table? Two
wireless technologies were designed to satisfy these needs: IrDA and Bluetooth.
3.1 IrDA
Some wireless communications use infrared radiation (IR), the part of the electromagnetic spectrum that lies
just below the visible red range. With an infrared-enabled laptop and printer, you can print a document by just
pointing your laptop at the printer no cable connection is necessary.
The Infrared Data Association or IrDA was created in 1993 to establish standards for the hardware and software
used in IR communications; thus infrared technologies are also referred to as IrDA technologies or more simply
IrDA. IrDA transmissions between a laptop and a printer require that both devices have a transceiver (a
transmitter and receiver combined into one device). Additionally, special IrDA software may be required for these
devices.
For IrDA to work there can be no physical obstructions between the transmitter and receiver. In other words,
IrDA requires a line-of-sight link. For example, if there is a stapler or some other obstruction between your
laptop and your printer, you may not be able to successfully transmit a document to the printer via IrDA. Its
possible to have more than one IrDA device in a room; you just have to be sure to point your transmitter to the
correct device before sending the transmission. Figure 6.3 illustrates typical IrDA transmissions and Figure 6.4
illustrates the correct positioning of a laptop and a printer for an IrDA transmission. The IrDA transmission takes
place within a 30-degree cone of infrared radiation.
[Figure 6.3: Typical IrDA Transmissions]
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[Figure 6.4: IrDA Device Positioning]
3.2 Bluetooth
While IrDA relies on infrared radiation, another type of short-range wireless technology, Bluetooth, is a
radiofrequency (RF) technology that uses a previously unused range of radio frequencies at 2.45 GHz.
Developed in 1994, Bluetooth was originally created to allow mobile phones to communicate with accessories
such as headsets. Bluetooth can handle anything IrDA can; however, because radio transmissions can travel
through solid objects the line-of-sight problem is not an issue. Bluetooth requires small, low-power transceivers
that can be added to a hand-held device such as a cell phone, PDA, or laptop to enable the device for Bluetooth
transmissions. Figure 6.5 illustrates Bluetooth hardware.
[Figure 6.5: Bluetooth Hardware]
Bluetooth operates on an unregulated section of the radio spectrum. The unregulated radio spectrum is a part of
the spectrum that can be used without a license. CB radio, walkie-talkie, baby monitor, and ham radio
transmissions are examples of unregulated spectrum use. Although using the unregulated spectrum means
Bluetooth devices sometimes experience interference from garage door openers, baby monitors, and
microwave ovens, Bluetooth devices rapidly change frequencies, using frequency hopping technologies, to handle
this interference. Because no line-of-sight link is necessary, Bluetooth can, for example, allow you to transfer
addresses to a portable digital address book without removing the device from your briefcase.
Some inherent problems have slowed Bluetooths widespread adoption. For starters, adding Bluetooth
transceivers to mobile phones and other devices makes them more expensive. Additionally, as of this writing,
there hasnt yet been a compelling reason for consumers to demand Bluetooth-enabled devices. Finally,
Bluetooth technologies require stronger security and more complex software to allow you to select the device to
which you are communicating.
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Bluetooth is one of several wireless technologies used to create Wireless Personal Area Networks or WPANs,
which are wireless networks set up to allow nearby mobile and portable devices to communicate without need
of cable connections within a range up to 10 meters (approximately 30 feet).WPANs are sometimes called
piconets, for very small networks, or convenience technologies because they eliminate the need for
bothersome cables. WPANs fall under the auspices of the IEEE 802.15 Working Group for WPANs, a separate
standards body for mobile and portable wireless devices such as cell phones and PDAs.
4. Wireless LANs
Operating beyond the range of convenience technologies are wireless LAN (also called WLAN or W-LAN)
technologies. These technologies enable workers to roam around an office building, yet stay connected to a LAN
at high speed. A wireless LAN most commonly consists of a wired LAN of computers, printers, servers, and other
devices, portable devices such as laptops that can connect to the wired LAN when necessary, and access points
(also called base stations) that allow the laptops to connect to the wired LAN using radiofrequency (RF)
transmissions. A wireless LAN must be located within limited physical vicinity such as a single office building or
building complex.
http://www.valencewireless.com/wireless_lan2.png
4.1 Examples of Wireless LANs

One common example of a wireless LAN is a school network that includes laptops that must be moved from
classroom to classroom. When needed, the laptops are moved to a specific classroom where they connect to
the network via an access point. Another example is a hand-held wireless device, such as a PDA, that is used to
send data to a wired network. Such a device might be used by:
Warehouse employees transmitting inventory information from the warehouse to the inventory database
stored on a file server.
Waiters in a restaurant submitting orders to the kitchen.
Doctors sending patient information, prescription, and nursing orders to a patient database.
Increasingly, airports, hotels, and restaurants offer wireless Internet connectivity for their guests laptop
computers using a wireless LAN. Figure 6.6 illustrates the use of mobile laptops to access a wired LAN.
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[Figure 6.6 Laptops using RF to connect to a wired LAN]
Wireless Networks that Span Longer Distances Networks that provide wireless communications over longer
distances than a wireless LAN include pager, cellular phone, mobile data, fixed wireless and fixed wireless
broadband, free space optics, and satellite networks. One of the first types of data networks as we know
them was the pager network.
4.2 Pagers and Pager Networks

A pager is a small battery-operated device that is used to receive RF transmissions. The first commercial pagers
were developed in the 1970s by Motorola and allowed local one-way messaging. These pagers, which had no
display capability and no way to store messages, received RF transmissions that simply alerted a user that a
message was available. For example, someone wishing to contact another person via a pager would call a
phone number and record a message. Operators were used to send an RF signal to the appropriate pager and
also playback or relay the actual message when the pager user called a predetermined phone number to access
the message.
In the 1980s pagers with display capability were developed which allowed users to view either the phone number
of the message sender or a coded message. During the 1980s pagers were primarily used within a limited local
range for example, by doctors and other employees within a hospital.
By the 1990s, pagers could display short text messages. Pagers were also assigned individual phone numbers,
thereby making the paging process automatic because operators were no longer needed to send pager signals
or read back messages. Someone wishing to contact another person who had a pager could call the pagers
phone number and leave a return phone number or a short text message. Also, in the 1990s the broadcast
range of paging systems broadened with the advent of pager networks. Modern paging systems consist of
paging terminals, transmitters, and individual pager devices. Paging terminals accept incoming messages and
route the messages to a transmitter that has its own local pager area or zone. The transmitter sends the
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message to the appropriate pager. Multiple local pager zones can be connected (often by satellite) to form a
wide area pager network. These networked transmitters can hand off a message to another transmitter when
the pager is moving between zones.
4.3 Cellular Phones and Cellular Networks

A cellular phone is actually a rather complex radio that sends and receives RF signals in the 824-849 MHz range.
The cellular in cellular phone refers to the way an entire metropolitan area is divided into small transmission
areas called cells. The facility that contains the equipment necessary to service the transmissions for one or
more cells is called a base station. As a cell phone user moves across the boundary of two cells, the base
stations agree (by communicating with each other over the wired network to which they are all connected) on
how to disconnect the cell phone from one base station at the same instant its connected to the other.
The original cellular phones were designed for use as car phones and transmitters frequently were located along
roadways. Personal Communication Services or PCS wireless phone systems are similar to the original cellular
systems, but require a number of antennas in a calling area or cell. When a PCS user makes a call on his or her
phone, the closest antenna picks up the call and sends it to a PCS network base station. PCS networks operate
in the 1850-1990 MHz range. PCS cellular phone technologies are also called digital cellular technologies and
include the TDMA and CDMA wireless standards developed in the U. S. and the GSM standard adopted in Europe
and Asia. The major cellular standards and services in use today include AMPS,TDMA, CDMA, GSM, GPRS, and i-
Mode.
Advanced Mobile Phone System (AMPS): Advanced Mobile Phone System (AMPS) is an analog cell
phone standard approved by the FCC and commercialized in the United States in 1983. AMPS was also
used in analog cellular systems in Japan and Scandinavia as early as 1981. AMPS is based on the
Frequency Division Multiple Access or FDMA analog standard which assigns frequencies to one user at a
time. Each AMPS cell phone used two available frequencies one to transmit and one to receive. Thus,
multiple phones could access the same base station by dividing the spectrum of available frequencies
among them. But AMPS isnt very efficient the available spectrum was quickly used up by only a few
hundred calls in a given cell so new digital cellular technologies such as TDMA were developed.
Time Division Multiple Access (TDMA): In 1994 the Telecommunications Industry Association (TIA)
released its Time Division Multiple Access (TDMA) interim standard called TDMA IS-136, developed to
support increased cellular network capacities, add other services such as fax and text messaging, and
generally improve the quality of service. TDMA increases the capacity of a radio frequency (over the AMPS
capacity) by dividing each frequency or channel into time slots. The early TDMA technologies allowed up to
three users to send timed, synchronized conversation fragments over a shared channel. Today up to six
users can share a TDMA channel while it is expected that advanced TDMA technologies will allow up to 40
users to share a channel. TDMA technologies support digital transmissions for voice, fax, data (at rates of
64 Kbps to 120 Mbps), multimedia and videoconferencing, and short text messaging via Short Message
Service or SMS.
System for Mobile Communication (GSM): Global System for Mobile communication (GSM) was
developed, based on a hybrid of FDMA and TDMA technologies. By the early 1990s, GSM was under the
purview of the ETSI and was being used commercially across Europe. Like TDMA, GSM allows multiple
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users to share an RF channel (up to eight users), supports digital data transmissions, and supports text
messaging with SMS. GSM operates at 900, 1800, and 1900 MHz. But, the real advantage of GSM is
standardization. Unlike in the United States where the FCC encouraged competition between digital cellular
providers (often resulting in adoption of different digital cellular standards by different providers), the
European Commission encouraged cooperation between the cellular network providers in its various
member countries. This cooperation led directly to adoption of GSM as the European digital cellular
standard which in turn enabled manufacturing economies of scale and enhanced consumer demand a
European consumer could now purchase one cell phone from any vendor that would work anywhere GSM
was supported. The ultimate result of this standardization is a wide acceptance of GSM not only in Europe,
but also globally.
Code Division Multiple Access (CDMA) Spread-spectrum technologies involve spreading radio signals
over a much larger portion of bandwidth than the original unspread signal would use. The advantages of
spread-spectrum technologies include a high resistance to detection or interference. Because of this,
spread-spectrum technologies have been used by the U.S. military for some time to prevent an enemy
from identifying and jamming radio transmissions. There are two primary methods of spreading the
spectrum:
Frequency hopping: Frequency hopping spread spectrum (FHSS) requires that a radio signal hop
quickly from frequency to frequency based on a complex mathematical formula known only to the
sender and receiver.
Direct sequence: Direct sequence spread spectrum (DSSS) breaks a radio signal into small pieces
which, along with a sequencing code called a chipping code, are spread over a large section of
bandwidth.
4.4 3G Digital Cellular Networks

The third generation of cellular wireless technologies, called 3G technologies, is still being shaped by technical,
financial, and political issues. In fact, 3G has taken so long to appear that in the interim some faster wireless
technologies, such as the General Packet Radio Service (GPRS) have gained acceptance. GPRS, which is based
on GSM, separates voice and data into separate channels and offers IP data transmission from 56 to 144 Kbps.
This type of new, interim technology is being touted as 2.5G.
4.5 Mobile Data Networks (MDNs)

Mobile Data Networks or MDNs are designed to transmit data from portable terminals to LANs and mainframes
using hand-held devices similar to PDAs, or by using laptop computers or other mobile devices.
MDNs use a variety of RF technologies to transmit data to and from mobile devices. For example, subscribers on
the ARDIS network can transmit data from their mobile devices to base stations positioned in specific areas
similar to the way base stations are positioned in cellular networks. The base stations then forward the
transmissions to a central messaging switch which is cabled to an organizations LAN or mainframe. Figure 6.7
illustrates an MDN.
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[Figure 6.7: Mobile Data Network]
4.6 Fixed Wireless Broadband Systems

Wireless communications to or from a fixed location such as a home or office are called fixed wireless. FWB is a
very effective method for communicating across rural areas with large open spaces and far-flung subscribers.
4.7 Free Space Optics

Free space optics or FSO (sometimes called free space photonics or FSP) is an optical wireless data transmission
system based on fiber-optic technology except that air and not fiber-optic cable is the transmission medium.
With fiber-optic cables, lasers send pulses of light along the cables long glass fibers to detectors at the other
end. FSO works in a similar way, except without the cable. That is, instead of sending light along glass fibers, a
laser sends light pulses through the air to a detector that can be from just a few feet to approximately three
miles away. An FSO system includes laser terminals positioned on a roof or inside a window and central hubs
located throughout a metropolitan area which send signals to and receives signals from the laser terminals.
4.8 Communication Satellite Networks

A satellite is a natural or man-made object that revolves around the Earth (or any planet) in an elliptical or
circular path called the satellites orbit. Today, satellite networks consist of strategically positioned earthbound
antennae, ground control facilities, and thousands of weather, scientific, military, and navigational satellites
orbiting the Earth. Satellite networks provide current pictures of the Earths weather, scientific information about
natural phenomena such as sun spots, military intelligence, and navigational directions for planes and ships.
Additionally, communications satellite networks have hundreds of satellites acting as orbiting radio relay stations.
Each of these communication satellites contain thousands of transponders (devices that receive and transmit
signals) that receive voice, video, or data transmissions from Earth on one frequency and then relay them back
to Earth on another frequency.
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4.9 The Global Positioning System
The Global Positioning System (GPS) is a network of 24 small satellites orbiting approximately 11,000 miles
above the Earth in such a way that four to six satellites are always visible on the horizon. Each satellite
constantly beams down a signal containing the exact time and its own position in the sky. A special kind of
device called a GPS receiver detects these signals and measures how long each signal takes to traverse the
distance between the satellite and the receiver. The receiver then uses this information to calculate its own
position on Earth to within a few feet. Originally developed for the military, GPS has been a great boon to
seaborne navigation and air travel, allowing traffic controllers to precisely position ships and airplanes relative to
each other. Commercial GPS receivers can now be found in cars and private pleasure boats while portable GPS
receivers are now available for hikers, skiers, balloonists, and others who need to be able to identify their
location.
5. The Wireless Web

The first major wireless data receiver arrived in living rooms in big wooden cabinets the radio. Together with
the television, the radio initiated a long period of one-way data flow over the airwaves. CB radio operators and
ham radio enthusiasts broke this pattern of one-way wireless communication, but what opened the floodgates
for broad acceptance of two-way wireless communications was the cell phone. Early analog cell phones which
could only transmit voice were heavy, bulky, power hungry, unreliable, and expensive. As you have learned,
analog cellular technologies gave way to digital cellular technologies. Digital cellular technologies allowed phones
to be smaller, easier to use, to transmit higher-quality voice transmissions, and be less expensive, paving the
way for widespread adoption of digital cellular technologies around the world.
The development of digital cellular technologies also meant that data and pictures as well as voice could be
transmitted via a hand-held wireless device such as a cell phone. While digital wireless technologies were
evolving, the Internet and the Web were becoming both a vital source of information and an important
commercial venue. To many it seems only natural that consumers comfortable with their cell phones and PDAs
would want the convenience of wireless Web access and that e-businesses would want their Web sites available
to mobile customers. Therefore, despite lukewarm interest on the part of most U.S. cell phone and PDA users,
many wireless service providers and e-businesses are plunging ahead developing services and content for the
wireless Web.
5.1 Wireless Application Protocol (WAP) and Wireless Markup Language (WML)
The Wireless Application Protocol (WAP) is a protocol suite or stack that makes it possible to access Internet
resources via a small-display wireless device such as a cell phone or PDA.WAP was developed as a standard for
the wireless Web by the WAP Forum, a consortium of wireless vendors including Nokia, Motorola, and Ericsson.
The WAP standard defines the wireless application environment and wireless application protocols which work
across many different platforms ranging from, for example, an older GSM phone to a new PDA with a color
screen. As you would imagine, this ability to bridge different technologies is vital; as with the Internet in general,
interoperability is crucial to the success of the wireless Web. The wireless application environment is created with
the Wireless Markup Language and the WML Script programming language. The Wireless Markup Language
(WML), also developed by the WAP Forum, is based on XML and is used to design content for small-screen
devices such as cell phones and PDAs. A WML document (page) is called a deck. Each deck contains one or more
cards, which contain text, images, markup instructions, and so forth. WML Script, a scripting language similar to
JavaScript, is also used to manipulate the content on small screens and perform math functions.
The wireless application protocols in the WAP suite function similarly to the protocols in the TCP/IP suite;
however, WAP protocols are not compatible with TCP/IP protocols. This means WAP enabled devices cannot
communicate directly with content servers. Instead, a request for a WML page made from a WAP enabled cell
phone or PDA must first pass through a WAP gateway server. At the gateway, the request is translated into the
HTTP protocol and then sent on to the content server. The content server returns the requested page to the
WAP gateway server using HTTP. The WAP gateway server then reformats the request back into WAP protocols
and sends the page on to the WAP-enabled device. Figure 6.8 illustrates a WAP transmission using a cell phone.
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[Figure 6.8: WAP Transmission]
5.2 Accessing the Wireless Web

It is expected that most users will access the wireless Web by either a Web-enabled cell phone or PDA. In fact,
one of the first hand-held wireless devices to make wireless data transmissions possible was Palm, Inc.s Palm
VII PDA which came out of the box with an integrated antenna.
6. Effects of Wireless Technologies on E-Business

Even during the economic slump of 2001 and early 2002, there was a great deal of activity in the wireless world
as wireless service providers spent billions of dollars in the U. S. and Europe leasing radio spectrum, building the
infrastructure, and developing the long anticipated 3G wireless technologies that would enable IP data
transmissions and high-speed Internet access from hand-held wireless devices and therefore make wireless e-
business a reality.
B2C e-businesses and their customers may interact in new ways also, some of them advantageous to one side
or the other. How will wireless technologies affect the B2B electronic market space? Mahatma Gandhi wrote that
there is more to life than increasing its speed, but it certainly seems that increasing lifes speed will be the main
focus of much of tomorrows technology. This will be especially true in the important area of supply chain
management, which encompasses all aspects of material purchase and inflow, through production to shipping
and customer inventory levels. (Wireless technologies may become a larger part of the general trend toward
vendor/enterprise/customer integration by allowing a B2B e-businesss purchasing and production departments
to respond immediately to a newly placed large order made by a customer via a wireless device.
The term knowledge management is used to refer to the process of organizing, analyzing, and sharing
documents, resources, and employee skills. Knowledge management takes place both within an e-business and
between an e-business and its business partners. The term knowledge worker refers to those employees whose
intellectual capacities and experience make them an indispensable asset to the e-business. As you can imagine,
managing knowledge can be greatly simplified by wireless technologies, which make it possible for knowledge
workers to remain connected to other employees and business partners no matter where the knowledge
workers are physically located. Within an e-business, wireless technologies may fuel a growing integration
between information generated by its mobile sales staff and its databases with new wireless technologies, a
mobile sales staff may soon be able to access the full range of an e-businesss databases.
As wireless data transmission speeds improve, so do the features of hand-held wireless devices. Flat-panel
displays, once quite expensive, are becoming cheap enough to build into cell phones, turning them into
multifunction wireless devices. Faster chips enable more complex applications. Todays new hybrid wireless
devices can function as phones, organizers, portable stereos, hand-held game machines, and so forth. Another
area worth watching in the coming years is the satellite wireless services. The advent of reasonably priced,
satellite-based wireless services may bring these services within the reach of small to medium sized e-
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businesses.
To make wireless e-business ubiquitous, there has to be an e-business killer app for wireless devices and, as
you have learned, one has yet to appear. Certainly sending and receiving e-mail from a hand-held wireless device
is especially useful and accessing the Web via voice commands has great potential.
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Topic 7: Enterprise E-Business Systems
T opic Objective:
1. Customer Relationship Management: The Business Focus
2. What Is CRM?
3. The Three Phases of CRM
4. Benefits and Challenges of CRM
5. Trends in CRM
6. Enterprise Resource Planning: The Business Backbone
7. What Is ERP?
8. Benefits and Challenges of ERP
9. Causes of ERP Failures
10. Trends in ERP
11. Supply Chain Management: The Business Network
12. What Is SCM?
13. The Role of SCM
14. Benefits and Challenges of SCM
15. Trends in SCM
Topic Introduction:
Today, customers are in charge. It is easier than ever for customers to comparison shop and, with a click of the
mouse, to switch companies. As a result, customer relationships have become a companys most valued asset.
These relationships are worth more than the companys products, stores, factories, web addresses, and even
employees. Every companys strategy should address how to find and retain the most profitable customers
possible.
Topic Overview:
1. Customer Relationship Management: The Business Focus
The primary business value of customer relationships today is indisputable. Becoming a customer-focused
business was one of the top business strategies that can be supported by information technology. Thus, many
companies are implementing customer relationship management (CRM) business initiatives and information
systems as part of a customer-focused or customer centric strategy to improve their chances for success in
todays competitive business environment.
2. What Is CRM?
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CRM is managing the full range of the customer relationship involves two related objectives: one, to provide the
organization and all of its customer-facing employees with a single, complete view of every customer at every
touch point and across all channels; and, two, to provide the customer with a single, complete view of the
company and its extended channels. Thats why companies are turning to customer relationship management to
help them become customer-focused businesses. CRM uses information technology to create a cross-functional
enterprise system that integrates and automates many of the customer serving processes in sales, marketing,
and customer services that interact with a companys customers. CRM systems also create an IT framework of
Web enabled software and databases that integrates these processes with the rest of a companys business
operations. CRM systems include a family of software modules that provides the tools that enable a business
and its employees to provide fast, convenient, dependable, and consistent service to its customers. Figure 7.1
illustrates some of the major application components of a CRM system.
[Figure 7.1: The major application clusters in customer relationship management.]
2.1 Contact and Account Management

CRM software helps sales, marketing, and service professionals capture and track relevant data about every
past and planned contact with prospects and customers, as well as other business and life cycle events of
customers. Information is captured from all customer touch points, such as telephone, fax, e-mail, the
companys website, retail stores, kiosks, and personal contact. CRM systems store the data in a common
customer database that integrates all customer account information and makes it available throughout the
company via Internet, intranet, or other network links for sales, marketing, service, and other CRM applications.
2.2 Sales
A CRM system provides sales reps with the software tools and company data sources they need to support and
manage their sales activities, and optimize cross-selling and up-selling. Examples include sales prospect and
product information, product configuration, and sales quote generation capabilities. CRM also gives them real
time access to a single common view of the customer, enabling them to check on all aspects of a customers
account status and history before scheduling their sales calls.
2.3 Marketing and Fulfillment

CRM systems help marketing professionals accomplish direct marketing campaigns by automating such tasks as
qualifying leads for targeted marketing, and scheduling and tracking direct marketing mailings. Then the CRM
software helps marketing professionals capture and manages prospect and customer response data in the CRM
database, and analyzes the customer and business value of a companys direct marketing campaigns. CRM also
assists in the fulfillment of prospect and customer responses and requests by quickly scheduling sales contacts
and providing appropriate information on products and services to them, while capturing relevant information for
the CRM database.
2.4 Customer Service and Support

A CRM system provides service reps with software tools and real-time access to the common customer
database shared by sales and marketing professionals. CRM helps customer service managers create, assign,
and manage requests for service by customers. Call center software routes calls to customer support agents
based on their skills and authority to handle specific kinds of service requests. Help desk software assists
customer service reps in helping customers who are having problems with a product or service, by providing
relevant service data and suggestions for resolving problems. Web-based self-service enables customers to
easily access personalized support information at the company website, while giving them an option to receive
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further assistance online or by phone from customer service personnel.
2.5 Retention and Loyalty Programs

It costs six times more to sell to a new customer than to sell to an existing one.
A typical dissatisfied customer will tell eight to ten people about his or her experience.
A company can boost its profits 85 percent by increasing its annual customer retention by only 5
percent.
The odds of selling a product to a new customer are 15 percent, whereas the odds of selling a product to
an existing customer are 50 percent.
Seventy percent of complaining customers will do business with the company again if it quickly takes
care of a service.
Thats why enhancing and optimizing customer retention and loyalty is a major business strategy and primary
objective of customer relationship management. CRM systems try to help a company identify, reward, and
market to their most loyal and profitable customers. CRM analytical software includes data mining tools and
other analytical marketing software, while CRM databases may consist of a customer data warehouse and CRM
data marts. These tools are used to identify profitable and loyal customers and direct and evaluate a companys
targeted marketing and relationship marketing programs toward them.
3. The Three Phases of CRM

Figure 7.2 illustrates another way to think about the customer and business value and components of customer
relationship management. We can view CRM as an integrated system of Web-enabled software tools and
databases accomplishing a variety of customer-focused business processes that support the three phases of the
relationship between a business and its customers.
[Figure 7.2: How CRM supports the three phases of the relationship between a business and its customers.]
Acquire: A business relies on CRM software tools and databases to help it acquire new customers by
doing a superior job of contact management, sales prospecting, selling, direct marketing, and fulfillment.
The goal of these CRM functions is to help customers perceive the value of a superior product offered by
an outstanding company.
Enhance: Web-enabled CRM account management and customer service and support tools help keep
customers happy by supporting superior service from a responsive networked team of sales and service
specialists and business partners. And CRM sales force automation and direct marketing and fulfillment
tools help companies cross-sell and up-sell to their customers, thus increasing their profitability to the
business. The value perceived by customers is the convenience of one-stop shopping at attractive prices.
Retain: CRM analytical software and databases help a company proactively identify and reward its most
loyal and profitable customers to retain and expand their business via targeted marketing and relationship
marketing programs. The value perceived by customers is of a rewarding personalized business
relationship with their company.
4. Benefits and Challenges of CRM

The potential business benefits of customer relationship management are many. For example, CRM allows a
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business to identify and target their best customersthose who are the most profitable to the businessso
they can be retained as lifelong customers for greater and more profitable services. It makes possible real-time
customization and personalization of products and services based on customer wants needs, buying habits, and
life cycles. CRM can also keep track of when a customer contacts the company, regardless of the contact point.
And CRM systems can enable a company to provide a consistent customer experience and superior service and
support across all the contact points a customer chooses. All of these benefits would provide strategic business
value to a company and major customer value to its customers.
4.1 CRM Failures

The business benefits of customer relationship management are not guaranteed and, instead, have proven
elusive at many companies. Surveys by industry research groups include a report that over 50 percent of CRM
projects did not produce the results that were promised. In another research report, 20 percent of businesses
surveyed reported that CRM implementations had actually damaged long-standing customer relationships. And in
a survey of senior management satisfaction with 25 management tools, CRM ranked near the bottom in user
satisfaction, even though 72 percent expected to have CRM systems implemented shortly.
What is the reason for such a high rate of failure or dissatisfaction with CRM initiatives? Research shows that the
major reason is a familiar one: lack of understanding and preparation. That is, too often, business managers rely
on a major new application of information technology (like CRM) to solve a business problem without first
developing the business process changes and change management programs that are required. For example, in
many cases, failed CRM projects were implemented without the participation of the business stakeholders
involved. Therefore, employees and customers were not prepared for the new processes or challenges that
were part of the new CRM implementation.
5. Trends in CRM
Increasingly, enterprises must create tighter collaborative linkages with partners, suppliers, and customers,
squeezing out time and costs while enhancing the customer experience and the total value proposition. Figure
7.3 outlines four types or categories of CRM that are being implemented by many companies today and
summarizes their benefits to a business. These categories may also be viewed as stages or trends in how many
companies implement CRM applications, and also outline some of the capabilities of CRM software products.
Most businesses start out with operational CRM systems such as sales force automation and customer service
centers. Then analytical CRM applications are implemented using several analytical marketing tools, such as data
mining, to extract vital data about customers and prospects for targeted marketing campaigns.
[Figure 7.3]
Increasingly, businesses are moving to collaborative CRM systems, to involve business partners as well as
customers in collaborative customer services. This includes systems for customer self-service and feedback, as
well as partner relationship management (PRM) systems. PRM applications apply many of the same tools used in
CRM systems to enhance collaboration between a company and its business partners, such as distributors and
dealers, to better coordinate and optimize sales and service to customers across all marketing channels. Finally,
many businesses are building Internet, intranet, and extranet Web-based CRM portals as a common gateway for
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various levels of access to all customer information, as well as operational, analytical, and collaborative CRM
tools for customers, employees, and business partner.
6. Enterprise Resource Planning: The Business Backbone

Businesses of all kinds have now implemented enterprise resource planning (ERP) systems. ERP serves as a
cross-functional enterprise backbone that integrates and automates many internal business processes and
information systems within the manufacturing, logistics, distribution, accounting, finance, and human resource
functions of a company. Large companies throughout the world began installing ERP systems in the 1990s as a
conceptual framework and catalyst for reengineering their business processes. ERP also served as the vital
software engine needed to integrate and accomplish the cross-functional processes that resulted. Now, ERP is
recognized as a necessary ingredient that many companies need in order to gain the efficiency, agility, and
responsiveness required to succeed in todays dynamic business environment.
7. What Is ERP?
ERP is the technological backbone of e-business, an enterprise-wide transaction framework with links into sales
order processing, inventory management and control, production and distribution planning, and finance.
Enterprise resource planning is a cross-functional enterprise system driven by an integrated suite of software
modules that supports the basic internal business processes of a company. For example, ERP software for a
manufacturing company will typically process the data from and track the status of sales, inventory, shipping,
and invoicing, as well as forecast raw material and human resource requirements. Figure 7.4 presents the major
application components of an ERP system. Figure 7.5 illustrates some of the key cross-functional business
processes and supplier and customer information flows supported by ERP systems.
[Figure 7.4: The major application components of enterprise resource planning demonstrate the cross functional
approach of ERP systems.]
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[Figure 7.5: Some of the business process flows and customer and supplier information flows supported by ERP
systems.]
ERP gives a company an integrated real-time view of its core business processes, such as production, order
processing, and inventory management, tied together by the ERP application software and a common database
maintained by a database management system. ERP systems track business resources (such as cash, raw
materials, and production capacity), and the status of commitments made by the business (such as customer
orders, purchase orders, and employee payroll), no matter which department (manufacturing, purchasing sales,
accounting, etc.) has entered the data into the system.
ERP software suites typically consist of integrated modules of manufacturing, distribution, sales, accounting, and
human resource applications. Examples of manufacturing processes supported are material requirements
planning, production planning, and capacity planning. Some of the sales and marketing processes supported by
ERP are sales analysis, sales planning, and pricing analysis, while typical distribution applications include order
management, purchasing, and logistics planning. ERP systems support many vital human resource processes,
from personnel requirements planning to salary and benefits administration, and accomplish most required
financial record-keeping and managerial accounting applications.
8. Benefits and Challenges of ERP

ERP systems can generate significant business benefits for a company. Many other companies have found major
business value in their use of ERP in several basic ways.
Quality and Efficiency: ERP creates a framework for integrating and improving a companys internal
business processes that result in significant improvements in the quality and efficiency of customer service,
production, and distribution.
Decreased Costs: Many companies report significant reductions in transaction processing costs and
hardware, software, and IT support staff compared to the nonintegrated legacy systems that were
replaced by their new ERP systems.
Decision Support: ERP provides vital cross-functional information on business performance quickly to
managers to significantly improve their ability to make better decisions in a timely manner across the
entire business enterprise.
Enterprise Agility: Implementing ERP systems breaks down many former departmental and functional
walls or silos of business processes, information systems, and information resources. This results in
more flexible organizational structures, managerial responsibilities, and work roles, and therefore a more
agile and adaptive organization and workforce that can more easily capitalize on new business
opportunities.
9. Causes of ERP Failures

In almost every case, the business managers and IT professionals of these companies underestimated the
complexity of the planning, development, and training that were needed to prepare for a new ERP system that
would radically change their business processes and information systems. Failure to involve affected employees
in the planning and development phases and change management programs, or trying to do too much too fast
in the conversion process, were typical causes of failed ERP projects. Insufficient training in the new work tasks
required by the ERP system, and failure to do enough data conversion and testing, were other causes of failure.
In many cases, ERP failures were also due to overreliance by company or IT management on the claims of ERP
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software vendors or the assistance of prestigious consulting firms hired to lead the implementation.
10. Trends in ERP

Today, ERP is still evolvingadapting to developments in technology and the demands of the market. Four
important trends are shaping ERPs continuing evolution: improvements in integration and flexibility, extensions
to e-business applications, a broader reach to new users, and the adoption of Internet technologies.
Figure 7.8 illustrates four major developments and trends that are evolving in ERP applications. First, the ERP
software packages that were the mainstay of ERP implementations in the 1990s, and were often criticized for
their inflexibility, have gradually been modified into more flexible products. Companies who installed ERP systems
pressured software vendors to adopt more open, flexible, standards-based software architectures. This makes
the software easier to integrate with other application programs of business users, as well as making it easier to
make minor modifications to suit a companys business processes.
[Figure 7.8: Trends in the evolution of ERP applications.]
Web-enabling ERP software is a second development in the evolution of ERP. The growth of the Internet and
corporate intranets and extranets prompted software companies to use Internet technologies to build Web
interfaces and networking capabilities into ERP systems. These features make ERP systems easier to use and
connect to other internal applications, as well as the systems of a companys business partners. This Internet
connectivity led to the development of interenterprise ERP systems that provide Web-enabled links between key
business systems (such as inventory and production) of a company and its customers, suppliers, distributors,
and others. These external links signaled a move toward the integration of internal-facing ERP applications with
the external-focused applications of supply chain management (SCM) and a companys supply chain partners.
All of these developments have provided the business and technological momentum for the integration of ERP
functions into e-business suites. The major ERP software companies have developed modular, Web-enabled
software suites that integrate ERP, customer relationship management, supply chain management,
procurement, decision support, enterprise portals, and other business applications and functions.
11. Supply Chain Management: The Business Network

Starting an e-business takes ideas, capital, and technical savvy. Operating one, however, takes supply chain
management (SCM) skills. A successful SCM strategy is based on accurate order processing, just-in-time
inventory management, and timely order fulfillment. SCMs increasing importance illustrates how a tool that was
a theoretical process 10 years ago is now a hot competitive weapon.
Thats why many companies today are making supply chain management (SCM) a top strategic objective and
major e-business application development initiative. Fundamentally, supply chain management helps a company
get the right products to the right place at the right time, in the proper quantity and at an acceptable cost. The
goal of SCM is to efficiently manage this process by forecasting demand; controlling inventory; enhancing the
network of business relationships a company has with customers, suppliers, distributors, and others, and
receiving feedback on the status of every link in the supply chain. To achieve this goal, many companies today
are turning to Internet technologies to Web-enable their supply chain processes, decision making, and
information flows.
12. What Is SCM?

Supply chain management is a cross-functional interenterprise system that uses information technology to help
support and manage the links between some of a companys key business processes and those of its suppliers,
customers, and business partners. The goal of SCM is to create a fast, efficient, and low-cost network of
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customers, and business partners. The goal of SCM is to create a fast, efficient, and low-cost network of
business relationships, or supply chain, to get a companys products from concept to market.
What exactly is a companys supply chain? Lets suppose a company wants to build and sell a product to other
businesses. Then it must buy raw materials and a variety of contracted services from other companies. The
interrelationships with suppliers, customers, distributors, and other businesses that are needed to design, build,
and sell a product make up the network of business entities, relationships, and processes that is called a supply
chain. And since each supply chain process should add value to the products or services a company produces, a
supply chain is frequently called a value chain. In any event, many companies today are using Internet
technologies to create interenterprise e-business systems for supply chain management that help a company
streamline its traditional supply chain processes.
13. The Role of SCM

Figure 7.9 helps us understand the role and activities of supply chain management in business more clearly. The
top three levels of Figure 7.9 show the strategic, tactical, and operational objectives and outcomes of SCM
planning, which are then accomplished by the business partners in a supply chain at the execution level of SCM.
The role of information technology in SCM is to support these objectives with interenterprise information
systems that produce many of the outcomes a business needs to effectively manage its supply chain. Thats
why many companies today are installing SCM software and developing Web-based SCM information systems.
[Figure 7.9]
14. Benefits and Challenges of SCM

Companies know that SCM systems can provide them with key business benefits such as faster, more accurate
order processing, reductions in inventory levels, quicker time to market, lower transaction and materials costs,
and strategic relationships with their suppliers. All of these benefits of SCM are aimed at helping a company
achieve agility and responsiveness in meeting the demands of their customers and the needs of their business
partners.
But developing effective SCM systems has proven to be a complex and difficult application of information
technology to business operations. So achieving the business value and customer value goals and objectives of
supply chain management, as illustrated in Figure 7.10, has been a major challenge for most companies.
[Figure 7.10]
Several reasons stand out for problems in Supply Chain Management. A lack of proper demand planning
knowledge, tools, and guidelines is a major source of SCM failure. Inaccurate or overoptimistic demand forecasts
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will cause major production, inventory, and other business problems, no matter how efficient the rest of the
supply chain management process is constructed. Inaccurate production, inventory, and other business data
provided by a companys other information systems are a frequent cause of SCM problems. And lack of
adequate collaboration among marketing, production, and inventory management departments within a
company, and with suppliers, distributors, and others, will sabotage any SCM system. Even the SCM software
tools themselves are considered to be immature, incomplete, and hard to implement by many companies who
are installing SCM systems. These problems are spotlighted in the real world example of Solectron Corporation.
15. Trends in SCM

Figure 7.10 illustrates the trends in the use of supply chain management today as three possible stages in a
companys implementation of SCM systems. In the first stage, a company concentrates on making
improvements to its internal supply chain processes and its external processes and relationships with suppliers
and customers. Its e-commerce website and those of some of its trading partners provide access to online
catalogs and useful supply chain information, while supporting limited online transactions.
In stage two, a company accomplishes substantial supply chain management applications by using selected SCM
software programs internally, as well as externally via intranet and extranet links among suppliers, distributors,
customers, and other trading partners. Companies in this stage also concentrate on expanding the business
network of Web-enabled SCM-capable trading partners in their supply chain to increase its operational efficiency
and effectiveness in meeting their strategic business objectives.
In the third stage, a company begins to develop and implement cutting-edge collaborative supply chain
management applications using advance SCM software, full service extranet links, and private and public e-
commerce exchanges. Examples include collaborative supply chain planning and fulfillment applications like
collaborative product design and delivery, and collaborative planning, forecasting, and replenishment (CPFR). In
addition, collaborative marketing sales, and service applications with trading partners, including customer and
partner relationship management systems, may be developed. Companies in this third stage strive to optimize
the development and management of their supply chains in order to meet their strategic customer value and
business value goals.
[Figure 7.10: Stages in the use of supply chain management.]
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[Figure 7.10: Stages in the use of supply chain management.]
Electronic Commerce Systems

Demystifying E-Procurement: Buy-Side, Sell-Side, Netmarkets, And Trading Exchanges
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Topic 8: Electronic Commerce Systems
T opic Objective:
1. The Scope of E Commerce
2. Essential e-Commerce Processes
3. Electronic Payment Processes
4. e-Commerce Application Trends
5. Business-to- Consumer e-Commerce
6. Web Store Requirements
7. Business-to- Business e-Commerce
8. e-Commerce Marketplaces
Topic Introduction:
E-commerce is changing the shape of competition, the speed of action, and the streamlining of interactions,
products, and payments from customers to companies and from companies to suppliers. For most companies in
the age of the Internet, electronic commerce is more than just buying and selling products online. Instead, it
encompasses the entire online process of developing, marketing, selling, delivering, servicing, and paying for
products and services transacted on internetworked, global marketplaces of customers, with the support of a
worldwide network of business partners. Electronic commerce systems rely on the resources of the Internet,
intranets, extranets, and other technologies to support every step of this process.
Topic Overview:
1. The Scope of E Commerce
Figure 8.1 illustrates the range of business processes involved in the marketing, buying, selling, and servicing of
products and services in companies that engage in e-commerce. Companies involved in e-commerce as either
buyers or sellers rely on Internet-based technologies, and e-commerce applications and services to accomplish
marketing, discovery, transaction processing, and product and customer service processes. For example,
electronic commerce can include interactive marketing, ordering, payment, and customer support processes at
e-commerce catalog and auction sites on the World Wide Web. But e-commerce also includes e-business
processes such as extranet access of inventory databases by customers and suppliers (transaction processing),
intranet access of customer relationship management systems by sales and customer service reps (service and
support), and customer collaboration in product development via e-mail exchanges and Internet newsgroups
(marketing/discovery).
[Figure 8.1: E-commerce involves accomplishing a range of business processes to support the electronic buying and
selling of goods and services.]
Many companies today are participating in or sponsoring three basic categories of electronic commerce
applications: business-to-consumer, business-to-business, and consumer-to-consumer e-commerce.
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Business-to-Consumer (B2C) e-Commerce: In this form of electronic commerce, businesses must
develop attractive electronic marketplaces to entice and sell products and services to consumers. For
example, many companies offer e-commerce websites that provide virtual storefronts and multimedia
catalogs, interactive order processing, secure electronic payment systems, and online customer support.
Business-to-Business (B2B) e-Commerce: This category of electronic commerce involves both

electronic business marketplaces and direct market links between businesses. For example, many
companies offer secure Internet or extranet e-commerce catalog websites for their business customers
and suppliers. Also very important are B2B e-commerce portals that provide auction and exchange
marketplaces for businesses. Others may rely on electronic data interchange (EDI) via the Internet or
extranets for computer-to-computer exchange of e-commerce documents with their larger business
customers and suppliers.
Consumer-to-Consumer (C2C) e-Commerce: The huge success of online auctions like eBay, where
consumers (as well as businesses) can buy and sell with each other in an auction process at an auction
website, makes this e-commerce model an important e-commerce business strategy. Thus, participating
in or sponsoring consumer or business auctions is an important e-commerce alternative for B2C, C2B
(consumer to- business), or B2B e-commerce. Electronic personal advertising of products or services to
buy or sell by consumers at electronic newspaper sites, consumer e-commerce portals, or personal
websites is also an important form of C2C e-commerce.
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2. Essential e-Commerce Processes
The essential e-commerce processes required for the successful operation and management of e-commerce
activities are illustrated in Figure 8.2. This figure outlines the nine key components of an e-commerce process
architecture that is the foundation of the e-commerce initiatives of many companies today. An example would
be an intranet-based human resource system used by a companys employees, which might use all but the
catalog management and product payment processes shown in Figure 8.2.
[Figure 8.2: This e-commerce process architecture highlights nine essential categories of e-commerce processes.]
2.1 Access Control and Security

E-commerce processes must establish mutual trust and secure access between the parties in an e-commerce
transaction by authenticating users, authorizing access, and enforcing security features. For example, these
processes establish that a customer and e-commerce site are who they say they are through user names and
passwords, encryption keys, or digital certificates and signatures. The e-commerce site must then authorize
access to only those parts of the site that an individual user needs to accomplish his or her particular
transactions. Companies engaged in B2B e-commerce may rely on secure industry exchanges for procuring
goods and services, or Web trading portals that allow only registered customers access to trading information
and applications. Other security processes protect the resources of e-commerce sites from threats such as
hacker attacks, theft of passwords or credit card numbers, and system failures.
2.2 Profiling and Personalizing

Once you have gained access to an e-commerce site, profiling processes can occur that gather data on you and
your website behavior and choices, and build electronic profiles of your characteristics and preferences. User
profiles are developed using profiling tools such as user registration, cookie files, website behavior tracking
software, and user feedback. These profiles are then used to recognize you as an individual user and provide you
with a personalized view of the contents of the site, as well as product recommendations and personalized Web
advertising as part of a one-to-one marketing strategy. Profiling processes are also used to help authenticate
your identity for account management and payment purposes, and to gather data for customer relationship
management, marketing planning, and website management.
2.3 Search Management

Efficient and effective search processes provide a top e-commerce website capability that helps customers find
the specific product or service they want to evaluate or buy. E-commerce software packages can include a
website search engine component, or a company may acquire a customized e-commerce search engine from
search technology companies like Excite and Requisite Technology. Search engines may use a combination of
search techniques, including searches based on content (a product description, for example), or by parameters
(above, below, or between a range of values for multiple properties of a product, for example).
2.4 Content and Catalog Management

Content management software helps e-commerce companies develop, generate, deliver, update, and archive
text data and multimedia information at e-commerce websites. E-commerce content frequently takes the form
of multimedia catalogs of product information. So generating and managing catalog content is a major subset of
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content management. Content and catalog management software work with the profiling tools we mentioned
earlier to personalize the content of Web pages seen by individual users.
Finally, content and catalog management may be expanded to include product configuration processes that
support Web-based customer self-service and the mass customization of a companys products. Configuration
software helps online customers select the optimum feasible set of product features that can be included in a
finished product.
2.5 Workflow Management

Many of the business processes in e-commerce applications can be managed and partially automated with the
help of workflow management software. E-business workflow systems for enterprise collaboration help
employees electronically collaborate to accomplish structured work tasks within knowledge-based business
processes. Workflow management in both e-business and e-commerce depends on a workflow software engine
containing software models of the business processes to be accomplished. The workflow models express the
predefined sets of business rules, roles of stakeholders, authorization requirements, routing alternatives,
databases used, and sequence of tasks required for each e-commerce process. Thus, workflow systems ensure
that the proper transactions, decisions, and work activities are performed, and the correct data and documents
are routed to the right employees, customers, suppliers, and other business stakeholders.
2.6 Event Notification

Most e-commerce applications are event-driven systems that respond to a multitude of eventsfrom a new
customers first website access, to payment and delivery processes, and to innumerable customer relationship
and supply chain management activities. That is why event notification processes play an important role in e-
commerce systems, since customers, suppliers, employees, and other stakeholders must be notified of all
events that might affect their status in a transaction. Event notification software works with the workflow
management software to monitor all e-commerce processes and record all relevant events, including
unexpected changes or problem situations. Then it works with user-profiling software to automatically notify all
involved stakeholders of important transaction events using appropriate user-preferred methods of electronic
messaging, such as e-mail, newsgroup, pager, and fax communications. This includes notifying a companys
management so they can monitor their employees responsiveness to e-commerce events and customer and
supplier feedback.
2.7 Collaboration and Trading

This major category of e-commerce processes are those that support the vital collaboration arrangements and
trading services needed by customers, suppliers, and other stakeholders to accomplish e-commerce
transactions. The essential collaboration among business trading partners in e-commerce may also be provided
by Internet-based trading services.
3. Electronic Payment Processes

Payment for the products and services purchased is an obvious and vital set of processes in electronic
commerce transactions. But payment processes are not simple, because of the near-anonymous electronic
nature of transactions taking place between the networked computer systems of buyers and sellers, and the
many security issues involved. Electronic commerce payment processes are also complex because of the wide
variety of debit and credit alternatives and financial institutions and intermediaries that may be part of the
process. Therefore, a variety of electronic payment systems have evolved over time. In addition, new payment
systems are being developed and tested to meet the security and technical challenges of electronic commerce
over the Internet.
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3.1 Web Payment Processes
Most e-commerce systems on the Web involving businesses and consumers (B2C) depend on credit card
payment processes. But many B2B e-commerce systems rely on more complex payment processes based on
the use of purchase orders, as was illustrated in Figure 8.3. However, both types of e-commerce typically use an
electronic shopping cart process, which enables customers to select products from website catalog displays and
put them temporarily in a virtual shopping basket for later checkout and processing. Figure 8.3 illustrates and
summarizes a B2C electronic payment system with several payment alternatives.
[Figure 8.3: Secure Electronic Payment System with many Payment Alternatives.]
3.2 Electronic Funds Transfer

Electronic funds transfer (EFT) systems are a major form of electronic payment systems in banking and retailing
industries. EFT systems use a variety of information technologies to capture and process money and credit
transfers between banks and businesses and their customers. For example, banking networks support teller
terminals at all bank offices and automated teller machines (ATMs) at locations throughout the world. Banks,
credit card companies, and other businesses may support pay-by-phone services. Very popular also are Web-
based payment services, such as PayPal and Bill Point for cash transfers, and Check Free and Pay Trust for
automatic bill payment which enable the customers of banks and other bill payment services to use the Internet
to electronically pay bills. In addition, most point-of sale terminals in retail stores are networked to bank EFT
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systems. This makes it possible for you to use a credit card or debit card to instantly pay for gas, groceries, or
other purchases at participating retail outlets.
3.3 Secure Electronic Payments

When you make an online purchase on the Internet, your credit card information is vulnerable to interception by
network sniffers, software that easily recognizes credit card number formats. Several basic security measures
are being used to solve this security problem: (1) encrypt (code and scramble) the data passing between the
customer and merchant, (2) encrypt the data passing between the customer and the company authorizing the
credit card transaction, or (3) take sensitive information offline.
4. e-Commerce Application Trends

The Web and e-commerce are key industry drivers. Its changed how many companies do business. Its created
new channels for our customers. Companies are at the e-commerce crossroads and there are many ways to
go. Thus, e-commerce is changing how companies do business both internally and externally with their
customers, suppliers, and other business partners. How companies apply e-commerce to their business is also
subject to change as their managers confront a variety of e-commerce alternatives. The applications of e-
commerce by many companies have gone through several major stages as e-commerce matures in the world
of business. For example, e-commerce between businesses and consumers (B2C) moved from merely offering
multimedia company information at corporate websites (brochure ware), to offering products and services at
Web storefront sites via electronic catalogs and online sales transactions. B2B e-commerce, on the other hand,
started with website support to help business customers serve themselves, and then moved toward automating
intranet and extranet procurement systems.
4.1 e-Commerce Trends

Figure 8.4 illustrates some of the trends taking place in the e-commerce applications that we introduced at the
beginning of this section. Notice how B2C e-commerce moves from simple Web storefronts to interactive
marketing capabilities that provide a personalized shopping experience for customers, and then toward a totally
integrated Web store that supports a variety of customer shopping experiences. B2C e-commerce is also
moving toward a self-service model where customers configure and customize the products and services they
wish to buy, aided by configuration software and online customer support as needed.
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[Figure 8.4: Trends in B2C and B2B e-commerce, and the business strategies and value driving these trends]
B2B e-commerce participants moved quickly from self-service on the Web to configuration and customization
capabilities and extranets connecting trading partners. As B2C e-commerce moves toward full-service and wide-
selection retail Web portals, B2B is also trending toward the use of e-commerce portals that provide catalog,
exchange, and auction markets for business customers within or across industries. Of course, both of these
trends are enabled by e-business capabilities like customer relationship management and supply chain
management, which are the hallmarks of the customer-focused and internetworked supply chains of a fully e-
business-enabled company
4.2 e-Commerce Sectors

Another way to look at how companies have moved into e-commerce is to organize present and potential
online services and products into a variety of e-commerce sectors that go beyond simple classifications like B2B
and B2C. Figure 8.5 defines and describes six major e-commerce sectors that companies have chosen or can
choose to operate in as they formulate their e-commerce strategies. Notice how each sector differs in the online
services and products they offer and the key customer values that drive their e-commerce activities. For
example, in the e-commerce infrastructure sector, compatibility, availability, and scalability of online networks
and support services are major value drivers for customers. In the e-commerce content sector, on the other
hand, the accuracy, timeliness, and appeal of online content are key customer value drivers. Examples of
companies that have a major presence in each sector are also shown in Figure 8.5. This should give you a good
idea of some of the major opportunities and challenges facing companies and entrepreneurs who wish to
develop or expand e-commerce services and products.
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[Figure 8.5: The six major sectors of e-commerce activities differ in the online services and products they offer and the
customer values that drive them.]
5. Business-to- Consumer e-Commerce

E-commerce applications that focus on the consumer share an important goal: to attract potential buyers,
transact goods and services, and build customer loyalty through individual courteous treatment and engaging
community features. To create a successful B2C e-commerce business venture create a Web business initiative
that offers attractive products or services of great customer value, and whose business plan is based on realistic
forecasts of profitability within the first year or two of operation a condition that was lacking in many failed
dot-coms. But such failures have not stemmed the tide of millions of businesses, both large and small, that are
moving at least part of their business to the Web. So lets take a look at some essential success factors and
website capabilities for companies engaged in either B2C or B2B e-commerce.
5.1 e-Commerce Success Factors

On the Internet, the barriers of time, distance, and form are broken down, and businesses are able to transact
the sale of goods and services 24 hours a day, 7 days a week, and 365 days a year with consumers all over the
world. In certain cases, it is even possible to convert a physical good (CDs, packaged software, a newspaper) to
a virtual good (MP3 audio, downloadable software, information in HTML format).
A basic fact of Internet retailing (e-tailing) is that all retail websites are created equal as far as the location,
location, location imperative of success in retailing is concerned. No site is any closer to its Web customers and
competitors offering similar goods and services may be only a mouse click away. This makes it vital that
businesses find ways to build customer satisfaction, loyalty, and relationships, so customers keep coming back
to their Web stores. Thus the key to e-tail success is to optimize several key factors such as selection and value,
performance and service efficiency, the look and feel of the site, advertising and incentives to purchase, personal
attention, community relationships, and security and reliability.
Selection and Value: Obviously, a business must offer Web shoppers a good selection of attractive
products and services at competitive prices or they will quickly click away from a Web store. But a
companys prices dont have to be the lowest on the Web if they build a reputation for high quality,
guaranteed satisfaction, and top customer support while shopping and after the sale.
Performance and Service: People dont want to be kept waiting when browsing, selecting, or paying in
a Web store. A site must be efficiently designed for ease of access, shopping, and buying, with sufficient
server power and network capacity to support website traffic. Web shopping and customer service must
also be friendly and helpful, as well as quick and easy. In addition, products offered should be available in
inventory for prompt shipment to the customer.
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Look and Feel: B2C sites can offer customers an attractive Web storefront, shopping areas, and
multimedia product catalogs. These could range from an exciting shopping experience with audio, video,
and moving graphics, to a more simple and comfortable look and feel. Thus, most retail e-commerce sites
let customers browse product sections, select products, drop them into a virtual shopping cart, and go to
a virtual checkout station when they are ready to pay for their order.
Advertising and Incentives: Some Web stores may advertise in traditional media, but most advertise
on the Web with targeted and personalized banner ads and other Web page and e-mail promotions. Most
B2C sites also offer shoppers incentives to buy and return. Typically, this means coupons, discounts,
special offers, and vouchers for other Web services, sometimes with other e-tailors at cross-linked
websites. Many Web stores also increase their market reach by being part of Web banner advertising
exchange programs with thousands of other Web retailers. Figure 8.6 compares major marketing
communications choices in traditional and e-commerce marketing to support each step of the buying
process.
[Figure 8.6: How traditional and Web marketing communications differ in supporting each step of the buying process.]
Personal Attention: Personalizing your shopping experience encourages you to buy and make return
visits. Thus, e-commerce software can automatically record details of your visits and build user profiles of
you and other Web shoppers. Many sites also encourage you to register with them and fill out a personal
interest profile. Then, whenever you return, you are welcomed by name or with a personal Web page,
greeted with special offers, and guided to those parts of the site that you are most interested in. This one-
to-one marketing and relationship building power is one of the major advantages of personalized Web
retailing.
Community Relationships: Giving online customers with special interests a feeling of belonging to a
unique group of like-minded individuals helps build customer loyalty and value. Thus, website relationship
and affinity marketing programs build and promote virtual communities of customers, suppliers, company
representatives, and others via a variety of Web-based collaboration tools. Examples include discussion
forums or newsgroups, chat rooms, message board systems, and cross-links to related website
communities.
Security and Reliability: As a customer of a successful Web store, you must feel confident that your
credit card, personal information, and details of your transactions are secure from unauthorized use. You
must also feel that you are dealing with a trustworthy business, whose products and other website
information you can trust to be as advertised. Having your orders filled and shipped as you requested, in
the time frame promised, and with good customer support are other measures of an e-tailers reliability.
6. Web Store Requirements

Most business-to-consumer e-commerce ventures take the form of retail business sites on the World Wide Web.
Whether a huge retail Web portal like Amazon.com, or a small specialty Web retailer, the primary focus of such
e-tailers is to develop, operate, and manage their websites so they become high-priority destinations for
consumers who will repeatedly choose to go there to buy products and services. Thus, these websites must be
able to demonstrate the key factors for e-commerce success that we have just covered.
6.1 Developing a Web Store

Before you can launch your own retail store on the Internet, you must build an e-commerce website. Many
companies use simple website design software tools and predesigned templates provided by their website
hosting service to construct their Web retail store. That includes building your Web storefront and product
catalog Web pages, as well as tools to provide shopping cart features, process orders, handle credit card
payments, and so forth. Of course, larger companies can use their own software developers or hire an outside
website development contractor to build a custom-designed e-commerce site. Also, like most companies, you
can contract with your ISP (Internet service provider) or a specialized Web hosting company to operate and
maintain your B2C website.
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Once you build your website, it must be developed as a retail Web business by marketing it in a variety of ways
that attract visitors to your site and transform them into loyal Web customers. So your website should include
Web page and e-mail advertising and promotions for Web visitors and customers, and Web advertising exchange
programs with other Web stores.
6.2 Serving Your Customers

Once your retail store is on the Web and receiving visitors, the website must help you welcome and serve them
personally and efficiently so that they become loyal customers. So most e-tailers use several website tools to
create user profiles, customer files, and personal Web pages and promotions that help them develop a one-to-
one relationship with their customers. This includes creating incentives to encourage visitors to register,
developing Web cookie files to automatically identify returning visitors, or contracting with website tracking
companies and others for software to automatically record and analyze the details of the website behavior and
preferences of Web shoppers.
6.3 Managing a Webstore

A Web retail store must be managed as both a business and a website, and most e-commerce hosting
companies offer software and services to help you do just that. Web hosting companies must enable their Web
store clients to be available online twenty-four hours a day and seven days a week all year. This requires them
to build or contract for sufficient network capacity to handle peak Web traffic loads, and redundant network
servers and power sources to respond to system or power failures. Most hosting companies provide e-
commerce software that uses passwords and encryption to protect Web store transactions and customer
records, and employ network fire walls and security monitors to repel hacker attacks and other security threats.
Many hosting services also offer their clients twenty-four hour tech support to help them with any technical
problems that arise.
7. Business-to- Business e-Commerce

Business-to-business electronic commerce is the wholesale and supply side of the commercial process, where
businesses buy, sell, or trade with other businesses. B2B electronic commerce relies on many different
information technologies, most of which are implemented at e-commerce websites on the World Wide Web and
corporate intranets and extranets. B2B applications include electronic catalog systems, electronic trading
systems such as exchange and auction portals, electronic data interchange, electronic funds transfers, and so
on. All of the factors for building a successful retail website we discussed earlier also apply to wholesale websites
for business-to-business electronic commerce.
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In addition, many businesses are integrating their Web-based e-commerce systems with their e-business
systems for supply chain management, customer relationship management, and online transaction processing,
as well as to their traditional, or legacy, computer-based accounting and business information systems. This
ensures that all electronic commerce activities are integrated with e-business processes and supported by up-to-
date corporate inventory and other databases, which in turn are automatically updated by Web sales activities.
8. e-Commerce Marketplaces
The latest e-commerce transaction systems are scaled and customized to allow buyers and sellers to meet in a
variety of high-speed trading platforms: auctions, catalogs, and exchanges. Businesses of any size can now buy
everything from chemicals to electronic components, excess electrical energy, construction materials, or paper
products at business-to-business e-commerce marketplaces. Figure 8.7 outlines five major types of e-
commerce marketplaces used by businesses today. However, many B2B e-commerce portals provide several
types of marketplaces. Thus they may offer an electronic catalog shopping and ordering site for products from
many suppliers in an industry. Or they may serve as an exchange for buying and selling via a bid-ask process, or
at negotiated prices. Very popular are electronic auction websites for business-to-business auctions of products
and services. Figure 8.8 illustrates a B2B trading system that offers exchange, auction, and reverse auction
(where sellers bid for the business of a buyer) electronic markets.
[Figure 8.7: Types of e-commerce marketplaces.]
[Figure 8.8: This is an example of a B2B e-commerce Web portal that offers exchange, auction, and reverse auction
electronic markets.]
Many of these B2B e-commerce portals are developed and hosted by third party market-maker companies who
serve as infomediaries that bring buyers and sellers together in catalog, exchange, and auction markets.
Infomediaries are companies that serve as intermediaries in e-business and e-commerce transactions. Examples
are Ariba, Commerce One, VerticalNet, and FreeMarkets, to name a few. All provide e-commerce marketplace
software products and services to power their Web portals for e-commerce transactions.
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These B2B e-commerce sites make business purchasing decisions faster, simpler, and more cost effective, since
companies can use Web systems to research and transact with many vendors. Business buyers get one-stop
shopping and accurate purchasing information. They also get impartial advice from infomediaries that they cant
get from the sites hosted by suppliers and distributors. Thus, companies can negotiate or bid for better prices
from a larger pool of vendors. And of course, suppliers benefit from easy access to customers from all over the
globe. Figure 8.8 illustrates the huge B2B procurement marketplaces formed by consortiums of major
corporations in various industries to trade with their thousands of suppliers.
[Figure 8.8: Examples of the B2B procurement marketplaces formed by major corporations in various industries.]
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Topic 9: Demystifying E-Procurement: Buy-Side, Sell-

Side, Netmarkets, And Trading Exchanges
T opic Objective:
1. Evolution of e-Procurement Models
2. Trading Exchanges
3. Industry Consortiums: Joint-Venture Procurement Hubs
4. Evolution of Procurement Processes
5. e-Procurement Infrastructure: Integrating Ordering, Fulfillment, and Payment
6. e-Procurement Analysis and Administration Applications
7. A Roadmap for e-Procurement Managers
Topic Introduction:
Inefficient and maverick buying habits, redundant business processes, and the absence of strategic sourcing are
symptoms of poor procurement practices. For todays industrial-age companies to become tomorrows e-
business leaders, their current procurement practices must change. As with any successful e-business effort,
efficient procurement strategies integrate a companys business work flow with a robust application
infrastructure. An effective procurement strategy reduces the amount of paperwork a firms employees must
complete and lets them focus on their job instead.
The spread of e-commerce is changing the procurement landscape. The rise of Internet trading exchanges (ITE)
represents one of the most exciting market developments of recent years. These exchanges alter the process
by which raw materials and supplies are procured and supply chains are integrated. Businesses are using
exchanges to automate and streamline their requisition, approval, fulfillment, and payment work flows.
Topic Overview:
1. Evolution of e-Procurement Models
The e-procurement marketplace is still young; however, the new business models required to serve this market
are evolving rapidly. Table 9.1 lists the seven basic types of e-procurement trading models in use and shows
their key differences. Note that each of the trading exchanges described in Table 9.1 can also be categorized as
either a public or a private exchange. Private exchanges can vary widely in size, ranging from a single company
automating its procurement function with its suppliers to a large, complex exchange, such as the online auto
parts exchange, Covisint, created by GM, Ford, and DaimlerChrysler.
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[Table 9.1: Comparison of Various e-Procurement Models]
Public exchanges are most often referred to as portals. In these portals, a company or a group of companies list
products or services for public consumption. Public exchanges vary in the degree of value they provide, ranging
from product catalogs, order processing and approvals, to fulfillment management and customer care.
1.1 Pre-Internet Era: EDI Networks

Historically, large businesses have realized time and cost savings by linking with their major suppliers through
private networks commonly referred to as electronic data interchanges, or EDIs. These systems automate the
procurement process, support automatic inventory replenishment, and tighten the relationship between buyers
and their primary suppliers.
Because EDI was originally based on a companys private network, it required large capital outlays to implement,
and adding each new supplier was costly. Smaller firms, unable to afford these costs, are prevented from
establishing EDI connections as either buyers or suppliers. Thus, the savings accrued from implementing EDIs has
been limited to large firms. EDI and extranets tend to operate best in strategic partnerships, specialized
relationships, and rigid performance contracts. They dont do well in the open sourcing and flexible supply chain
world.
1.2 B2E: Purchasing and Requisitioning Applications

Corporate purchasing worldwide is undergoing major structural change. The concept of implementing employee
self-service procurement can seem futuristic when the majority of businesses are just now becoming
comfortable using an office e-mail system. However, these next-generation procurement applications are taking
hold in corporations.
Desktop requisitioning enables employees to purchase the products and services they need online. By hooking
up the corporate intranet to a companys suppliers Web-based commerce sites, a company can eliminate the
paper-intense and costly purchasing process of traditional business. A companys buy-side software routes an
employees online purchase requests internally before they are turned into purchase orders and sent to the firms
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supplier. Consolidating the purchasing process with a few key suppliers capable of providing volume discounts
can generate tremendous cost savings.
1.3 Corporate Procurement Portals

After realizing the benefits of automating their requisitioning processes, many companies, particularly those with
significant purchasing power like IBM, are choosing to implement procurement portals for buying both
production-related and nonproduction-related goods. Production goods include all the raw materials,
components, assemblies, and other items needed to produce a finished item. Nonproduction goods are items
that businesses need to run day today business operations, as identified in Table 10.2.
[Table 9.2: Types of Operating Resources]
[Table 9.3: Production- versus Nonproduction-Related Items]
Procurement portals do a lot more than basic purchasing. Until now, the terms purchasing and procurement
have been used almost interchangeably. However, they differ significantly in their scope. Purchasing refers to the
buying of materials and all activities associated with the buying process. Electronic purchasing addresses only one
relatively minor aspect of the procurement problems companies face.
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[Figure 9.2: The e-Procurement Chain]
Procurement, on the other hand, is broadly defined to include a companys requisitioning, purchasing,
transportation, warehousing, and in-bound receiving processes. Procurement is a closed-loop process that
begins with the product requisition and ends once the invoice for the product is paid. Integrated procurement
remains one of the truly significant business strategies, but its full potential could not be realized, given the
technological limitations.
Early integrated procurement strategies sought to reengineer, even dismantle, traditional, hierarchically
structured purchasing organizations. Many of these organizations had layer upon layer of approval procedures
that slowed down the purchasing process. More recent procurement strategies focus on restructuring the entire
order-to-delivery process rather than on specific tasks within the process.
The paper-based purchasing models of the industrial era are being replaced by the more effective online
procurement practices. The new procurement models leverage a nearly ideal combination of volume
advantages, flexible contracts, and valuable supplier alliances, along with decentralized, user-initiated, and user
responsive purchases.
e-Procurements benefits fall into two major categories: efficiency and effectiveness. e-Procurements efficiency
benefits include lower procurement costs, faster cycle times, reduced maverick or unauthorized buying, well-
organized reporting information, and tighter integration of the procurement function with key back-office
systems. e-Procurements effectiveness benefits include the increased control over the supply chain, proactive
management of key data, and higher quality purchasing decisions within organizations.
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Many companies are implementing e-procurement strategies concurrently with their integrated supply chain
efforts. The Web provides the technological basis for achieving the supply and procurement chain management
most firms seek. However, for many companies, development of a truly effective integrated procurement
strategy is still far in the future. Relatively few firms have a clear vision of what a company must achieve when
reengineering and integrating their procurement processes. Furthermore, no good roadmap exists for how such
integration is to be achieved or what the ultimate destination is.
2. Trading Exchanges
2.1 First Generation: Communities, Storefronts, and RFP/RFQ Facilitators

First-generation trading exchanges are information and content hubs: content communities that seek to attract
any business professional responsible for researching and purchasing industry-related goods and services. These
exchanges function like online trade magazines, offering daily insights into an industry and providing industry
news and trends, product information, directories of industry participants, classifieds, and white papers. Other
community-building mechanisms used by trading exchanges include chat rooms, discussion forums, bulletin
boards, and career centers.
Advertising is a trading exchanges primary revenue source, given the highly focused nature of the communitys
participants. Advertising revenues include annual storefront fees, banner advertising, and event sponsorship.
Some communities charge a subscription fee for membership. These e-markets can also receive lead-generation
fees for product sales resulting from storefront traffic.
VerticalNet offers its customers a comprehensive content package and facilitates the development of online
storefronts for its supplier participants. Vertical- Nets revenue model is dominated by advertising revenue related
to the sale of online storefronts, sponsorships, and banner advertising. The liquidity, or participation, in
VerticalNets community and content e-markets is expected to grow over the next few years, owing to its
recent alliance with Microsoft, which has committed to purchasing 80,000 storefronts. VerticalNet has also
begun to capitalize on its targeted audience of small to midsize business communities by moving into e-
commerce activities. VerticalNet is migrating from the advertising model to a transaction model.
Another form of the first-generation trading exchange is the Request for Proposal (RFP) and Request for Quote
(RFQ) facilitator exchange, which operates a centralized online marketplace. In this marketplace a preapproved
group of suppliers submit fixed-priced, sealed bids in response to real-time RFQs issued by a buyer. The RFQs
include both high-level and detailed requirements the supplier must satisfy. The exchange buyers do not
necessarily select the lowest-priced bidder but opt for the supplier that best meets their specifications at a
competitive price. The revenues generated by market makers using the RFQ/seal-bid mechanism can include
subscription fees, fees for bids to be read, and transaction fees for bids submitted and/or successfully chosen.
Figure 9.2 illustrates the various vertical and horizontal marketplaces. Vertical marketplaces serve a specific
industry, such as energy, hospitality, paper, and so on. These marketplaces focus on understanding industry
practices and resolving industry pain points, that is, inefficiencies that lower margins. Vertical marketplaces
automate supply chains by digitizing and normalizing product catalogs, creating market liquidity by developing
facilitator exchanges.
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[Figure 9.2: Horizontal versus Vertical Communities]
Horizontal markets, by contrast, span multiple industries. Horizontal marketplaces seek to make the
procurement of common services more efficient because the audiences they address and the goods and
services bought and sold over them are common to many industries. Horizontal market makers provide a venue
for transacting such goods and services as MRO supplies, logistics services, media buying, outsourced human
resources services, temporary workers, and excess inventory and excess capital equipment.
2.2 Second Generation: Virtual Distributors and Auction Hubs

A common criticism of first generation exchangesthat they were an inch deep and a mile wide. As a result,
content hubs are giving way to transaction hubs. Building a sense of industry community is a necessary but
insufficient condition for creating a successful trading exchange. To succeed, an exchange must enable its
participants to buy and sell products. Second-generation trading exchanges focus on obtaining their revenue
from each buying and selling transaction that occurs within the exchange. Examples of these trading exchanges
are virtual distributors and auction hubs.
Virtual distributors (VDs) offer one-stop shopping for a fragmented buyer and seller community by pulling
together disparate product information from multiple catalogs and from multiple suppliers and/or manufacturers
into one mega catalog. VDs generally do not carry any inventory or distribute products. Instead, they assist
buyers in arranging for third-party carriers to transport the ordered goods. VDs help streamline the sourcing of
direct goods, and thus lower transaction costs, by issuing a single purchase order and then parsing the order to
each relevant supplier that ships the product direct. Many VDs are enriching the mix of services they offer, such
as designing their software so that it integrates with a companys back-office operations, from order taking to
inventory tracking.
Auction hubs are becoming a popular sales channel for spot buying unique items, such as used equipment,
surplus inventory, and perishable goods. These hubs function similarly to a stock market. Buyers and sellers
meet, usually anonymously, to agree on prices on commodities, such as raw materials, energy, or
telecommunications capacity. These hubs can be driven either by sellers which runs forward auctions of
advertising space on the Web and other media, or by buyers, such as FreeMarkets, which does reverse auctions
of industrial materials and equipment.
Auctions are of two types: forward and reverse. Forward auctions allow a multitude of buyers to bid for
products/services from an individual seller on a competitive basis at below market prices. Forward auctions tend
to be seller-centric. In this model, prices move only up. The seller lists the product or service offered, and bidders
bid until a set time has elapsed. Before the auction begins, the seller sets a reserve pricea price that must be
met for the seller to selland indicates whether he or she is willing to accept a partial-lot bid. If the bids fail to
reach the sellers asking, or reserve, price, the seller is not obligated to sell the product or service. Auctions are
commonly used as a mechanism for liquidating surplus inventory at the best possible prices.
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In reverse auctions, or open-bid systems, buyers list the products or services they desire, and prequalified sellers
bid on fulfilling the need. Reverse auctions last until a preset time has elapsed. The buyer is then obligated to
purchase from the lowest bidder. Reverse auctions are the opposite of forward auctions, as prices move only
downward. Reverse auctions are well suited for industries with fairly high fragmentation on the supply side and
are also effective for industries that trade one-of-kind, nonstandard, customized products. Auction hubs can be
independent dot-coms or backed by major industry players, but remaining neutral is key to their success.
2.3 Third Generation Trading: Collaboration Hubs

Transaction hubs are giving way to integration and collaboration hubs. These types of trading exchanges do far
more than provide transaction functionality to participating companies, helping companies with end-to-end
management of their supply chains. Collaboration hubs seek to create one common platform to enable all
participants in an industry supply chain to share information, conduct business transactions, and collaborate on
strategic and operational planning. The problem they are trying to solve is supply chain bloat: Most supply chains
are overloaded with excess inventory because predicting the right product mix and inventory levels is difficult to
manage correctly. As a result, the channel participantsraw-material providers, manufacturers,
importers/exporters, distributors, and dealerscould better match production with demand, reducing excess
inventories in the channel and speeding up cycle times. Collaborative hubs, in effect, attempt to substitute real-
time, accurate information for inventory. Collaborative hubs provide value-added services to continuously
increase site stickiness, generate multiple revenue streams, and increase competitive barriers to entry. A
collaborative hub must provide such services in order to sustain its market advantage and leadership. Additional
value-added service hubs often include:
Integrated commerce technology that automates transaction processing and that can incorporate static
pricing and/or dynamic pricing mechanisms.
Brokering services that offer logistic and financial services, including shipping, warehousing, credit, and
insurance.
Service and support, including customer service support, returns processing, and warranty coverage.
Collaboration hubs promise to enable supply chains to attain new levels of cooperation and information sharing
whereby partners collaborate on strategic and operational planning. Collaboration efforts may include product
planning and design, demand forecasting, replenishment planning, and pricing and promotional strategies. Of key
importance is the role hubs play in recording historical trading data that can be analyzed in order to improve
planning and forecasting, thus enabling further compression of the design and development cycle.
3. Industry Consortiums: Joint-Venture Procurement Hubs

Industry titans are striking back. They are tired of being typecast as dinosaurs, which are going to be extinct.
Larger firms have responded to the competitive threat posed by new start-ups by forming either buyers or
suppliers. In a buyer consortium, a group of large companies combine their buying power to drive down prices.
An industrys traditional leaders have two significant advantages over Net-born start-ups when creating trading
exchanges for high-volume commodity goods: instant commercial activity and liquidity. For example, the oil and
gas industry consortium, PetroCosm, has Chevron and Texaco as its anchor tenants.
Supplier-sponsored consortiums have begun to emerge in response to start-up exchanges and buyer
consortiums. Similar to their buyer-centric relatives, supplier consortiums are forming in industries in which a few
firms represent the highest concentration of market power. The big difference, however, is that supplier
consortiums must give their sponsors the opportunity to promote and to differentiate the suppliers products.
The consortium must also provide an environment that compels buyers to purchase these products by
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aggregating the industrys key suppliers and providing significant levels of product depth, breadth, selection, and
service.
Supplier consortiums are not new. The airline industrys Sabre is a successful example. The Sabre consortium
forged links with travel agents, but over time, the airlines lowered the commissions paid to agents. More
recently, the airlines started competing with the new infomediaries, such as Expedia, and several airlines have
created Orbitz.com, a Web site that will offer discounted fares exclusively.
How successful industry consortiums will be remains to be seen. Major issues related to consortium governance,
technology, and antitrust concerns must be addressed. In order to resolve the governance issue, the traditional
competitors must form an independent company that promotes the interests of all the consortiums
participants. The technology issue relates to that of governance. With powerful traditional competitors, each with
its own technology standards and systems, finding a common technological ground will be difficult. The new
company will be twisting in the wind, trying to satisfy the requirements of all the members. Finally, the antitrust
issue is a concern whenever cooperation among industry-specific giants is discussed. Many fear that collusion
between dominant players will be at the expense of the industrys smaller firms. Other business issues these
exchanges must confront are:
Under what conditions other industry players will be allowed to join an exchange once it is established.
Who is going to own, manage, and leverage the aggregated market data collected during the course of
market operations.
What range of services and prices exchanges will offer.
How the exchange will maintain neutrality to avoid charges of collusion
In short, technology is no replacement for management or governance. These core business, legal, and ethical
issues must be addressed before these exchanges can truly succeed.
4. Evolution of Procurement Processes

Before an e-procurement solution can be deployed, a company must undergo significant procurement process
reengineering. Automating an existing procurement mess will only make matters worse. The various e-
procurement models all attempt to solve similar business process problems. These include the fragmentation of
channels, managing by exception rather than by transaction, controlling maverick buying by automating the
requisitioning process, and the integration of end-to-end processes.
A company must first clearly define the business problems its e-procurement solution is intended to address. e-
Procurement initiatives can suffer from the same hype as e-commerce in general. Although many companies say
that they want to implement an e-procurement strategy, they often do not know why. e-Procurement initiatives
address a number of core business problems.
4.1 Reducing Channel Fragmentation

Maverick buying, inefficient processes, and nonstrategic sourcing are all symptoms of channel fragmentation.
Most procurement processes are paper-intensive. For example, a large semiconductor manufacturer requires
employees to fill out a paper form that has three copies. Employees keep a copy and give one to the purchasing
department, which faxes a copy to the supplier. The supplier fills the order and ships it. The supplier collects these
order forms, totals the charges, and bills the manufacturer. This process is neither efficient nor cheap for either
party. Chances are, your company spends far more on PO administration than it does on the goods it
purchases.
Maverick buying occurs when employees buy products on their own, often charging the items they purchase to
their corporate credit cards .As a result, the employees miss out on the volume discounts their companies
arrange with preferred providers of products and services. Apart from the missed discounts, the additional
administrative effort required to process these nonstandard purchases costs organizations an incredible sum.
Fragmentation can also occur during order fulfillment. Seldom is every product delivered on time, and incorrect,
partial, and back orders are fairly common. The customer must attempt to track the status of the order with the
supplier through multiple offline channels.
As Figure 10.3 illustrates, the procurement inefficiencies resulting from channel fragmentation are astounding.
Purchasing managers have a growing awareness of how to reduce maverick buying and to improve company
profits. These managers know that they must reduce the need to service small-dollar orders by focusing on new
and better contracts, obtain better purchasing information for contract negotiations, and negotiate with the
knowledge of what has been purchased in the past. An e-procurement solution not only reduces off-contract
buying but also frees purchasing to concentrate on strategic tasks, such as better contracting.
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[Figure 9.3: Channel Fragmentation Leading to Procurement Chaos]
4.2 Hands-Free Procurement: Managed by Exception

Todays companies seek to transition the managed-by-transaction business model to the manage-by-exception
model. Figure 9.4 illustrates hands-free procurement as the central business objective of e-procurement
initiatives. The primary benefits are automating the mundane, eliminating the paperwork, and eliminating hidden
procedures and other obstacles that keep employees from doing their real, productive jobs. Instead of dealing
with the transaction process, employees can focus on completing their work.
[Figure 9.3: Hands-Free Procurement]
5. e-Procurement Infrastructure: Integrating Ordering, Fulfillment, and Payment

The end-to-end procurement process comprises three separate work flows: the order work flow, the fulfillment
work flow, and the payment work flow. These processes need to be supported by customer service and
backward integration to accounting systems.
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5.1 Ordering: Self-Service Requisitioning
In a traditional purchase process, an employee ordering something must fill out a requisition form, submit it, wait
for it to be approved, and receive a purchase order, which must then be sent to the supplier. Most organizations
have many procurement guidelines and rules that employees must follow but that are increasingly archaic given
the technological options available today. At many companies, little help is available from the purchasing
department, and purchase orders can take weeks to fulfill. The new generation of procurement software
automates everyday business purchases by using efficient Web-based applications.
[Figure 9.5: Three Critical Process Flows]
Self-service order work flow functions enable transactions to take place and to clear once customers click the
Buy button. Order work flows include the steps in the purchase order process through approval routing. Once a
requisition is submitted, its routed for approval based on the companys business rules. The approvers are
notified of any pending approval requests via e-mail and can choose to approve, reject, or forward the request
to another approver. Approver spending limits are also monitored and enforced, minimizing fraud during the
approval routing process.
Figure 9.6 depicts the buyer side of the requisition process in greater detail. Using the softwares easy point-and-
click interface, employees can create, submit, and track several types of requisitionsincluding catalog, off-
catalog, blanket, and preauthorized purchasesright from their desktops. Preapproved shopping lists speed
ordering supplies for new employees or for repeat purchases. The interface must be powerful enough to meet
the needs of a broad range of users, including casual users, purchasing professionals, and system administrators.
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[Figure 9.6: The Buy-Side Requisitioning Process]
Secure personal login: Each requisitioner is given a secure personal login code containing user profile
information, such as job title, default department, accounting codes, and default ship-to and bill-to
information. These profiles are also used to customize the softwares screen display so that requisitioners
can access and order only those catalog items they are authorized to purchase.
Browse authorized supplier catalogs: Requisitioners can use powerful search and browse capabilities
to peruse multiple supplier catalogs. Catalog information can be viewed for a specific supplier or by
functional product category across all suppliers. Only contracted products and prices are shown.
Purchasing administrators can add product detail to help steer requisitioners to preferred products or to
indicate which products require approval prior to purchasing. Requisitioners can also order services and
place requests for nonstandard product sourcing.
Create requisition/order: When using self-service requisition software, requisitions are created in real
time and can include products from one or more suppliers. Requisitioners can then add products to a
requisition by searching the product catalog or by adding products from their personal favorite product list.
In addition, requisitioners can copy existing orders and modify them for requisitions that approximate past
purchases, further speeding the process.
Submit requisition/order: Payment options that procurement software supports include a blanket
purchase order, a new purchase order number, or procurement/credit card, limited by what each supplier
accepts. Requisitions that fall within the companys purchase controls are broken out into one purchase
order per supplier and sent to the appropriate supplier for fulfillment.
Enforce purchase controls and approvals: A companys purchasing managers should control which
products are available for purchase by employees, where these products can be purchased, and who has
responsibility for approving an order. With these controls in place, purchasing managers can then choose
which level of empowerment makes sense. Embedded purchase controls ensure that requisitioners cannot
purchase restricted items or place orders beyond specific limits, such as a stated dollar amount per order
or dollar amount per period.
Requisitions that violate purchase controls are required to be routed for approval to the appropriate individual or
group. Usability is critical in self-service applications. Every e-procurement solution must be designed for casual
use by untrained employees. If users dont like the system, the whole application will fail. Even if users love the
system for various reasons, such as ease of use, it must also meet the needs of the companys purchasing
managers. Its behind-the-scenes operations must provide extensive support for the companys professional
buyers, including management controls, reporting, and integration with existing systems.
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5.2 Fulfillment: Order Management and Supplier Integration
Electronic linkages between trading partners back-office systems expedite order entry, order fulfillment, and
status inquiries. In addition to the ability to place orders with suppliers via electronic data input, fax, or e-mail, a
procurement system should provide a seamless transition from requisition to purchase order, with no rekeying
of orders. Fulfillment work flow includes the following steps:
Order dispatch: Cross-supplier requisitions are broken down into one purchase order per supplier and
sent to each supplier via a range of order formats to match the suppliers preferred method of receipt.
Copies of the purchase orders are sent to the purchasing system for reporting and tracking. As the orders
are fulfilled, suppliers send back an order acknowledgment, the orders status, and shipment notifications.
Accounting back-office systems connectivity: Procurement touches virtually every aspect of an

organization and the software systems used to run it. Unless a procurement system can elegantly
integrate with existing corporate financial, production, distribution, and human resource applications,
duplicate efforts will be required to maintain the same data in multiple systems. Instead of tedious, time-
consuming, and error-prone data entry, the accounting information is converted and exported in real time
to an ERP system.
Supplier connectivity: These applications streamline and automate all interactions between a company
and its suppliersfrom creating and updating catalog pages to issuing purchase orders directly to the
suppliers systems. In order to better manage the movement of resourcesmaterials, services,
knowledge, or laborthrough the procurement chain, successful firms have created direct linkages with
their suppliers. These direct links remove the rigid barriers that have historically dominated outmoded
procurement practices.
Order tracking: Requisitioners are notified via e-mail of an orders status, including whether the order
has been approved, an order acknowledgment from the supplier, and the orders shipment status. With
most Web-based procurement applications, requisitioners can also access online order status information
to review detailed order and line-item status histories.
Receiving: The receiving functionality is used to track delivered goods and services from suppliers.
Receiving is responsible for storing/staging inbound items and initial quality and quantity checks. For each
delivery from a vendor, a record of receipt is entered into the corresponding purchase order. As products
are received, the quantity received is entered into the corresponding PO line item in one of three ways:
enter the quantity received for a single line item; mark the line item as completely received; mark the
entire PO as fully received. The quantity received for all line items will automatically be entered as the
quantity ordered.
Receiving, in turn, kicks off the payment work flow. The accounts payable department is responsible for
processing the invoices received from suppliers and then releasing payment to those suppliers under agreed-on
terms.
5.3 Payment: Invoice Management

No company can afford to survive without monitoring payments and open invoices. Although such services and
features can be brokered to third-party providers, it is the responsibility of the market sponsor to create the
payment work flow. The software should also support billing, shipping status, and term contracts functionality so
that the procurement processfrom order placement to order fulfillmentis one integrated, end-to-end service.
The specific functionality in the payment work flow includes:
Invoicing and billing: This module is designed to look after all aspects of entering and processing
invoices from multiple suppliers. The long-term recording of all incoming and outgoing invoices allows you
to check all invoices. In addition, payment conditions for customers and suppliers are stored so that they
can be accessed by other programs. The billing system provides the mechanisms for billing account
management, including functionality that enables such tasks as account setup, product subscriptions,
statement processing, and account review.
Payment: Payment processing is a key component of any successful procurement software package.
The softwares payment module must support extended capabilities, such as credit card processing,
providing line of credit, placing payments in escrow, withholding taxes, and any cross-border trade
requirements that apply in order for the full potential of e-procurement best practices to be realized.
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Reporting: Solid, accurate reporting of information is the key to process optimization and cost
reduction. A good procurement system should track what was purchased, by whom, from whom, at what
price, and how long it took to complete each step of the cycle. This information is invaluable when
negotiating with suppliers and for month-end reconciliation.
6. e-Procurement Analysis and Administration Applications

Buy-side functionality alone is not enough. Procurement professionals also need more sophisticated technology
to increase their effectiveness and to extend their responsibilities beyond their traditional role in purchasing direct
production materials and shop-floor MRO spending.
Figure 9.7 illustrates the detailed requirements for succeeding as a procurement professional. The core
competency of a successful and effective procurement strategy is the application of spending analysis and
planning across the entire spectrum of procurement activities.
[Figure 9.7: Detailed Breakdown of Functionality for the Procurement Professional]
Spending analysis and procurement planning provide the procurement professional with the information needed
to purchase wisely and to measure the cost savings. Spending analysis and procurement planning include the
following functions:
Data collection: Professional buyers need to collect and to generate comprehensive data on all
purchasing activities, such as spending to date against budget, spending pending approval, activity by
geography, supplier on-time delivery compliance, items received, and weekly, monthly, quarterly, and
annual historical spending data.
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Market analysis: A thorough market analysis helps buyers to better understand their spending, their
business requirements, and their market. Procurement professionals use predefined, procurement-centric
online analytic processing (OLAP) reports to view the vast amount of data collected for forecasting, trend,
and what-if analyses. This reporting and analytic capability provides organizations with the ability to
interpret their transaction data in ways that are most productive for them. Figure 9.8 illustrates the key
objectives of any multidimensional market analysis.
[Figure 9.8: Objectives of Market Analysis]
Supplier management decisions: Management can use a variety of criteria to analyze transaction data
in useful ways and for making informed decisions. Typical supplier management decisions include
determining which products to include in a given catalog, whether to restrict the procurement of certain
goods to meet fiscal and business imperatives, or renegotiating volume contracts for more favorable
discounts. Without such procurement intelligence and visibility, purchasing professionals have a more
difficult task when interpreting business data and making decisions that benefit the company.
Configuration of spending controls: No data, analytical tool, and decision support capability is useful if
the procurement professionals within a firm cannot reconfigure their companys spending controls in real
time. Today, the horizon for completing purchasing transactions is relatively short1 to 2 weeksmaking
the ability to enact process controls quickly. Professional buyers must be able to change catalogs and the
procurement work flow in real time so that spending patterns can be altered to meet a firms purchasing
and business imperatives. In other words, a companys buyersnot its IT departmentmust control the
procurement process.
Continuous feedback: In order to close the spending-analysis loop, procurement professionals must be
able to view, in real time, the results of their process controls through subsequent data collection and
analysis. This feedback allows them to further refine the controls theyve implemented, if necessary.
Clearly, procurement administration is central. If you dont know where your firms money is spent, it is
impossible to get control over your procurement process. Automating procurement processes alone does not
provide the depth of data collection, reporting, analysis, and control that companies must have in order to
implement best practices across a global enterprise. Without the ability to measure, control, and provide
continuous feedback to the procurement process, its extremely difficult to measure the processs performance.
7. A Roadmap for e-Procurement Managers

Managing a procurement chain is a little like playing chess. There are many components on your procurement
chain chessboard, and you must move all of the pieces strategically to win.
Chief procurement officers (CPOs) are looking to deliver the maximum business impact at the lowest possible
cost. The business objectives of CPOs are fourfold: (1) leveraging enterprise-wide buying power, (2) quick
results and low risk, (3) supplier rationalization, and (4) cost reduction by automating best practices in strategic
procurement. To achieve these goals, CPOs are coming to the conclusion that e-procurement is where the
action is. Simple in concept, e-procurement applications are powerful when applied to the large number of
products and services that companies buy. Consolidating the buying of these items and rationalizing the
procurement chain can add tens to hundreds of millions of dollars directly to the bottom line.
7.1 Step 1: Clarify Your Goals

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Enterprises should make sure that the business problem or the goal is well understood. Every company wants to
improve its procurement chain, but you cant get there if you dont know where youre going.
The critical first step in designing, reengineering, or optimizing your procurement chain is to assemble your team
to define precisely what goals you want to achieve. The typical goals of e-procurement include:
Automating the selection and purchase of goods.

Cutting costs significantly throughout the organization.
Quickly and accurately reporting company-wide purchasing patterns.
Eliminating purchasing by unauthorized employees.
Successful e-procurement must encompass all of a companys major cost areas while also augmenting a
companys existing investments in its accounting, financial planning, and human resources systems. Its easy to
automate distinct procurement stages using stand-alone, or point, solutions. However, these address each
segment of the procurement life cycle individually, missing the point entirely, and ensuring none of the significant
cost benefits that accrue from a comprehensive e-procurement strategy. As Figure 9.9 illustrates, todays
businesses need an integrated e-procurement management solution.
[Figure 9.9: e-Procurement Management]
At some point, its important to set numerical targets for the processes you are implementing. Its not
uncommon, for example, to take 10 percent to 15 percent of your procurement chain cost out of the system
by process reengineering. This is tangible, hard capital that can be saved and deployed toward other strategic
projects. The key is to examine the procurement chain elements essential to your company and to set
achievable goals that are in harmony with the organizations overall objectives.
7.2 Step 2: Construct a Process Audit

With strategic goals in place, its important to understand your current procurement process and the factors that
affect, impede, and interact with it. Take time for a procurement chain audit to ensure that you have an accurate
big-picture model. This is a critical step in the process of moving from where you are today to where you want
to be tomorrow. The first phase of the procurement chain audit consists of modeling the work flows in
procurement. Modeling the procurement work flows identifies key bottlenecks, creates shortcuts, and
streamlines the purchasing process.
The type of buying influences the type of e-procurement solution. There are also three types of buying.
Strategic buying: Strategic buying involves supplier selection, contract negotiations, and supplier
management. Strategy buying is oriented toward establishing a long term relationship between buyers and
sellers.
Transactional buying: Transactional buying involves purchasing products according to existing contracts
and processing the transactions. Transactional buying is essentially paper pushing.
Spot buying: Spot buying usually involves one-time deals. Spot buys occur when existing contracted
suppliers cannot fill the order, when there is a rush order, or when the order is one-time only and the
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order size is too small to justify the contract negotiation process.
To get a good picture of the current spend, collect data. Remember, the collected data isnt only numbers but
also information about people, procedures, and processes. Once the data is collected and analyzed for
consistency and accuracy, it can be compiled into a model representing the current procurement chain. This
model represents a baseline that is used to drill down to the next level of analysis, during which key areas can be
studied to ensure that
Current processes are consistent with the organizations strategic goals and objectives.
The procurement chain processes meet customers needs.
Current procurement chain processes promote efficiency.
Through these analyses, you will identify critical success factors and key performance indicators. You will also
assess problem areas and areas of vulnerability. The results of these assessments can then be inserted into the
mixlets call it the global procurement chain optimizerto help determine the proper direction for the design
phase.
7.3 Step 3: Create a Business Case for e-Procurement

Putting a return on assets (ROA) business case together for e-procurement can be useful because it forces you
to systematically analyze your business. Companies should understand the requirements without overanalyzing
them. Some organizations still have a tendency to overanalyze technology solution decisions.
Business case analysis forces you to understand your context. If you dont understand your environment, you
can do very little to fix it. The process of putting a business case together forces you to articulate hidden
assumptions. One widely used technique in creating an e-procurement business case is ROA, which uses the
following formula:
ROA = (Revenues Expenses)/Assets
To increase ROA, you need to increase revenues, decrease expenses, or keep the asset base as small as
possible.
Whereas increasing profitability by generating revenue requires substantial investment in capital equipment,
marketing, and sales, increasing profitability through e-procurement requires only a relatively limited additional
investment. Implementing an e-procurement solution commonly saves at least 5 percent of operating resource
costs.
Decreasing expenses can be accomplished by identifying inefficiencies in the procurement chain, which enables
companies to reduce expenditures, such as inventory carrying costs. By reducing the amount of captive capital in
the procurement chain, a company becomes profitable more quickly. Cost improvements are not just cutbacks.
Enhancements are often made through better coordination and communication. For instance, many companies
have to expedite operating resources by shipping premium freight in order to get an order to an employee on
time. With proper planning, this cost can be avoided.
Improving asset utilization can be accomplished by reducing working capital. The amount of assets companies
have captive in the procurement chain affects the profitability of the company directly. Working capital can be
reduced in two ways: (1) eliminating warehouses to maximize stock availability and to minimize inventory
holdings and (2) eliminating excess inventory to reduce leakage or hidden inventory.
Companies are beginning to move from optimizing within the four walls of the enterprise to optimizing the entire
procurement chain. The goal is not just to support an integrated business process that connects the customers
customer to the suppliers supplier but rather to increase the velocity at which the virtual enterprise operates.
7.4 Step 4: Develop a Supplier Integration Matrix

Without supplier commitment and involvement, the road to e-procurement is a long one. In todays world, with
its ever-increasing velocity of change, few organizations want to commit to long-term relationships.
Conventional wisdom says that if a company encumbers itself with long-term agreements, it will lose the
flexibility to react to new opportunities. What if something better comes along tomorrow? But the reality is that
this approach may be costing your organization money.
Whats needed is a supplier integration matrix (SIM). A SIM helps determine the best type of relationship to have
with individual vendors. In the complex procurement environment, a company must define favorable
relationships to have with vendors in order to optimize the procurement chain. Any organization that applies only
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one relationship structure to all vendors, either consciously or unconsciously, is shortchanging itself. A SIM helps
evaluate suppliers according to how each contributes to the current or future success of the company,
classifying suppliers into the following categories:
Strategic-collaborative: A supplier offering a unique or scarce product or service is a candidate for a

collaborative relationship. This relationship might entail long-term commitments by both parties to procure
future production or investment. These suppliers become strategic partners, and the technological
systems set up to share information with them are often critical components. Examples are MRO
suppliers.
Strategic-cooperative: A supplier that offers a strategic productbut not a unique or scarce product
is a candidate for a cooperative relationship. This might entail incentives for the supplier to invest in
improving the procurement chain, such as reducing the number of suppliers to increase the volume of
business you give to each. Cooperative relationships may be short-, medium-, or long-term relationships.
Examples are computer suppliers.
Nonstrategic-limited: A supplier that provides products or services that are not strategic to your
organizations success and are limited in supply is a candidate for a short-term, nonstrategic, limited
relationship. In this situation, you look at the quality and the value provided by the supplier versus the
availability of similar products and services from other suppliers. Examples are administrative and
professional services, such as temp agency services.
Nonstrategic-commodity: A supplier offering a nonstrategic product that is in plentiful supply will have a
nonstrategic, commodity relationship with your company. With these kinds of products or services, you
can tolerate price variations without feeling a critical impact on your strategic products or services. These
relationships are usually short term, with minimal commitment. Examples are office and book suppliers.
When using a SIM, review your supplier set on a periodic basis to determine whether external or internal factors
have changed enough to require moving suppliers to a different classification. A good SIM model can prevent
roadblocks in the procurement process.
7.5 Step 5: Select an e-Procurement Application

Enterprises should wade through the vendor hype. Obviously, there is much to consider in selecting an e-
procurement application. Optimization of the business process is the goal. The application choice must support
that goal. For instance, a proprietary catalog system might create more problems than it solves. Careful
evaluation of the application support for the buy-side process must be done.
It is imperative that the procurement solution build on these investments rather than recreating the same
functionality. Procurement is a complex chain of events. The solution must interface with the various integration
points along the procurement chain. For example, it must exchange accounting information with the general
ledger system. Likewise, the receiving function must feed accounts payable and asset management systems.
With technology innovation being unpredictable, it is important that the solution be scalable and extendable in
new directions. The solution must keep the door open to take advantage of new twists and turns in technology.
7.6 Step 6: Remember: Integration Is Everything

The ideal goal for managers should be to continuously iterate toward the target the integration sweet spot. By
focusing on each of the areas of operating resource management (ORM), none will be left out of the integration
effort. This will ensure that the requirements of employees, suppliers, and buyers are considered when you are
building your integrated ORM application.
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[Figure 9.10: The Three Faces of ORM Applications]
Enterprises should iterate development and deployment. We cant stress strongly enough how critical it is to the
success of your e-procurement chain that you not take an exclusive buy-side or sell-side viewpoint. Companies
implementing ORM solutions often choose one or the other. Collaboration means both the buy-side and sell-side
applications must dance cheek to cheek for effective procurement.
A significant issue in development will be integration with other back-office systems. Even amid a flurry of
partnerships with ERP vendors, the integration of procurement applications with older legacy applications could
be a big challenge. ERP and middleware companies are working to improve this situation.
7.7 Step 7: Educate, Educate, Educate

Change often generates opposition. If opposition slows the e-procurement project down or alters its direction,
major problems occur, among them schedule slippage, higher costs, and poor morale. Senior management
must deal with this problem by listening, communicating, selling, and, when all else fails, firing. If senior
management cant do this, the project will fail. The opposition will grind down the project team to an expensive
crowd of people wandering around accomplishing nothing.
Failure to take care of the soft implementation roadblockspeoplemay be the most common reason that
projects dont succeed. Its so much easier to get all wrapped up in the software modules and the transaction
and processing speeds of the new computers. We see this frequently when companies are implementing ERP
systems. Enormous amounts of staff time, mental energy, and dollars are devoted to working on the software,
and relatively little time is devoted to people. The result: resistance, subpar results, and a lot of money spent for
not much payback.
Finally, enterprises should not underestimate the effort and costs of deployment. Remember that your
procurement chain is a dynamic, living organism. It consists of people, information, technology, and systems.
The key point here is that it never stops changing. At todays maddening pace, it is critical that we keep in mind
that procurement is a continuous process and not merely discrete elements. To be successful, continuous
improvement is absolutely key.
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E-Business Network And Web Site Security

E-Business Web Site Management
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Topic 10: E-Business Network And Web Site Security
T opic Objective:
1. General Network and Web Site Security Issues
2. Physical Risks to Network and Web Site Assets
3. Internal Security Risks
4. External Security Risks
5. Transactional Risks
6. Virtual Private Networks (VPNs)
7. Wireless Security Issues
8. Security Audits
Topic Introduction:
In todays economy, information is one of the most important assets of an organization, probably second only
to human resources. Information has become important both as input and output. Hence information security is
of great concern to companies that want to implement e-business.
Topic Overview:
1. General Network and Web Site Security Issues
Security in the broadest sense is about the protection of assets and, for an e-business, those assets include its
data and the components of its physical network. The network and Web site asset security risks facing e-
businesses can be conceptually divided into four broad areas:
Physical risks: Physical damage to network components and data from natural causes such as fire or
flood, or deliberate destruction of equipment and data from employees or outside intruders.
Internal risks: Threats originating from within an organization such as lack of awareness of security
issues by management and employees, poor data backup procedures, inadequate disaster recovery plans,
and unhappy employees.
External risks: Threats originating from outside an organization such as unauthorized electronic access
to the LAN via the Internet and distribution of destructive programs via Internet e-mail.
Transactional risks: Data interception, loss of customer information such as credit card numbers, or
inadequate transaction authorization procedures.
There is some overlap, of course, and some types of countermeasures can prove useful against multiple risks,
but many e-businesses may find to their regret that they are well-prepared against only two or three out of the
four main security risks. Therefore, the security issues faced by e-businesses today are exponentially more
complex than they ever have been. To make things even more complicated, e-businesses must protect
themselves against the unknown. New methods of attacking networks and Web sites and new network security
holes are being discovered with disturbing frequency. Nevertheless, by carefully planning its network and Web
site security, an e-business can protect against many known and as yet unknown threats.
Even though most losses from security breaches are small compared to the size of the total e-business
economy, consumers perceptions about security affect their willingness to participate in the online market
space. Just as investors can be frightened away from the capital markets by allegations of widespread faulty
accounting practices, customers can choose to avoid online market spaces that they perceive as insecure,
thereby greatly diminishing the usefulness of those market spaces.
2. Physical Risks to Network and Web Site Assets
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Physical risks to network and Web site security include accidental or deliberate damage to equipment or data as
the result of a natural disaster or sabotage. When considering the physical risks to an e-business, its important
to remember that physical risks extend far beyond network equipment. All elements of an e-businesses network
infrastructure including network equipment, physical location, redundant access to electrical power, and Internet
connectivity need to be secured.
2.1 Network Equipment and Physical Location

When managing the physical security of their network assets, e-businesses should start by considering the
safety of their network equipment. Some important issues to consider include:
Network facilities location: Network equipment (including servers) should be placed in locked rooms to
which access is tightly controlled and monitored. The location of the computer facilities should not be
clearly identified (by signs or on the building directory) in order to make it more difficult for an outside
intruder to locate crucial equipment.
Fire protection: Water-based sprinkler systems should not be used near network equipment. Instead,
special fire-suppression systems should be used to extinguish a fire without irretrievably damaging servers,
routers, electrical wiring, and so forth.
Network facilities construction: Network facilities should be built from more substantial materials than
the usual office-grade sheetrock; after all, a good steak knife is all thats required to saw a hole in
inexpensive sheetrock. Most office buildings use false ceilings to hide electrical and climate control
equipment, leaving a 3-foot air space above every office. If the walls of a network facility dont go all the
way to the real ceiling, anyone can access the facility simply by pushing two ceiling tiles aside and climbing
over the wall.
2.2 Electrical Power Backup

Physical data and operational security is essential for reaching five nines reliability, or 99.999% uptime. At this
level of reliability, an e-businesss crucial servers can only be unavailable about 5 minutes per year. The most
common problems related to uptime are loss of power and loss of Internet connectivity. The best public utility
cant always cope with major ice storms, tornados, and other natural events that interrupt power delivery.
Because of this, an e-business should consider two levels of backup power: batteries that assume the power
load within milliseconds of a failure, and power generators that automatically start when the batteries become
exhausted.
2.3 Internet Connectivity Redundancy

Concerns about power protection imply a need for Internet connectivity redundancy. An e-business of any size
should consider having more than one Internet connection. Major e-businesses, such as ISPs or the data centers
of hosting companies, have multiple connections to the Internet, often to different NSPs. Some even have their
NSP cable connections exiting their buildings at different points, so an errant backhoe in the parking lot cant cut
every line at once. Also, some major e-businesses purchase complete data-center redundancy, which allows
them to move their operations to a different data center on very short notice, should a major disaster befall the
primary data center.
2.4 Outsourcing Physical Risks

Protecting a network and Web site against physical risks can be quite expensive, but for many e-businesses,
network or Web site downtime is even more expensive. However, protecting the physical, power, and
connectivity requirements of a network are often beyond the reach of many startup e-businesses. The ISPs and
Web hosting companies that can help solve this quandary. For a reasonable monthly fee, an e-business can rent
servers or co-locate its own servers in facilities that satisfy all physical security requirements. However, it is still
an e-businesss responsibility to evaluate a Web hosting companys physical security (and, in fact all its security
policies) and make certain the security provided is adequate for the e-businesss needs. As improbable as it
might sound, internal risks to network and Web site assets (such as malicious damage by an unhappy employee
or failure to plan adequately for business continuation in case of a disaster) may be more threatening to an e-
business than the physical risks to its network equipment, power supply, or Internet connectivity.
3. Internal Security Risks

The weakest link in any security system is always the people managing and using it. Internal risks are those that
come from inside an e-business either from unhappy employees and contractors or even from management
itself as a result of poor security awareness or planning.
Internal security begins with sound security policies. Successful security policies are those that are understood
and acknowledged by every employee from an e-businesss top management to its mail room staff. Failure of
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employees to support certain security policies can be the result of many factors. Employees may not understand
a security policy. Sometimes a security policy is so burdensome that employees are not able to follow it or
refuse to follow it because it makes it difficult for them to get their work done. Other times, employees may not
understand the importance of a security policy. The top management of an e-business must take an active role
in not only developing security policies but also in developing a formal, security education plan for employees.
Employees must also understand that their role in following security policies is essential to the successful
implementation of the policy. Countermeasures to internal risks include restricting user access to network
resources by requiring passwords, biometric identification, or smart card authorization.
3.1 Passwords
The most common means of protecting computers, servers, and other network resources from unauthorized
user access is the implementation of passwords. A password is a group of characters used to identify a specific
computer user and grant that user access to a computer or network. Passwords can be an effective first line of
defense for controlling network access, but are only effective when created properly and changed regularly.
Effective passwords are those that have a minimum length of six characters and contain a mix of letters and
numbers. Requiring passwords of this type increases the number of potential passwords into the billions and
makes it more difficult for an internal user or outside intruder to guess a legitimate password. Additionally, an
effective system of passwords should require that a user change his or her password on a regular basis. If a user
has access to multiple networks, it is a good idea to require him or her to use a different password on each
network. Finally, users should be required to log off the network when not actually using network resources. For
example, a workstation on a manufacturing floor thats left logged on at the end of the work day allows access
to network resources to anyone who comes by and allows free passage around whatever security policies are
in force.
3.2 Biometric Identification

Because of unwieldy password protection systems, some e-businesses are considering adding biometric security
devices to their systems. The term biometrics refers to technology that involves the measurement of biological
data. Biometric security devices and software measure and record a computer users unique human
characteristics (such as fingerprints, voiceprint, and eye retina or iris) and then use those characteristics for user
identification. For example, a users retina can be scanned and the results of that scan compared to a database
of authenticated users. Once authenticated, the user is granted access to computer or network resources.
3.3 Smart Card Identification

A smart card is a plastic card the size of a credit card that contains an embedded memory chip. Biometric
information such as fingerprints can be placed on a smart card for additional confirmation when the user
presents the card for identification.
Smart cards can also be used to authenticate a remote user logging into a network. In this situation, the smart
card usually contains a display area. When the remote user dials into a network and attempts to log on, he or
she is asked to key in a code that is briefly visible in the display area of the card. When the user correctly keys in
the code, the smart card then displays a second code the user must enter in order to log on to the network.
One risk associated with such a smart card is the possibility that the card could be lost or stolen. Still, it may not
be clear to whoever finds the card which network the card accesses. It is important that a smart card user not
make the mistake of writing the network access phone number and his or her username on the back of the
card.
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Often the most effective way to protect systems is to simultaneously use multiple authentication methods. For
example, you might require a user to enter a password and then have a retinal scan. The combination of these
two measures would make it highly unlikely that someone other than the authenticated user could access the
resource.
3.4 Backup and Restore Policies and Procedures

An e-businesss backup and restore policies describe the companys plan for securing vital data files and software
in case of equipment failure or some man-made or natural catastrophe. Backup and restore procedures specify
when and how critical files and software are copied to backup media. The backup media might consist of
magnetic tapes, high-volume removable diskettes, CD-ROMs, or offsite servers.
Backup and restore policies should be clear and the responsibility for assuring that the policies are followed
should fall to senior management. Backup procedures should be built into the daily, weekly, and monthly
operations of a network.
Its important to remember, too, that the backup process is only half of the story the restore process is the
other half. The term restore means to return electronic files to their most recently backed-up status. An e-
business that doesnt test its restore procedures is asking for trouble.
4. External Security Risks

External risks are those that originate outside a companys protected network, and must first penetrate
whatever defenses (often disappointingly minimal) protect the e-business from the outside world. As you have
learned, the Internet is a public network consisting of thousands of connected private LANs. Each of these
private LANs is therefore exposed to security risks originating from anywhere on the public network. Stringent
security measures are necessary to protect against these external risks. External risks have increased
exponentially as more users are connected to the Internet. In the following sections you learn about external
risks posed by outside intruders and computer viruses.
4.1 Hackers
Outside intruders can wreck havoc with a network and its data in many, many ways. These intruders, most
commonly called hackers, use many techniques some simple and some sophisticated to gain unauthorized
access to a network. Originally, hacker was a term used to describe gifted software programmers. Now,
however, hacker is a slang term for someone who deliberately gains unauthorized access to individual
computers or computer networks. Ethical hackers, sometimes called white hat hackers, use their skills to find
and make known weaknesses in computer systems without regard for personal gain. Malicious hackers, also
called crackers or black hat hackers, gain access to steal valuable information such as credit card numbers, to
attempt to disrupt service, or to cause other damage. Because of the wide popular press coverage of network
security breaches, the terms hacker and cracker are now generally used interchangeably for malicious
unauthorized network access. In this book the term hacker refers to anyone who gains or attempts to gain
unauthorized access to a network.
Rebooting servers isnt the worst problem caused by hackers, however. If a program can be interrupted,
confused, or crashed, sometimes the hacker can gain access to a command prompt. A command prompt is a
location on the screen where the instructions or commands to execute a program are keyed. The hacker then
can execute any command that runs with the same security level as the program that just crashed.
4.2 Distributed Denial of Service (DDoS) Attacks

A denial of service or DoS attack is an attack on a network that is designed to disable the network by flooding it
with useless or confusing traffic. A distributed denial of service or DDoS attack uses multiple computers to launch
a DoS attack. For example, a Web server undergoing a DDoS attack might receive hundreds of HTTP requests
per second. The server then spends so much processing time trying to serve these requests that it cannot
handle the load and crashes. The idea is very similar to flooding a companys telephone switchboard with prank
calls, making it impossible for regular customers to get through. Prank calls are easily traceable. DDoS attacks
can sometimes be traced, but they often originate from computers that have been compromised and are being
manipulated remotely to send multiple requests.
Packet Internet Groper or Ping is a very simple test used to determine if a network connection is functioning, and
can be a very useful troubleshooting tool. Ping enables one computer to send a test message to another
computer using ICMP and to then receive a response. Some DDoS attacks are based on sending an unrelenting
stream of pings to a host which then becomes overwhelmed and can no longer function properly. Another type
of DDoS attack involves sending hundreds of huge e-mail messages to a mail server which then crashes when it
runs out of storage space for the messages. While a DDoS attack does not do any technological damage, it can
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do substantial financial damage to an e-business, because every second an e-businesss network or Web site is
down may result in lost revenues. The only reward to a hacker for launching a DDoS attack seems to be the
opportunity to show off his or her skills. Figure 10.1 illustrates a DDoS attack.
[Figure 10.1: DDoS attack]
Another threat to Web sites faced by e-businesses is the purposeful altering of Web page contents by a hacker.
4.3 Web Site Defacement

Web site defacement or vandalism occurs when a hacker deliberately changes the content of Web pages.
Defacement can be the result of a hacker breaking into a network, accessing the Web site files, and modifying
the HTML to physically change Web page content. Additionally, a special type of computer virus called an Internet
worm (you learn more about worms in the next section) can automatically deface Web pages on vulnerable
Web servers (such as a Microsoft IIS Web server which has not been updated with the appropriate software
updates).
4.4 Countermeasures for Hacker Attacks

There are several ways for an e-business to protect its network from external threats. Most involve careful
monitoring and attempted blocking of unwanted data flow from the outside world. Most also involve controlling
data flow from inside a company to the outside; this is necessary because hackers that manage to infiltrate a
company often then attempt to send data to a computer outside the network. An e-business must implement
security policies and procedures to prevent these vulnerabilities. Also, an e-business can use firewalls, NAT
routers ,and proxy servers to control traffic coming into or going out of its network. The most common term for
the devices that control data flow and block suspicious activity is firewall. Firewalls take many different forms
some are simply monitoring and reporting tools that allow all traffic but watch for suspicious behavior; others
block most traffic to a private network or demand authentication to allow certain traffic through. Some firewalls
are created by installing special software with operating systems such as Windows 2000 Server or Linux, while
others run on proprietary operating systems purposely built for security. Additionally, some firewalls consist
solely of hardware that is simply plugged in and configured through a Web browser.
Firewalls are generally designed to resist buffer overflows and other common types of hacker attacks. Because
new ways to attack a network are always being developed, a good firewall monitors traffic and notifies a system
administrator if certain conditions are met.
http://static.ddmcdn.com/gif/firewall.png
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Firewalls are generally classified as one of three types: packet-filtering, circuit-level, and application-level. Which
classification applies depends on where in the OSI Model the firewall operates. Packet-filtering firewalls operate at
the Network layer of the OSI Model. A packet-filtering firewall compares information in the packet header (such
as source address, destination address, and port numbers) with predetermined filtering rules. Packets that follow
these rules are allowed to pass, while those that dont are blocked. Circuit level firewalls operate at the Session
layer of the OSI model by validating TCP and UDP sessions before opening a connection between the source and
destination computers. Once the connection is made, all packets that are part of the validated connection are
passed through to their destination without further scrutiny. Application-level firewalls operate at the Application
level of the OSI model and, using a proxy server, pass or block packets depending on the rules specified for the
individual network service involved (such as HTTP).
[Figure 10.2: Application level firewall]
Another firewall technology, Network Address Translation or NAT, permits internal IP addresses to be converted
to different IP addresses for external communications. NAT is used by some firewalls and routers to shield
internal IP addresses from identification by anyone outside the internal network.
Another security device that may be used in conjunction with a firewall is a proxy server. A proxy server, which
may reside on the same server as a firewall or be on a separate server, sits between a user and the Internet and
forwards HTTP requests. For example, when a user requests a Web page through a proxy server, the proxy
server uses its own IP address to pass the request to the origin server and thereby shields the users actual IP
address. Additionally, a proxy server may also act as a cache server, returning to the user a copy of a cached
Web page instead of sending the request on to the origin server.
4.5 Viruses
Computer viruses are some of the most common external network security threats faced by e-businesses
today. A standard computer virus is a small, usually destructive, program that inserts itself into other files that
then become infected in the same way a virus in your body embeds itself in your normal body cells. Viruses
can infect executable programs or operating system files and spread when an infected program executes,
thereby infecting other programs. Viruses can also be spread via e-mail headers or attachments. Among other
things, a virus can prevent a computer system from booting, erase files or entire hard drives, prevent the saving
or printing of files, and send repetitive e-mail messages.
A particularly virulent type of computer virus is the worm. A worm is a special kind of virus that doesnt alter
program files directly. Instead, a worm resides in a computers memory where it replicates itself. Worms are
often not noticed until their uncontrolled replication consumes a computers resources, slowing the computer or
crashing it. Worms are especially effective at infecting systems and crashing servers because of their ability to
spread quickly over the Internet.
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Another very common type of virus is a macro virus. A macro is a short program written in the Visual Basic
programming language that is generally used to automate keystrokes when creating a Microsoft Word
document or when working in a Microsoft Excel workbook. A macro virus is a virus that infects macros. For
example, opening a Word document or Excel workbook that contains an infected macro can trigger the macro
virus. Macro viruses can be distributed in files such as Word documents or Excel workbooks sent to others as e-
mail attachments or transferred via a floppy disk.
A Trojan horse, which takes its name from a story in Homers Iliad, is a special type of program that pretends to
be something useful or fun but actually does something malicious, such as destroying files or creating a back
door entry point to give a hacker access to the network. Trojan horse programs are also used by hackers to
steal passwords, record a users keystrokes, locate IP addresses, and plant other destructive programs. A
Trojan horse program is often distributed as part of a virus and can be part of an e-mail attachment or a
downloaded program. Worm viruses often carry Trojan horse programs as part of their payload.
There are few known wireless viruses as yet, but antivirus companies like Trend Micro, Inc. have already started
releasing products in this field. Network Associates, Inc. through its McAfee Security business unit also provides
information about wireless viruses and provides wireless and PDA antivirus products.
[Figure 10.3: McAfee wireless security and PDA protection]
Virus Hoaxes: Some so-called viruses trumpeted in the media or announced via warning e-mails are
just hoaxes; however, it can be difficult to tell the difference. The media has created an alarmist
atmosphere where false warnings about viruses proliferate as quickly as real viruses and many well-
meaning people inadvertently help spread false information about viruses via e-mail. This can create an
atmosphere in which a real virus warning might not be taken seriously.
Virus Countermeasures: While perfect protection against viruses and Trojan horses is not possible, an
e-business can take several important countermeasures to block infections:
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Antivirus software: Install and maintain updated antivirus software (such as that sold by McAfee and
Symantec) that scans disk drives, documents, and incoming e-mail for viruses and then deletes found
viruses before they can infect the computer.
Employee education: Educate employees about virus dangers and encourage employees to delete
any e-mail and e-mail attachments from unknown senders without opening the attachments.
Employees should also be discouraged from sending or receiving personal e-mail and attachments
from family and friends through the e-businesss mail system.
Software updates and patches: Ensure that network operating system and Web server software
updates and quick fixes or patches are installed as soon as they become available.
Awareness: Encourage system administrators and other employees to be alert to newly identified
viruses and to take the appropriate measures to prevent infection.
Application software tools: Make certain that Microsoft Office Suite applications such as Word and
Excel have the appropriate level of macro detection set. An effective countermeasure for macro
viruses is to set the macro detection option in Microsoft Office applications to either Medium or High.
5. Transactional Risks
Many Internet users believe they face a large risk to their privacy and security when they buy products and
services or submit personal information online. Although the perceived risk may be greater than the actual risk, it
is still a cause for concern. In order to maintain their customers trust, e-businesses must adequately address
the perceived risks as well as the actual risks associated with transactional security. However, few people realize
the complexities involved in addressing transactional security. Transactional security can be divided into four
areas:
Authentication: A user must be able to prove his identity to the other party.
Integrity: Each party must be comfortable that exchanged information wasnt altered during
transmission by a third party or corrupted by misfortune.
Non-repudiation: Each party must be assured that the counterparty wont be able to deny being the
originator or receiver of information.
Confidentiality: Parties must be able to exchange information securely without it falling into the hands of
a third party.
Without these four provisions, buying and selling products online would be impossible because of a lack of trust
between buyer and seller. Methods for providing authentication, integrity, non-repudiation, and confidentiality
include sending and receiving encrypted messages or data, using digital certificates to authenticate the parties
involved in the transaction, and storing retained customer information properly.
5.1 Encryption
Cryptography is the art of protecting information by encrypting it. Encryption is the translation of data into a
secret code called ciphertext. Cipher text that is transmitted to its destination and then decrypted (or returned to
its unencrypted format) is called plaintext. To understand how the encryption and decryption of messages and
transactions works, you need to learn a bit more about the encryption/decryption process itself. Encryption
scrambles data in a secret pattern. In order to unscramble that data, you must know the pattern or key. The
first step in encrypting and exchanging data, then, is to agree on what key to use, and to make sure both parties
have access to the key.
However, exchanging the key via the Internet is not secure. If the key exchange process is compromised, all
encrypted transactions based on the key can be compromised as well. One way around this problem is to use
two keys: a public key to encrypt information and a private key to decrypt it. An e-business wishing to use
encryption with public and private keys contacts a special organization, called a certificate authority or CA, that,
for a fee, creates the keys. Public and private keys are created at the same time and are related in such a way
that information encrypted with an e-businesss public key can be decrypted with its private key and vice versa.
One widely known and respected CA is VeriSign, Inc. When the public and private keys are created, the public key
is posted to a publicly-accessible directory; however, the private key is given only to the e-business requesting
the keys. The combination of e-businesses with assigned public and private keys, public key directories, and the
certificate authorities that issue and verify security credentials, is called a public key infrastructure or PKI.
5.2 Public Key Infrastructure (PKI)

A PKI is only as trustworthy as the people and technology of which it is composed. When deciding to participate
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in a PKI, an e-business needs some way to assure that others with whom it exchanges encrypted data are
actually who and what they represent themselves to be. Digital certificates provide this assurance. A digital
certificate is an electronic security credential issued by a CA that certifies an entitys identity. A digital certificate
issued to an e-business by a CA such as VeriSign, Inc. can contain the CAs name, the certificates serial number,
expiration date, public key information, and the CAs digital or electronic signature validating that the certificate is
legitimate. The digital certificate is made available in a public directory or registry so that e-businesses can look
up each others public keys. Figure 10.4 illustrates a digital certificate.
[Figure 10.4: Digital certificate]
5.3 Security Protocols

One of the earliest Internet security protocols is Secure Sockets Layer or SSL, and was originally developed by
Netscape Communications. SSL, which uses public and private key encryption and digital certificates, is included
in Web browsers and Web server software. To use the SSL protocol, an e-business (or its ISP or Web hosting
company) places its Web pages on an SSL secured server. The URL for the SSL-secured Web pages then begins
with https:// instead of just http://, indicating information is transmitted using the SSL protocol. A Web
browser and a Web server can use SSL to connect in an SSL session and authenticate the server (or in some
cases the server and the browser), determine the length of the secure data transmission, and determine the
encryption technique to be used. Figure 10.5 illustrates the process of transmitting secure data using SSL.
[Figure 10.5: Transmitting secure data using SSL]
The Transport Layer Security or TLS protocol suite is used to assure that no third party can access and alter
Internet communications. Some experts consider TLS to be the heir to SSL. Based on SSL but not
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interoperable with it TLS consists of two protocols: the TLS Record Protocol and the TLS Handshake Protocol.
The TLS Handshake Protocol allows Web browsers and Web servers to authenticate each other and determine
the encryption method and keys to be used in the communication. The TLS Record Protocol provides some
connection security and encryption using different encryption algorithms than SSL. The TLS Working Group of the
IETF continues to work on and promote the TLS protocol suite.
In 1996,Visa and MasterCard, with the backing of Microsoft, IBM, Netscape, and others, announced support for
a protocol called Secure Electronic Transactions or SET. SET is designed to be the standard protocol for
presenting credit card transactions on the Internet. SET uses digital certificates, digital signatures, public and
private keys, and SSL in its security scheme. Credit card holders, the bank that issued the card, and merchants
are all required to have digital certificates for authentication. Credit card holders maintain an electronic or digital
wallet that contains their digital certificate and credit card information. Merchants, and the card-issuing bank,
use public and private encryption keys to exchange payment information.
6. Virtual Private Networks (VPNs)

One way an e-business can reduce costs involved in transmitting data between offices over long distances is to
take advantage of the existing telecommunications infrastructure of the largest WAN of all, the Internet. A virtual
private network o r VPN is a private network that uses a large public network to transmit its data. For many
VPNs, that public network is the Internet. VPNs use firewalls, public and private key encryption, and digital
certificates as part of their security scheme.
http://www.vpn-for-business.co.uk/draytek_vpn1.png
Tunneling is a process by which one protocol is encapsulated within another protocol. VPNs that use the Internet
encapsulate encrypted data, sending and receiving IP addresses, and a special tunneling protocol within a regular
IP packet. The encapsulated information is routed to its destination network using the IP protocol. Once the
encapsulated packet reaches the VPN destination, VPN software (usually installed as part of a firewall) removes
the IP protocol information. Then the tunneling protocol transmits the packet to its final destination computer. A
number of tunneling protocols are used by VPNs, including the Point-to-Point Tunneling Protocol or PPTP, the
Generic Routing Encapsulation Protocol or GRE, the Layer 2 Tunneling Protocol or L2TP, and the Internet
Protocol Security Protocol or IPSec. The manner in which VPN data is encrypted and encapsulated depends on
the tunneling protocol used. Figure 10.6 illustrates a remote user transmitting data to a private network over a
VPN.
[Figure 10.6: VPN in action]

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7. Wireless Security Issues
The early FDMA technologies required that a device stay on one frequency for the duration of a call. Listening in
on such a call was fairly simple; you just needed a listening device able to intercept the transmission located near
the phone or the tower serving it. Intercepting TDMA calls wasnt much more difficult; all that was needed was
equipment that could listen for one third of each second (or one eighth, depending on the TDMA standard), and
then decompress the audio signal into a full second of speech. Any electrical engineer could build such a device
with off-the-shelf components. CDMA, which incorporates FHSS or DSSS, poses more of a challenge. However,
an eavesdropper with enough resources can simply monitor all frequencies in use, reassemble every
conversation, and throw away those not important. As cellular equipment gets cheaper, this scenario becomes
more and more plausible. Clearly, something more sophisticated such as data encryption is in order.
7.1 WAP and WTLS

WAPs internal encryption standard, Wireless Transport Layer Security (WTLS), uses encryption and digital
certificates to establish a secure transmission session between a WAP server and a cell phone. As of this writing,
the WLAN security issues are of great concern. These include the ease with which hackers can locate WLAN
access points and encryption weaknesses in the IEEE 802.11b security protocol.
7.2 WLANs and Security

With the greater availability of IEEE 802.11 standard equipment and the explosive use of wireless devices, many
organizations and businesses are installing WLANs. While problems with WLAN security are generally well known
to IT security specialists, many business executives and managers may be surprised to learn how easy it is for a
hacker to locate information about their WLAN access points. Once an access point is identified, a hacker can
then exploit a WLANs security vulnerabilities.
The term war driving is used by hackers and security analysts to describe driving around in a car (or parking a
car across from a store or office building) and using an 802.11b-enabled laptop, an inexpensive antennae, and
WLAN access point detection software such as NetStumbler to locate WLAN access points.
Security is still a concern for those businesses with WLANs that are WEP enabled because university researchers
have recently identified serious short comings in WEP encryption standards. The IEEE 802.11b consortiums are
working on improving WEP encryption standards; however, in the meantime, many organizations are simply not
using WLANs at this time because of the potential ease with which a hacker can locate an access point and
intercept sensitive data or infiltrate their network.
7.3 IrDA and Bluetooth Security

Because of the short distances and line-of-sight requirements for IrDA devices, it would be difficult to interpose a
sniffer (a device that monitors network traffic) unobtrusively between two IrDA-enabled laptops.
Bluetooth devices use several methods to establish a secure transmission including a link key (a 128-bit random
number) to authenticate a connection between two Bluetooth-enabled devices; a private encryption key (8 to
128 bits in length and derived from the link key) to encrypt data, and a user-selected PIN code that identifies the
Bluetooth device. Additionally, each Bluetooth device has a unique address. Security concerns arise in two areas:
privacy and PIN storage. A Bluetooth devices unique address is transmitted with each message; therefore, it is
possible to track the device and its activities (and, therefore, its human user). The use of PIN numbers can be an
irritant to users who may choose to store the PIN number in the device. If the Bluetooth device is lost or stolen,
whoever finds it may then be able to locate the stored PIN number and use it to authenticate a Bluetooth
connection. The latter is more of a social problem than a technical one, since anyone practicing good computer
hygiene should be careful not to store important PIN numbers or passwords anywhere on a device itself.
An e-business shouldnt wait for a white hat hacker to advise it of security vulnerabilities or for a disgruntled
employee to take advantage of a security weakness. Security audits that include penetration testing can help an
e-business prevent security breaches before they happen.
8. Security Audits
A security audit is a comprehensive review and assessment of an e-businesss security Vulnerabilities. A
complete security audit should involve reviewing security policies, taking a look at employee training on security
policies and procedures, and reviewing the physical security of the e-businesss offices and network facilities. A
security audit should also involve examining the technical security of a network via penetration testing or actual
attempted hacking attacks by security audit personnel. Many e-businesses specializing in security services and
many accounting firms offer security auditing services. Often an e-business wishing to purchase insurance
coverage to protect against loss of assets because of damage or theft by employees, physical intruders, or
hackers must undergo a security audit.
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A thorough security audit should contain at least three components:
Organizational audit: Identifies weaknesses in an existing formal security plan or the lack of a formal
security plan; reviews effectiveness of a formal security awareness program for all employees; reviews
security training procedures for all new employees including acceptable use standards for corporate
computer assets; reviews employee hiring and firing policies including background checks and procedures
for monitoring computer access by terminated employees.
Technical audit: Identifies internal weaknesses in network security caused by poorly configured servers,
firewalls, and routers; reviews the effectiveness of the password system used to control access to the
network; identifies ports left open for discontinued network services; uses internal and external scans
(penetration tests) of the networks security to identify any weaknesses that could be exploited by
hackers.
Physical audit: Identifies how easy or difficult it is to gain unauthorized access to computer facilities,
offices, and unattended computers; notes effectiveness of doors, locks, and other barriers to entry of the
general office and network facilities; identifies whether or not employees challenge the presence of
unknown outsiders in offices or computer facilities; reviews the location of the computer facilities and
notes whether those facilities are readily identifiable to outsiders; reviews the effectiveness of cameras,
motion detectors, and human security inside the general office facilities and the network facilities.
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Topic 11: E-Business Web Site Management
T opic Objective:
At the end of this topic, student would be able to
1. Portals
2. Web Content Management
3. Search Engine Technologies
4. Measuring Web Site Performance
Topic Introduction:
As an e-business grows, its Web site content the text, images, sound, video, hyperlinks, and so forth included
in its Web site often becomes more and more complex, drawing on material generated from many different
internal and external sources. Unless carefully managed, an e-businesss growing Web site can quickly
degenerate into a disorganized hodgepodge of confusing information. Managing an e-business Web site can
include:
Presenting timely and useful content to viewers.

Controlling who creates and approves content and controlling how and when that content is presented.
Increasing a Web sites audience.
Measuring a Web sites performance against expectations
Topic Overview:
1. Portals
A portal is a Web site that serves not as a viewers final destination, but as a starting point for finding useful
information. The goal of a portal is to be the first place a viewer looks when locating Web-based information or
services. Analysts often categorize portals either by audience type or by content. The following sections divide
portals into types based on audience: general consumer portals, personal portals, vertical portals, industry
portals, and corporate portals.
1.1 General Consumer Portals

General consumer portals, sometimes called publishing portals, provide a wide range of information suitable for a
generalized audience with varied interests. The Yahoo! and AltaVista Web sites are examples of general
consumer portals. In addition to providing a way to search for Web sites, the Yahoo! and AltaVista sites draw
viewers interested in news headlines, shopping, personal, travel, auction, and other services. They do this by
providing links to content directed at those varied interests.
1.2 Personal Portals

Personal portals, sometimes called horizontal portals, are a type of consumer portal that allows viewers to
customize content in order to satisfy their own particular interests. The objective of a personal portal is to use
customized content weather, sports scores, news headlines, and so forth as a draw to encourage a viewer
to make the personal portal his or her default starting point when accessing the Web.
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1.3 Vertical and Industry Portals

Vertical portals attract a narrow group of viewers with common interests. An example of a vertical portal is the
BMW of North America, LLC Web site where BMW owners (or potential owners) can learn about BMW cars, read
current news and reviews about BMW products, and chat with other BMW owners.
A subtype of the vertical portal is the industry portal, which attracts viewers who are looking for information
about a specific industry. An example of an industry portal is TruckNet, a portal for the trucking industry. Users of
the TruckNet Web site can match their services with available trucking jobs (or loads), chat with other users,
read news about the trucking industry,p lace and answer classified ads, and so forth.
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Often, an e-business Web site combines industry information along with information specific to that e-business.
This combination approach is designed to increase the e-businesss total viewing audience and enhance the e-
businesss profile within its particular industry. Some analysts also consider these Web sites to be industry
portals. Providing industry-specific content at a Web site can be a very effective way of marketing an e-business
within its own industry.
1.4 Corporate Portals

Corporate portals, also called enterprise information portals (EIP), are internal Web sites used by employees,
vendors, customers, and other business partners to access proprietary business information and conduct
business transactions. A corporate portal is a single browser-based interface used by employees, vendors,
customers, and other business partners to access all the underlying applications and databases that are part of
an e-businesss ERP, SCM, and CRM systems as well as other internal systems and applications. In other words,
a corporate portal makes it possible to access all these resources via the same browser interface, in lieu of
requiring separate interfaces for each.
The content of a corporate portal is defined by the users needs, and varies from one user to another. The
content presented to an employee might provide access to information about benefits or other human
resources-oriented information as well as access to specific applications and databases related to the
employees job. For example, an employee in the accounts receivable area of an Accounting Department could
track customer invoices and payments as well as update his or her own health insurance information via the
corporate portal. Meanwhile, corporate portal content for customers and vendors might provide access to
product, service, order, shipment, invoice, and payment information tailored specifically to their needs.
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2. Web Content Management
Content management involves organizing and classifying information from many different sources. These
information sources can include printed documents, e-mails, and electronic files containing text, pictures, audio,
video, and so forth. After the information is organized and classified it is then stored in a common location, from
which it can easily be retrieved, reused when necessary, and published in a variety of different formats for
multiple users. When users access content via a Web browser, content management is often referred to as Web
content management.
2.1 Web Content Management System

A Web content management system includes the people, policies, procedures, processes, and technologies used
to manage an e-businesss Web content. Generally, when an e-business meets one or more of the following
criteria, implementing a content management system should be considered:
A large e-business has multiple Web sites covering different business lines; for example, General Electric
maintains separate Web sites for its appliances and financial services business lines.
Web page content comes from multiple sources such as advertising agencies, freelance writers, and
multiple authors within the e-business.
Multiple approvals are required before Web page content is published; for example, the legal, marketing,
product development, shipping, fulfillment, and manufacturing managers may all need to approve an e-
businesss online product catalog.
The Web site contains content that needs to be continuously updated or frequently revised, such as
adding new products or changing prices, maintaining current news headlines, stock quotes, and so forth.
The Web site content needs to be personalized for each viewer; examples of personalized content
include made-to-order cosmetic products or sports scores for specific teams.
Legal liability issues affect the published content; for example, when issues related to marketing to a
restricted audience or publishing scientific or legal content creates a requirement that the content may
need to be reconstructed at any point in time.
2.2 Knowledge Base

An e-businesss knowledge base consists of everything the e-business knows information found in paper
and electronic documents as well as its employees knowledge about the business, their work experiences, and
their technical expertise. Managing its knowledge base is an integral part of an e-businesss Web content
management system and is called knowledge management (KM).
Translating its employees knowledge and expertise into information available to the users who need it is a
tremendous challenge for any e-business. For example, assume that an e-businesss sales manager has been
on board since the inception of the e-business several years earlier.
An important part of the e-businesss knowledge base is the years of operational experience and the vast
amount of information about vendors and customers the sales manager has accumulated during his tenure.
Undoubtedly, the e-business would suffer some business loss if the sales manager suddenly left or retired and his
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knowledge and expertise were no longer available.
2.3 Document Inventory

Web content management systems have their roots in the systems used to categorize, track, and file paper
documents. Such systems, which now bear the fancy title manual document management systems consisted
simply of rows of filing cabinets. Each cabinet contained manila folders labeled with color-coded labels identifying
the folders contents. These days, most modern document management systems consist of databases
containing electronic documents. Databases can be used to keep track of discrete bits of information, such as
part numbers or product prices. However, modern databases can also easily store complete documents or files.
In fact, the ability of modern databases to maintain relationships between electronic documents makes them
ideal for storing an e-businesss electronic document inventory.
2.4 Special Web Content Elements

A Web content management system includes special Web content elements that are also stored in databases:
Templates: The Web page models

Style sheets: Worksheets that control the appearance of Web pages including colors, text fonts, and so
forth
Graphics files: Images that might be generic to all Web pages such as an e-businesss logo as well as
specific images that appear on Web pages such as pictures of people, products, or maps
Imported data: Data provided by third-party sources, such as news or weather Information.
[Web Content Management System]
2.5 Content Repository

A content repository is a database in which electronic documents and other Web content are stored. A content
repository may also contain pointers to files stored on a file server. There are several advantages to using a
content repository:
Web content, stored in a common location, can easily be accessed and, when necessary, reused in a
variety of ways.
A standardized look and feel is easily maintained for Web pages when the content, templates, and style
sheets are stored in a content repository.
Content can be created, modified, and updated from any location, but approval of the content and its
scheduled publication to a Web site can be controlled. For example, news reports can be entered into a
content repository from reporters anywhere in the world, but the flow of those news reports to a Web
site can be tightly scheduled and controlled.
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2.6 Content Collaboration and Distribution
Content collaboration is a term used to describe the workflow process the authoring, reviewing, approving,
storing, and tracking involved in creating Web content. Creating standard policies and procedures for author,
editor, and approver workflow collaboration can help an e-business to better manage its Web content. For
example, in the collaboration process multiple versions of Web content might be created. A Web content
management system can save each version of the new Web content and then track each version as it moves
through the Web content management process ensuring that only the final, approved version is published to the
Web site.
[Content collaboration and distribution]
Publishing content to a Web site is also called content distribution. Most Web content management systems can
also control the automatic publishing of approved content on a scheduled basis; for example, an e-business can
schedule an important press release about a new product or about a management change to appear at its Web
site at just the right time. High-end Web content management systems can also automatically adapt content for
different devices; for example, adapting the same content for viewers with a handheld wireless device and for
viewers using a personal computer with broadband Internet access. Automatically distributing updated and new
content to a Web site can reduce an e-businesss Web site administration costs and improve employee
productivity. Figure 9-16 illustrates the content collaboration and distribution process.
2.7 Content Not Developed In-House

Some Web content is not developed by in-house authors, but is instead purchased from vendors. For example,
one type of content especially popular at portals is current news. E-businesses such as YellowBrixs iSyndicate
and Interest! Alert Inc. sell or syndicate news and other types of content to other e-businesses. Including current
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news works well as an addition to a portal for several reasons. Current news gives a portal a fresh feel, and
attracts viewers looking for the most recent news updates.
3. Search Engine Technologies

The Internet and the World Wide Web have brought with them a crush of information. Directories and search
engines are the search tools that help Web viewers sort through this crush to find specific information.
Consumers often use search engines and directories when looking for e-businesses that offer specific products
and services; therefore, anyone responsible for an e-business Web site must have a basic understanding of
directories and search engines in order to maximize his or her e-businesss placement in search results lists. In
the next two sections you learn more about how directories and search engines work.
3.1 Directories
A directory is a Web site that maintains an index of other Web sites and categorizes these other Web sites by
subject. For example, a directory might first categorize all the entertainment-related Web sites in its index into a
broad general category such as Entertainment. Additionally, each entertainment Web site might belong to a
subcategory such as Movies or Television or Video Games. Within each subcategory, a Web site might be further
categorized by type of movie, or television show, or game, and so forth.
A directorys Web pages contain links to each of its Web site categories and subcategories. For example, when a
viewer clicks the Entertainment category link, he or she may then see the Movies, Television, and Video Games
links. To find links to Web sites containing information about Movies, the viewer then clicks the Movies link and
continues clicking subcategory links until finally finding links to individual movie Web sites.
3.2 Search Engines

A search engine is a Web site that maintains a searchable index of keywords found in Web pages. Search engine
indexes are updated automatically by software called spiders (or robots). Spiders follow links between Web
pages throughout the entire Web, adding any previously un-indexed Web pages to the search engines index. An
individual or e-business can also submit its Web site information to many search engines. This ensures that a
Web site is added to a search engines index more quickly than if the Web sites administrator simply waited for
the search engines spider to locate and index the site.
3.3 Using Search Tools to Build a Web Site Audience

An e-business can exploit directory and search engine technologies to help drive customers to its Web site. As
you have learned, e-businesses can submit their Web site information to directories. Additionally, most search
engines combine a submission system with an automated system to build their indexes. E-businesses make
these submissions using forms accessed at the search tools Web site. Generally, the first step in submitting Web
site information is to carefully prepare a short description of effectively chosen words that describe the e-
business and that can capture viewers interest. Next, an e-business usually submits a set of approximately 25
primary keywords or phrases that potential viewers might enter when using a search engine or directory to
locate Web sites similar to the e-businesss Web site. These keywords should not duplicate the description, but
complement it.
4. Measuring Web Site Performance

Comparing actual financial results to a companys business plan is essential when attempting to measure the
performance of any business. When measuring an e-businesss performance, though, its perhaps equally
important to measure the effectiveness of the e-businesss Web site. However, for many e-businesses,
measuring Web site effectiveness or performance is more difficult than measuring traditional financial results. For
example, the benefits that adhere to an e-business from investments in Web content management and other
Internet technologies are sometimes nebulous. Nevertheless, measuring a Web sites performance is very
important. Success or failure for many e-businesses is determined by the e-businesss ability to learn from
experience and make necessary changes. Therefore, the most important reason for an e-business to measure
its Web site performance is to learn how to improve it. An e-business can use benchmarks and Web metrics to
evaluate Web site performance.
4.1 Benchmarks
A benchmark is a performance-based objective. Part of measuring a Web sites performance includes setting
benchmarks and then measuring the Web sites actual performance against those benchmarks. This process
enables an e-business to make better business decisions for its current operations and for its long-term business
strategies. Typical benchmarks for a Web sites performance might include the number of visitors to the Web site
or the number of user actions taken at the Web site, such as placing orders or submitting registrations. The
process for setting and evaluating benchmarks includes:
Determining individual Web site operating goals.
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Setting benchmarks.
Comparing actual results against these benchmarks.
Drawing reasonable conclusions about these comparisons.
4.2 Web Metrics

Because any e-business requires a large investment in resources (people, money, time, technology, and so
forth), some return on those invested resources is naturally expected. Traditional calculations that determine a
return on investment (called ROI) are applied to an e-businesss financial data and measure an e-businesss
profitability. However, an e-business must also be concerned with its Web site ROI, which is much more difficult
to calculate and which may not immediately translate into profits. For example, Web site investments that
increase customer satisfaction may not be immediately measurable in profits; however, in the long run,
increased customer satisfaction should lead to increased revenues and increased profits.
Today, several Web metrics (such as pages viewed, the number ofWeb site visitors, the ratio of actual orders to
Web site visitors, and so forth) are used instead of hits to measure Web site ROI. In general, Web metrics are
divided into simple metrics (also called basic metrics), and more complicated metrics (called advanced metrics).A
Web sites server log files are often the source of basic Web metrics, such as the date and time certain Web
pages were accessed at the Web site. Advanced metrics require the combination of several basic
measurements. An example of such an advanced metric is the number of unique visitors. While the needs of an
individual e-business determine the level of Web metrics it wants to use, all e-businesses should, at a minimum,
exploit log file analyses to evaluate Web site ROI.
4.3 Tracking Web Site Viewers

The path that a viewer takes through a Web site is often referred to as a click trail. An e-business can identify a
viewers click trail by organizing information on the pages accessed from a specific IP address in sequential order.
One problem with analyzing a click trail is that an IP address may originate from a firewall or proxy server that
corresponds to the many individual viewers on the network behind the firewall or server. To counter this
problem, many e-business Web sites use cookies to track an individual viewer as he or she travels through their
Web sites.
A cookie is a message passed to a Web browser by a Web server and then stored on the viewers hard drive as
a text file. The cookies text is available to the originating Web server each time the Web browser requests a
Web page from it. Even if multiple viewers access the same site through the same proxy server, each viewer has
a unique cookie on his or her hard drive, which enables the Web server to identify each viewer as unique. Using
cookies helps an e-business determine the correct number of unique viewers.
4.4 Web Site Traffic Tracking and Auditing Services

Some vendors offer services that track the visitors at an e-businesss Web site and prepare reports analyzing
that visitor traffic. Many e-businesses have the capability of generating their own visitor traffic reports; however,
it may be necessary at times to have an independent third-party audit and validate these visitor traffic reports.
For example, if an e-business sells advertising, its advertisers often want an audit of visitor traffic data by an
independent third party in order to verify that the expected number of viewers are seeing their ads.
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E-business

Please read the instructions given below related to Course "E-business"

There are 5 sections in this course. All sections are mandatory.

In Section 1 of this course you will cover these topics:

The World Of E-Business

In Section 2 of this course you will cover these topics:

In Section 3 of this course you will cover these topics:

Wireless Technologies For E Business

In Section 4 of this course you will cover these topics:

Electronic Commerce Systems

In Section 5 of this course you will cover these topics:

E-Business Network And Web Site Security

In Section 1 of this course you will cover these topics:

The World Of E-Business

Topic 1: The World Of E-Business

1.2 Critical Factors of E Business

Collaborative Planning, Forecasting and Replenishment: This is a process in which manufacturers,

3. Elements of an E-Business Solution

[Figure 1.1: Ingredients of an e-Business Solution]

3.1 Customer Relationship Management (CRM) Systems

Production: manufacturing resource planning and execution process;

3.3 Supply Chain Management (SCM)

4. E-Business Roles and their Challenges

Transform the company to a process-centric one: It should be possible for companies to be

Understand security requirements: The breadth of access and interaction representative of e-

Harmonization and standardization of processes: To provide simple, transparent, and effective

Improved internal information access: Quantities and qualitative improvements to internal

We can discern five broad categories of e-Business impediments.

7.1 Management/Strategy Issues

Organizational Changes required by E-Business: Traditional organizational structures may not be

7.2 Cost/Financing Issues

7.3 Security and Trust Issues

7.4 Legal Issues

7.5 Technological Concerns

7.6 Arguments against Investment

Topic 2: E Business Strategy

[Figure 2.1: Relationship between E-Business and Other Organization Strategies]

3. Levels of E-Business Strategy

4. The Changing Competitive Agenda: Business and Technology Drivers

5. The Strategic Planning Process

[Figure 2.2: The Strategic Planning Process]

[Figure 2.3: Forms of Strategy]

Business objectives and the competitive environment;

7. The Consequences of E-Business: Theoretical Foundations

7.1 Theory of competitive strategy

The bargaining power of customers.

7.2 The Resource-Based View

Topic 3: Spotting E Business Trends

2.1 Faster Service: For the Customer, Time Is Money

2.2 Self-Service: Empowered Customers

2.3 More Product Choices: More Personalization

2.4 Integrated Solutions, Not Piecemeal Products

3.1 Integrated Sales and Service: Customization and Integration

4.1 Outsourcing Management: Flatten the Organization

4.2 Contract Manufacturing: Become Brand Intensive

4.3 Virtual Distribution: Become Customer-Centric

5.1 Hiring the Best and Brightest

5.2 Keeping Talented Employees

6. Enterprise Technology Trends

6.1 Integrated Enterprise Applications: Connect the Corporation

6.2 Multichannel Integration: Look at the Big Picture

6.3 Middleware: Support the Integration Mandate

7. General Technology Trends