Commerce is the exchange of goods or services between parties using money or a barter system. Electronic commerce (e-business) is commerce via Electronic Data Interchange or EDI. Multiple users (buyers and sellers) use electronic networks to transmit information (e.g., credit card information, membership information, and order requests) that can facilitate the purchase of goods or services.
Defining e-business, however, is not as easy because it can entail various levels of involvement within a company. An e-business is one which is implementing fundamentally reworked business processes internally and externally to take advantage of information to compete in the digital marketplace. Until recently, the electronic networks have consisted of direct point- to-point communications or interactions through a third-party Value-Added Network (VAN). But, with the growth of the Internet and the World Wide Web, a new channel has emerged offering global access at a fraction of the cost, drastically expanding the opportunities for e-business.
E-business can include any electronic business transaction that is information-laden including inter and intra-firm communications, procurement, sales and marketing, business processes and after sales service. Some examples of the types of processes and relationships that can be affected by e-business are:
- Supply Chain Management (SCM) and supplier processes: electronically linking with suppliers to automate procurement, ordering, inventory control and payment processing.
- Customer Relationship Management (CRM) and customer-service processes: using electronic networks to provide marketing, sales, order and payment processing, and customer support.
- Enterprise Resource Planning (ERP) and internally focused processes: automating “back office” functions such as operations, finance, and personnel management.
E-business can enable companies to improve the performance of these processes and functions, facilitating a more efficient and effective exchange of goods and information among suppliers, distributors, and customers. Once these parties are able to access the same information in real time, they can become more efficient and reduce transaction times and costs.
In order to undertake an e-business initiative, a company must be prepared to redesign its old methods of doing business. E-business is not simply about restructuring or adding an IT department because it affects the methods used by all departments to carry out various functions. It requires a comprehensive strategy to determine the direction a company should take regarding e-business and it requires the redesign of business processes to execute the intended strategy. It also requires the technology or Information Systems (IS) infrastructure capable of carrying out the intended processes electronically.
Despite these requirements, the basic rules of business still apply. Specifically, companies need to give customers what they want, when they want it, at the right price, and with the expected quality. Satisfying these rules is more critical and challenging than ever before as the Internet allows customers to raise their expectations to higher levels. Companies that understand the implications of e-business and capitalize on the opportunities it can bring will satisfy these basic rules of business and succeed.
But, is e-business for all companies regardless of industry or company size? The answer is an unqualified yes! While not every company should sell directly online, offer online configuration and mass customization, private intranet pages, provide electronic order tracking, establish online data repositories, or undertake other e-business initiatives; all companies should be pursuing a strategy that incorporates elements of e-business into their operations.
This topic discusses the role of electronic business in a normal business environment. It will define the concept of electronic banking and online trading and will discuss the impact of e-business.
E-business versus Traditional Business
The competition is getting more intense due to globalization and the fact that the use of technology is lowering the costs of business transactions. Companies who realize the potential of e-business and are quicker to move toward it will realize the benefits more than those who wait too long.
E-business has three elements that differentiate it from traditional business.
- Knowledge exchange and processing – With e-business, many different individuals, organizations or departments within organizations are able to exchange and process information rapidly. This enables companies to have a better understanding of their customers and business partners. Electronic communication can provide a common platform or language for computers to exchange information. Once information has been exchanged, it can be processed more efficiently as well. This means it can be processed more accurately, more quickly and far less expensively than through traditional means. Many business services, such as statistical reporting, ordering, and inventory and order control systems can benefit from the continual increase in the processing speed of today’s computers. This increased speed allows companies to better react to changes that take place.
- Physical proximity and time – e-business allows parties to communicate and transact business without being in the same physical location. Some industry experts have called this “the death of distance” which translates into the concept that the importance of physical proximity between buyer and seller is less crucial than other business factors like price, product features, responsiveness and service.
Additionally, communications and transactions may take place at any time. As a result, small and medium-sized businesses are able to reach new, potentially far-flung markets at a low cost around the clock. One drawback of this element is the necessity to incorporate effective security measures to promote secure transactions.
- Mass customisation – e-business can facilitate a new model of production commonly referred to as mass customisation. Mass customisation means that producers can offer, and consumers may demand, products and services tailored to their particular tastes. The “one size fits all” mentality of traditional commerce is replaced with customized production made possible by e-business. E-business allows companies to use information technologies to create products and experiences for their customers that differ from competitors’ products and services. For instance, companies such as Dell computers build products to specification based on information provided by customers. Other companies use methods of capturing customer preferences and patterns to create a personalized experience each time the customer returns to use the company’s Web site.
The tide is turning away from “one-to-many” marketing to “one-to-one” marketing. This shift is giving customers more power as businesses create products for customers rather than finding customers for existing products. As more companies move toward this model of mass customization and customers begin to expect customized products, companies who do not alter their production to meet this demand may lose customers.
Types of E-business
There are three broad categories of e-business. Familiarization with these will be important in determining an appropriate strategy.
- Business-to-Consumer e-business is the more widely recognized flavor of e-business.
- Business-to-Business e-business is the largest of the three in terms of total dollar amount and is actually growing faster than Business-to-Consumer e-business. Business-to-Business includes the transaction of business between trading partners.
- Business-to-Government involves the exchange of information between businesses and government agencies. Through Business-to-Government e-business, government agencies conduct transactions directly with businesses using the Internet.
Advantages of E-business
The potential advantages of e-business are numerous. The electronic medium may reduce or eliminate many costs associated with doing business (e.g., investments in real estate and facilities or the reduction of certain administrative costs). Additionally, the reach of the electronic medium opens up many opportunities. The following are the primary advantages of pursuing e-business:
Promote Availability and Market Reach — Electronic media is available twenty-four hours a day, seven days a week from any location in the world with an Internet connection.
- Build Buyer/Seller Relationships — Buyers are able to receive highly customized service and can build one-to-one relationships.
- Reduce Costs — Overhead costs, paperwork, time and errors can be reduced.
- Improve Marketing Capabilities — Analysis of markets and products may be improved because buyer information is more readily available.
- Promote Brand Equity – Build your small company’s reputation and brand among far-flung buyers.
- Meet the Price of Entry – Increasingly, companies in many supply chains and in many industries are being forced to do business electronically in order to be considered as viable partners.
Companies need to redesign operations of their business processes in order to achieve the full advantages that e-business has to offer. For example, a company may present a good “front end” web site that successfully generates sales, but it may process orders using traditional business processes. In this case, the company is not a fully integrated e-business. It may receive an order over the Internet, but then manually process the order, which implies that the inefficiencies associated with labour-intensive, manually-driven processes.
On the other hand, companies that integrate their front end web presence with their back office operations and production operations can become far more competitive by responding faster to customer needs, becoming more flexible in their operations and offering improved service.
It is important to recognize that all businesses in all industries are moving towards more use of e-business applications. Manufacturing is an industry segment that is increasingly requiring e-business adoption among companies at all stages of the supply chain. This is due to the fact that many manufacturers already have been using e-business for decades in the form of EDI. Large manufacturers are constantly looking for productivity improvements and cost reduction opportunities among suppliers; and concepts like agile manufacturing and supply chain management initiatives are popular among top tier manufacturers which drive e-business requirements upstream.
Issues with E-business
E-business has a number of potential advantages, but there are several potential challenges as well. Among the notable challenges are:
- Customs – Countries may have a difficult time enforcing and determining if transactions made over the Internet are subject to customs and duties.
- Confidentiality – The widespread availability of data requires measures to respect individual rights to confidentiality.
- Regulations – The widespread availability of the Internet blurs the lines for enforcement and jurisdiction of regulation issues.
- Fraud – The Internet may provide anonymity to those involved in fraudulent activity.
- Security – Protecting the integrity of information is important to the growth of electronic commerce.
Summary
E-business allows parties to communicate more efficiently at lower cost and with potentially far more flexibility. In particular, business-to-business e-business provides business partners with the ability to electronically connect with each other and improve interactions from sales through service. Although e-business has many benefits for businesses and consumers alike, there are several concerns such as security and confidentiality that continue to require consideration.
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