The Impact Of E-Business
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In this write up the focus is mainly on e-business. It consists of critical discussion and analysis of the impact of adopting e-business orientation. It also contains relevant information on the current state of e-business market.
The report also talks about the differences between, advantages and disadvantages of e-business and e-commerce. Recommendations and advice have been given in the end for businesses intending to adopt an e-business dimension.
DEFINITIONS OF E-BUSINESS AND E-COMMERCE:
The terms e-business and e-commerce are closely related but have some elements of differences between them.
The term e-business was first coined by Lou Gerstner, CEO of IBM. According to Wikipedia (2006), e-business is any business process that relies on automated information system, which today is mostly done with web based technologies (Wikipedia, 2006). The Aberdeen Consulting Group defines e-business as “the automation of the entire spectrum of interactions between enterprises and their distributed employees, trading partners, suppliers, and customers.” (Intel.com, 2006) http://www.intel.com/it/pdf/e-business-value.pdf (27/12/06)
E-business is a wider concept that takes into account all the aspects of use of information technology in business. Apart from buying and selling, it also includes servicing customers, collaboration with business partners, and engages incorporation across business processes and communication within the organisation (Rowley, 2002)
According to the author, e-business is conducting business on the internet by not only buying and selling goods, but also servicing clients and collaborating with business partners by using all the human technologies.
E-commerce definition: E-commerce is about the sale and purchase of goods or services by electronic means (Chan et al, 2004). This is one of the most simple, basic and self explanatory definition of e-commerce.
DIFFERENCE BETWEEN E-BUSINESS AND E-COMMERCE:
E-business and e-commerce are terms that are sometimes used interchangeably, and sometimes they are used to differentiate one vendor’s product from another. In both cases, the e stands for "electronic networks" and describes the application of electronic network technology - including Internet and electronic data interchange (EDI) - to improve and change business processes (Bartels, 2000)
E-commerce or electronic commerce is carrying out business communications and transactions through computers and over networks. It involves buying and selling of goods and services through digital communication. E-commerce also includes transactions on the World Wide Web and the Internet and means such as electronic funds transfer, smart cards and digital cash. E-commerce covers outward facing processes that interact with customers, suppliers and external partners such as sales, marketing, delivery, customer service, purchasing of raw materials and supplies for production.
It involves new business models and the capability to gain new revenue. So E-commerce is a subset of e-business.
E-business or electronic business evolved from e-commerce. It is conducting business on the internet by not just selling and buying of goods but also servicing customers and join forces with business partners. Most companies have realised that the internet is a long term thing and will is here to stay. Corporate leaders have become conscious of the fact that in order to maintain the competitive edge they must become e-business as well (Altekar, 2005, Supply chain management, Prentice hall of India, New Delhi,Pg. 373)
E-business includes e-commerce and is a much broader concept than e-commerce. It also covers internal processes such as production, new product development, stock management, risk management, finance and HR. E-business is more complex and more focused on internal processes. It is aimed at improving efficiency, productivity and cost savings as well (Bartels, 2000)
CURRENT STATE OF E-BUSINESS MARKET:
A research by Forrester research and cowls/samba information showed that in 1994, 240 million dollars worth of business was done on the internet.
Source: Forrester research and cowls/samba information
In the year 1996, that figure quadrupled and rose to 993.4 million US dollars and in the year 2000 it touched 6.9 billion US dollars. Business through internet is growing day by day. Most of the companies have realised that internet is a big electronic market and companies like Google, Amazon and E-bay are prime examples of it. Most of the companies now days have their own website and business on the internet have been adopted by large and small organizations (Kosiur, 1997)
GENERAL IMPACTS OF ADOPTING E-BUSINESS:
E-business now is not a new concept. The current state of e-business started taking its shape at the beginning of this century. The growth and its impact have been dramatic and will continue to be so. It is promoting a new, borderless global economy which is not only a technological issue but also a new approach of doing business. In brief, organisations are externalizing their business applications via internet in order to gain competitive advantage. The three key areas of focus are: 1) Business employee (such as intranet e-business sites) 2) Business to business (E-supply chain, e-marketing, e-support) and business to customer (via e-lobby or enterprise portal) (Hurwitz S J, 1999) http://www.informationweek.com/743/43uwjh.htm (29/12/06)
The impact of E-business/IT on business relationship has been in theoretical level two folded. First, it has had a huge impact on internal process like book-keeping and salary payments, which happen inside a company engaged in a business relationship. Computerization from large mainframes to inexpensive PC’s with modems is an apparent improvement of internal processes. Secondly, it has had an impact on the number of connections, I-EDI and new viable connections ERP2 to other organisations. Both the levels of impacts are interlinked. Before a company fully engages itself in activities in a business that require digital tools e.g. software or extranet, the internal information systems and e-business possibilities have to be in place. The internet and many other new technologies form possibilities for people and organisations to build, maintain, and end business relationships with organisations (Salo, J, 2004) http://www.taloustieteet.oulu.fi/henkilokunnan_sivut/karjaluoto/publications/j8.pdf (31/12/06)
ADVANTAGES OF ADOPTING E-BUSINESS ORIENTATION:
An e-business solution will not only add value, but offer many other business advantages as well. Some of them are:
• Removes location and availability restrictions - An online business has a global marketplace. Information about the product can be accessed from anywhere in the world with the help of internet facility. Similarly orders can also be booked online. Therefore users need not necessarily be present in the same location where the company is.
• Reduction in time and money spent – Many of the traditional business procedures can be replicated with electronic means. Less paperwork is one of the major cost cutting factors in an e-business application. Similarly, cost of paying rent at a physical location can also be saved as compared to cost of maintaining an online site.
• Gives competitive advantage – Easy access to real time information is an important benefit of the internet, enabling a company to give efficient and valid information. An organisation can gain competitive advantage over those companies that are not there on the internet (onlinebusiness.com, 2006) http://onlinebusiness.volusion.com/articles/e-business-advantages/ (31/12)
• Reduced cost of doing business – It helps reduce inventory, employees, purchasing cost, transaction costs, order processing costs related with fax, phone calls, etc.
LIMITATIONS / DRAWBACKS OF E-BUSINESS:
There are lots of problems and issues with e-business. Some of them are discussed below:
• Trust: People are quite reluctant to buy high value goods or services using electronic medium. The main reasons for such mistrust are security and hesitation to release personal information on the internet.
• Security: One of the biggest disadvantages of e-business is security. Other people can easily get personal and financial information of the customers. Most of the companies don’t have authentic and secured transaction systems. Many developments have been made to make transactions over the internet safe and secure, like pay pal, secure server, etc.
• Technological standards: Technological standards develop quickly in electronic markets. Some of these standards are not secure or have problem of integrating with standards in other areas.
• Re-intermediation: One of the problems is difficulty in finding the exact suppliers of goods and services.
• Higher number of errors: The amount of mistakes made with customers and suppliers is much more visible in electronic markets (Davies, 2004)
DIFFERENT FORMS OF E-BUSINESS:
Business to Business (B2B) – It involves companies buying from and selling to each other, on the internet. In other words it is commercial activity between businesses. Online B2B is growing fast in both horizontal and vertical markets. In a horizontal market, companies in one industry sell to companies in other industries, whereas in a vertical market business takes place among companies operating in the same industry in a sequential supply chain (Oz, 2002)
Business to Consumer (B2C) – It applies to any business or organisation that sells its products or services to consumers on the internet for its own use. About one fifth of e-commerce takes place between businesses and consumers. B2C is of greater interest to the public, because most of the online buyers are people (in millions) and not organisations (Patton, 2006) http://www.cio.com/ec/edit/b2cabc.html (1/1/07)
Consumer to Consumer (C2C) – It supports the community chain surrounding the organisation. In other words C2C e-commerce is a commercial extension of community activities. It usually takes place between individuals and involves forms of cash dealings generally for low cost goods or services (Davies, 2004)
PORTER’S FIVE FORCES ANALYSIS AND ITS USE IN E-BUSINESS:
To understand the influence of an organisation’s environment on a company, Porter’s five forces model is used. By recognizing the possible impact of e-business on each of these forces, the influence on the organisation’s environment is estimated. The five forces and its use in e-business are as follows:
1. Entry of new competitors – E-business can help companies enter into new markets. Through the internet small and medium organisations can think of gaining new customers by reaching people in other parts of the world. By using standard and open systems, switching costs will reduce for customers and suppliers. Capital requirements will also decrease to enter a new market.
2. Bargaining power of buyers – To strengthen the relation between buyers and suppliers using high software investments were things in the past. Modern technologies allow forward and backward incorporation in the value chain. The intermediaries are under pressure e-business enables to have direct links across various levels in the supply chain. Due to this there is increased transparency in the market.
3. Bargaining power of suppliers – Effects mentioned above for the ‘power of buyers’ can be replicated to describe the power of suppliers. In order to find, expand and retain relationships with customers, suppliers will have to raise their efforts.
4. Threat of substitutes – Due to the increased transparency of markets it is easier for organisations to develop substitutes for other markets. Huge amount of market data can be collected and analysed by applying new internet technologies. Also because of decreased switching costs new substitutes are more likely to enter the markets.
5. Rivalry among existing competitors – As mentioned above, e-business permits companies from other industries or various countries to enter into new industries. This gives rise to more players in the same market and eventually increases competition (Hooft et al, 2001)