Overview of E-Commerce Technology
What Is Electronic Commerce?
Electronic commerce is doing business online. It is about using the power of digital information to understand the needs and preferences of each customer and each partner to customize products and services for them, and then to deliver the products and services as quickly as possible. Personalized, automated services offer businesses the potential to increase revenues, lower costs, and establish and strengthen customer and partner relationships. To achieve these benefits, many companies today engage in electronic commerce for direct marketing, selling, and customer service; online banking and billing; secure distribution of information; value chain trading; and corporate purchasing.
Although the benefits of electronic commerce systems are enticing, developing, deploying, and managing these systems is not always easy. In addition to adopting new technology, many companies will need to reengineer their business processes to maximize the benefits of electronic commerce.
An electronic commerce strategy should help deliver a technology platform, a portal for online services, and a professional expertise that companies can leverage to adopt new ways of doing business. Platforms are the foundation of any computer system. An e-commerce platform should be the foundation of technologies and products that enable and support electronic commerce. With it, businesses can develop low-cost, high-value commerce systems that are easy to grow as business grows. An e-commerce platform?s breadth should also be unmatched, ranging from operating systems to application servers, to an application infrastructure and development tools, and to a development system.
Portals are the crossroads of the Internet, where consumers gather and where businesses can connect with them. Companies normally provide customers with a wide range of choices for professional implementation services and tightly integrated software for commerce solutions. Independent software vendors (ISVs) have created specialized commerce software components that extend the platform.
This guide details introductory strategies and priorities for electronic commerce, which sets the stage for the rest of the book. It also describes how the platform, portal, and partners are critical to solving business problems in the four most common areas of electronic commerce: direct marketing, selling, and service; value chain integration; corporate purchasing; and financial and information services.
E-Commerce: Doing Business on the Internet
Businesses communicate with customers and partners through channels. The Internet is one of the newest and, for many purposes, best business communications channels. It is fast, reasonably reliable, inexpensive, and universally accessible?it reaches virtually every business and more than 200 million consumers. Doing business online is electronic commerce, and there are four main areas in which companies conduct business online today: direct marketing, selling, and service; online banking and billing; secure distribution of information; and value chain trading and corporate purchasing.
Direct Marketing, Selling, and Service
Today, more Web sites focus on direct marketing, selling, and service than on any other type of electronic commerce. Direct selling was the earliest type of electronic commerce, and has proven to be a stepping-stone to more complex commerce operations for many companies. Successes such as Amazon.com, Barnes & Noble, Dell Computer, and the introduction of e-tickets by major airlines, have catalyzed the growth of this segment, proving the reach and customer acceptance of the Internet. Across consumer-targeted commerce sites, there are several keys to success:
Marketing that creates site visibility and demand, targets customer segments with personalized offers, and generates qualified sales leads through observation and analysis of customer behavior.
Sales-enhancing site design that allows personalized content and adaptive selling processes that do more than just list catalog items.
Integrated sales-processing capabilities that provide secure credit card authorization and payment, automated tax calculation, flexible fulfillment, and tight integration with existing backend systems, such as inventory, billing, and distribution.
Automated customer service features that generate responsive feedback to consumer inquiries, capture and track information about consumer requests, and automatically provide customized services based on personal needs and interests.
This business-to-consumer (B2C) electronic commerce increases revenue by reaching the right customers more often. Targeted and automated up-selling and cross-selling are the new fundamentals of online retailing. Sites that most frequently provide the best and most appropriate products and services are rewarded with stronger customer relationships, resulting in improved loyalty and increased value.
Financial and Information Services
A broad range of financial and information services are performed over the Internet today, and sites that offer them are enjoying rapid growth. These sites are popular because they help consumers, businesses of all sizes, and financial institutions distribute some of their most important information over the Internet with greater convenience and richness than is available using other channels. For example, you have:
Consumers and small businesses can save time and money by doing their banking on the Internet. Paying bills, making transfers between accounts, and trading stocks, bonds, and mutual funds can all be performed electronically by using the Internet to connect consumers and small businesses with their financial institutions.
Companies that bill can achieve significant cost savings and marketing benefits through the use of Internet-based bill-delivery and receiving systems. Today, consumers receive an average of 23 bills per month by mail from retailers, credit card companies, and utilities.
Secure Information Distribution
To many businesses, information is their most valuable asset. Although the Internet can enable businesses to reach huge new markets for that information, businesses must also safeguard that information to protect their assets. Digital Rights Management provides protection for intellectual and information property, and is a key technology for secure information distribution.
Maintenance, Repair, and Operations (MRO)
The Internet also offers tremendous time and cost savings for corporate purchasing of low-cost, high-volume goods for maintenance, repair, and operations (MRO) activities. Typical MRO goods include office supplies (such as pens and paper), office equipment and furniture, computers, and replacement parts. The Internet can transform corporate purchasing from a labor- and paperwork-intensive process into a self-service application. Company employees can order equipment on Web sites, company officials can automatically enforce purchase approval and policies through automated business rules, and suppliers can keep their catalog information centralized and up-to-date. Purchase order applications can then use the Internet to transfer the order to suppliers. In response, suppliers can ship the requested goods and invoice the company over the Internet. In addition to reduced administrative costs, Internet-based corporate purchasing can improve order-tracking accuracy, better enforce purchasing policies, provide better customer and supplier service, reduce inventories, and give companies more power in negotiating exclusive or volume-discount contracts. In other words, the Internet and e-business have changed the way enterprises serve customers and compete with each other, and have heightened awareness for competing supply chains.
No other business model highlights the need for tight integration across suppliers, manufacturers and distributors quite like the value chain. Delays in inventory tracking and management can ripple from the cash register all the way back to raw material production, creating inventory shortages at any stage of the value chain. The resulting out-of-stock events can mean lost business. The Internet promises to increase business efficiency by reducing reporting delays and increasing reporting accuracy. Speed is clearly the business imperative for the value chain.
Unfortunately, speed can be costly. Today, approximately 60,000 businesses exchange business documents such as orders and invoices with their trading partners through a standard communication and content protocol called Electronic Data Interchange (EDI). Most EDI implementations use leased lines or value added networks (VANs) that require significant integration for each trading partner. Network design, installation, and administration can be costly in terms of hardware, software, and staff. In fact, these costs are the key reason that EDI is most widely deployed only in larger companies.
Moving forward, all companies will be able to take advantage of value chain integration through the low cost of the Internet. Open standards for electronic document exchange will allow all companies to become Internet trading partners and function as suppliers, consumers, or both in this business-to-business electronic commerce. This integrated trading will tighten relationships between businesses while offering them greater choices in supplier selection.
Issues in Implementing Electronic Commerce
Although it is simple to describe their benefits, it is not nearly as easy to develop and deploy commerce systems. Companies can face significant implementation issues:
Electronic commerce requires significant investments in new technologies that can touch many of a company?s core business processes. As with all major business systems, electronic commerce systems require significant investments in hardware, software, staffing, and training. Businesses need comprehensive solutions with greater ease-of-use to help foster cost-effective deployment.
Businesses want to know that their investments in electronic commerce systems will produce a return. Business objectives such as lead generation, business-process automation, and cost reduction must be met. Systems used to reach these goals need to be flexible enough to change when the business changes.
The Internet provides universal access, but companies must protect their assets against accidental or malicious misuse. System security, however, must not create prohibitive complexity or reduce flexibility. Customer information also needs to be protected from internal and external misuse. Privacy systems should safeguard the personal information critical to building sites that satisfy customer and business needs.
Leveraging Existing Systems
Most companies already use information technology (IT) to conduct business in non-Internet environments, such as marketing, order management, billing, inventory, distribution, and customer service. The Internet represents an alternative and complementary way to do business, but it is imperative that electronic commerce systems integrate existing systems in a manner that avoids duplicating functionality and maintains usability, performance, and reliability.
When systems from two or more businesses are able to exchange documents without manual intervention, businesses achieve cost reduction, improved performance, and more dynamic value chains. Failing to address any of these issues can spell failure for a system?s implementation effort. Therefore, your company?s commerce strategy should be designed to address all of these issues to help customers achieve the benefits of electronic commerce.
Your company?s vision for electronic commerce should also be to help businesses establish stronger relationships with customers and industry partners. For example, a successful strategy for delivering this vision is described by three workflow elements (platform, portal, and industry partners), each backed by comprehensive technology, product, and service offerings.
From self-service portals to transaction processing, a successful workflow strategy can be the underlying engine delivering state-based, processed-focused control services for e-business applications. Human labor is expensive, and workflow technology allows e-businesses to supplement, and in some cases eliminate, reliance on human supervision and intervention.
Creating e-business processes without a vision for workflow is shortsighted and expensive. Workflow addresses business needs, streamlines transactions, and is the glue for process coordination and consistency.
Self-service applications are perfect examples of how workflow can be employed to automatically coordinate requests and track fulfillment, thereby allowing corporations to relocate human resources to more difficult tasks. E-business flexibility can be realized through workflow?s logic encapsulation that isolates the logic of the business process from the Web server middleware and associated Web pages. Every Web page click is an opportunity to invoke workflow-based interaction, guidance, and fulfillment.
E-businesses need workflow technology to react rapidly to process changes. For example, an instant change to the workflow process can be accomplished with a simple change to the workflow map by a nonprogrammer, to effect temporary or continuous changes in the business process, thus accommodating short-term business needs or long-term process improvements. A workflow driven e-business will see immediate shifts that allow it to process more efficiently under high volume circumstances.
The bottom line? Workflow design tools should be a core requirement for e-business applications.
Now, let?s take a look at the transformation of the scope of the Internet and the Web. The discussion centers around the Session Initiation Protocol?s (SIP) effect on multimedia-enabled e-commerce.
The Scope of the Internet and the Web
The renaissance of the Internet age launched an entirely new set of communication technologies and methods. As multiple technologies evolve and interoperate, so do complementary standards, such as those for multimedia applications. The advancement of multimedia applications for the Web has resulted in a wave of new technologies to enhance the Internet experience. From voice to video, the latest developments have resulted in the requisite standards to allow for the full maturation of the technology.
Voice over IP (VoIP) has gained acceptance within the last few years, with older standards enabling the technology. As more advanced standards mature and enhanced capabilities and features become available, the adoption of VoIP has begun to take off. For example, H.323 is currently the dominant standard for initiating a voice session. But, as more multimedia services, such as unified messaging, video conferencing, instant chat, and presence, gain acceptance in an Internet Protocol (IP) environment, more robust standards are needed. Hence, the creation of an HTTP-based protocol?Session Initiation Protocol (SIP).
SIP?s main functions are signaling and call control for IP-based communications. It defines the desired service for the user, such as point-to-point calls, multipoint conferencing, text, voice, or video. Using the protocol, SIP servers perform a routing service that puts the caller in contact with the called party, taking into account the desired service and user preferences. Because SIP has its foundation in HTTP, it eases the integration of voice with other Web services.
The Benefits of SIP
As the new voice-ready IP standard, SIP enables the initiation of an interactive Internet experience involving multimedia elements, such as video, voice, chat, gaming, and virtual reality. The main advantages of SIP for the VoIP market include enhanced scalability, easy implementation, and dramatically reduced call setup time.
Another key benefit of SIP for VoIP is the easy integration with many other IP services. Through SIP, service providers can easily add services and applications for VoIP customers while minimizing interoperability issues. SIP is flexible and extensible, easily supporting a wide array of endpoint devices and configurations. More importantly, SIP runs over IP networks, regardless of the underlying networking technology?asynchronous transfer mode (ATM).
By taking advantage of the Internet, SIP technology provides new service capabilities while supporting the use of key services from the circuit-switched telephone network. IP-based communications can use SIP Uniform Resource Locators (URLs) for addressing, similar to the World Wide Web, in which the form of the URL resembles an e-mail address. The support of both telephony and Web-type addressing enables IP communication to seamlessly bridge a telephone network and the Internet. Users on either network can reach any point on the Public Switched Telephone Network (PSTN) or the Internet without giving up the existing devices or advantages of either.
Enabling Multimedia E-Commerce with SIP
The emergence of SIP has opened up new doors of innovation, enabling the next generation of e-commerce through the use of VoIP and multimedia applications. The simplicity of SIP technology is facilitating the spread of VoIP around the world. SIP?s straightforward approach has encouraged developers of e-commerce applications and telecommunications providers to implement it into their customer relationship management (CRM) systems.
Traditional voice call centers for customer support are migrating to Web support centers where the focus is shifting from pure voice (800 numbers) to e-mail support, text chat, voice, and video with click-to-connect service. The integration of these applications brings a fresh dimension of communication to customer-facing Web sites. As customers experience the benefit of multiple touch points, enterprises are compelled to integrate these new communication methods into their CRM systems. As the enabling protocol, SIP is well-suited to bring these capabilities to the user.
Because support for instant messaging and presence is built into the SIP, a whole new level of customer communications can take place. Presence lets users know the availability of other parties, and when coupled with instant messaging and conferencing, allows for communications to happen in a spontaneous fashion. With these added functionalities, the online consumer can experience a rich customer support environment.
Because SIP enables real-time voice and video to become viable applications on many e-commerce Web sites, it enhances Internet call center productivity. With the click of a mouse, a customer can talk to or be in face-to-face contact with a service representative. This level of customer service allows an immediate personal connection with customers?one of the most critical aspects in CRM. The adoption of e-commerce will be bolstered further as consumers begin to rely upon this type of online customer service.
SIP-based communications can be achieved with any device, fixed or mobile, such as laptops and Internet-ready phones . In addition, because SIP supports name mapping and redirection services, it is possible for users to initiate and receive communications and services from any location, and for networks to identify users regardless of location. This adds an additional level of usability from a CRM perspective. As e-commerce spreads to cell phones and other handheld devices, this functionality will increase in importance.
Now, let?s look at how to use the Web to reach customers. Although customer experience includes intangible, nonquantifiable aspects, it also includes a wide range of entirely measurable Web site elements.
Using the Web to Reach Customers
The rules are the same. To succeed in e-business, just as in brick-and-mortar, you need customers. And, keeping customers is vastly cheaper than getting new ones. High rates of customer retention (and the referrals that accompany happy consumers) can mean the difference between success and going back to the drawing board.
The challenges that e-businesses face, however, in earning and retaining customers are different from those confronted by traditional business. A shopper who drives to the bookstore is not likely to put down the book he wants and drive to another location because of a line at the checkout stand. Someone looking for the biggest selection of CDs cannot go to 20 stores in 6 states in half an hour to check their selection. And, once you have received personal attention from someone at a store, helping you find exactly what you need, it isn?t hard to decide where to go next time.
The options and flexibility of doing business online put much more control in the hands of the consumer, placing a premium on the performance, effectiveness, and reliability of an organization?s Web site. There is no one to apologize to Internet customers when the service goes down, or when an image is missing, or to explain what an error message means. And, alternatives are just a click away.
For online consumers, the user experience is the most significant factor in customer retention. Customer experience comprises a range of issues, including ease-of-use, dependability, speed, as well as less quantifiable aspects of a Web site. As the Internet matures and evolves into a ubiquitous, if not preeminent, medium for business, those companies best able to monitor their Web sites and ensure a positive, rewarding customer experience will have an unparalleled advantage in the race to create and retain loyal customers.
The Shift to E-Business
There is no free lunch, though, and along with the benefits of doing business in the new economy comes a new kind of customer, one with different expectations and standards by which companies are judged. Web sites must offer a consistently positive customer experience to win over consumers. Inspiring loyalty is the biggest challenge to e-businesses, and e-consumers are a tough group to win. Thus, the attraction of moving an established, traditional business to the Internet (or of starting a new, pure-play Internet business) involves a variety of factors:
A small organization no longer has to be a local organization. Anyone with Web access (in a living room in Chicago, in a log cabin in Alaska, or in a caf? in Bordeaux) can spend their time, and their money, at any online business.
A company can have a significant Web presence and profile, even with relatively modest depth and breadth to its inventory. On the Internet, a small but very efficient company can have the profile of a much larger, deep-pocketed competitor.
24 ? 7 Availability
E-businesses do not have to close at the end of the day. Information and services can be available any time, any day, allowing revenue to be earned without interruption.
Targeted Focus and Cost Savings
Companies do not have to be all things to all consumers. Through the Internet, individual customers can get goods and services tailored to their needs. Significant savings from, among other things, streamlining inventory and distribution channels are possible in effective e-businesses.
New Medium and New Expectations
Internet consumers expect e-business to be faster and more extensive, with more options and services, than brick-and-mortar alternatives. They expect their experience online to be easy, as uncomplicated as buying a newspaper or filling the car with gas. And, if they encounter any problems with the site, or have difficulty understanding how it works, or are otherwise frustrated, they know they can go somewhere else, to another Web site, and be there in no time.
Speed is crucial for successful e-businesses. Consumers expect Web sites to be fast. A useful starting point is the eight-second rule of thumb. The rule says that a significant number of users are unwilling to wait longer than eight seconds for a page to load or an action to be executed, and as technology improves and speeds increase, the time users will wait before leaving the site is likely to decrease. Many factors, from fundamental site architecture to network traffic at certain times of the day, affect how fast a site will function. Vital for success in any e-business is ongoing monitoring of the performance of its site, identifying cycles of usage and ranges of performance, and making necessary modifications and upgrades to ensure speed.
There have been attempts to quantify the economic loss due to unacceptably slow Web page download speeds, which is one aspect of e-business customer churn. It is estimated that as much as $473 million is lost per month from customer bailout from impatience
If It Isn?t Broken
Key to the user?s experience and level of comfort in e-business is consistency. Whereas a brick-and-mortar business could not redesign the store every month, e-businesses can, and some do. The relative cost for changing the look and feel of an e-business is low, and the appeal of adding new features is a strong temptation. There is a fine line, however, between a ?sticky? site, one that attracts new customers and urges old ones to return, and a site that changes so often and in such ways that customers must relearn the site. Instead of spending the extra time to deal with the hassle, they will go to the competition, the one that is fundamentally consistent in its presentation and functionality, and they will stay there.
No Experience Required
Many new e-business consumers are novices not only with online transactions, but also with the Internet in general, and this complicates the issue of glitches and raises the ante for Web sites to function smoothly. A computer neophyte is less likely to understand, or have patience with, technical difficulties. A recent survey conducted by ICL, an e-business services company, indicates relatively high levels of stress and anxiety caused by computer problems for ?typical? users.
Forty-nine percent found computer problems more stressful than being stuck or delayed on public transportation.
Seventy-nine percent found computer problems more stressful than having to spend a weekend with a spouse?s parents.
Twenty-three percent found computer problems more stressful than being left by a partner or spouse.
No Web site runs perfectly 100 percent of the time, but those that are close to 100 percent (Web sites that minimize outages and are able very quickly to detect and correct problems when they do occur) have a significant advantage. Web sites that frustrate users scare them away; Web sites that consistently offer pleasant, easy experiences keep their customers.
The Often Missing Piece
A less tangible but equally vital aspect to customer loyalty in e-business is trust. For consumers, participation in a typical Internet business model requires divulging personal information for registration purposes, often including sending credit card numbers to the site. Increasingly, customers are cautious when sending such information and wary about sites that they suspect may not adequately guard the privacy of their demographic and financial information. Web sites that have prolonged outages or frequent transaction failures break the chain of trust with their consumers, pushing them to other providers that instill stronger confidence and, therefore, loyalty, in their customers.
To be successful, an e-business has to be:
Acquisition, Retention, and Referrals
Customer acquisition costs range wildly from one company to the next, but everyone understands that once a company has acquired customers, the key to maximizing revenue is keeping them.
Loyal customers are the best customers. People who are committed to Buick and who will not buy a car from any other manufacturer are the ideal consumers for Buick. They do not require further acquisition expenses, they will buy Buick cars for their children and recommend Buick to their friends, and they are statistically much more likely to buy up, getting newer models loaded with optional equipment. The recent boom in online loyalty reward programs demonstrates that e-business understands the lifetime value of loyal customers and is starting to shift resources to retention efforts. Many of these incentives are financial, offering repeat buyers the opportunity to earn points that can be redeemed for goods or services. Although low prices and points programs are a strong draw initially for consumers, e-consumers will, as in traditional business, grant their loyalties ultimately to those businesses that offer them the best experience, of which price is just one of several considerations. Low prices are the carrot on the stick for acquisition, but user experience and customer service are the tools of retention.
Of special interest to e-business are customers gained through referrals from existing customers, as well as customers lost due to negative reactions about a particular Web site. According to a recent Bain & Co./Mainspring survey, online apparel customers referred 4 people after the initial purchase and 8 people after 11 purchases. The global reach of the Internet becomes a handicap when a consumer brings up a list of dozens of online retailers in a given industry. E-business consumers are generally anxious for referrals from people they trust to help guide them through the ever-growing sea of Web sites.
Standard barriers to following through on a referral are absent in e-business. If a friend recommends a music store that is 45 minutes away, you might decide not to go because of the distance. Even a local store may not tempt you if you know that the parking is a nightmare or if the skies just dropped two feet of snow outside your window. When a friend recommends a Web site, you get cozy at your desk and go there.
Consumer trust, discussed earlier, is a unique challenge facing e-business. Going to a brick-and-mortar store lends a sense of confidence and implicit trust that has to be earned in other ways in the context of the Internet and of doing business through a computer screen. A referral from a trusted friend or colleague is invaluable to establishing a relationship between consumers and e-businesses.
Referrals also provide an exception to the high cost of acquiring new customers. Every customer who is referred to a company is ?free,? or is at least a significant offset to the marketing and sales budgets for customer acquisition. Though somewhat more difficult to measure, word-of-mouth advertising is extremely important and can have a remarkable impact on a company?s bottom line.
Poor Performance and Failure
E-businesses tread a thinner line than traditional businesses in efforts to attract and keep consumers. Someone who drives to a store will extend greater latitude to that shop (in terms of what the consumer likes or dislikes about the store, its selection, its layout, its service) than to a Web site. Online consumers expect speed, reliability, and broad selection. When they do not get it, they leave. All it takes to leave is typing a new Web address or following a link. For e-business, there is no dress rehearsal and often no second chance.
Internet users are increasingly barraged by new sites, new services, all competing for their eyes and their dollars. When consumers find a site they like, they add a bookmark and stop hunting. And when a site does not satisfy consumers, they don?t return and they tell their friends not to go.
At issue for consumers is the tension between knowing they have more control with e-business and feeling overwhelmed by the choices, and this tension can spell disaster for an e-business that does not adequately mind its store. Often a single negative experience for a consumer means he or she will not return to that site to give that company another chance. If someone tries to buy a puzzle online and the transaction fails, there are enough other online toy retailers that this consumer need never return to the one that failed. A recent study of online shopping by the Boston Consulting Group for a 12-month period reveals unsettling statistics for e-commerce companies battling to attract and keep consumers.
Ensuring the Customer Experience
Ensuring the Customer Experience
Given the economic repercussions of a company?s inability to build and retain a base of satisfied, loyal customers, the need for effective site-monitoring applications is paramount, and a site monitor must be sophisticated enough to measure more than uptime. According to Forrester Research, only 27% of site managers look beyond uptime to specific network performance standards, and even fewer monitor transaction success rates. It is these more complex data, however (not simply whether a page is available) that give important insight into the user experience and associated rates of retention and referral.
Service-level agreements (SLAs) that provide real value stipulate more than simply what percent of time a site will be up, and monitoring applications gives internal operators and hosting facilities the tools they need to measure other important parameters. Identifying whether a slowdown is from an application failure or from a network bottleneck is advantageous to IT personnel trying to fix the problem. Additionally, effective use of monitoring software can identify not only real-time glitches, but also design shortcomings. Thorough reports from monitors might show, for example, a system weakness that is responsible for transactional failures. The more quickly and accurately a problem and its cause are identified, the faster it can be fixed.
Monitoring software also gives companies the data they need to make projections about future site usage and the improvements required to accommodate increased activity. Successful e-businesses can see their usage double in as little as three to six months. Understanding growth and anticipating future needs can mean the difference between recognizing the need and getting that extra server now, or waiting until increased traffic crashes the system.
Features and services like these (what Forrester Research calls ?Transaction Management Services?) are provided through effective, sophisticated monitoring software. It is this integrated Web quality monitoring that Forrester sees as the next step to managing the total quality of Web-based business. If, as they predict, e-commerce reaches global hypergrowth by 2003, it will be those companies with effective monitoring systems already in place that are able to survive and succeed.
With the preceding in mind, how do industry-leading executives perceive the use of e-commerce technology in their companies? What are the business benefits provided by transaction management systems? Should your company build and maintain its own transaction management system, or buy electronic trading network services? This next part of the guide answers these questions and further discusses the costs, benefits, and perceptions of technologies that enable interenterprise information exchange, or what is described as the transaction management market (TMM).
I will put up the next guide soon.
Benefits of the E-Commerce Market
The letter ?e? lost much of its language-domineering swagger with the fall of the dot-com economy. Technology marketers, journalists, and analysts now cringe at ?e?-inspired products and concepts. Venture capitalists hide their money-stuffed mattresses when Silicon Valley experts drop by with business plans. Yet, electronic commerce veterans in some of the largest companies in the United States, companies such as Ford, Cisco, Wal-Mart, Procter and Gamble, McKesson, and Compaq, see opportunity in the midst of e-commerce turmoil.
Increasing Interest in Interfacing Technologies
Transaction management market (TMM) technologies automate machine-to-machine information exchange between organizations. The share of IT budget dedicated to solutions that interface with customers, suppliers, and service providers is increasing. This trend is evidenced by continued demand for CRM, order management, demand forecasting, sourcing, and procurement solutions despite difficult economic conditions. And, Web services market hype provides an almost deafening statement about the value of interfacing technologies. Therefore, as economic conditions improve and as eXtensible Markup Language (XML) standards begin to reduce intersystems integration costs, there will be an increased demand for transaction management technologies.
Nevertheless, although interfacing technology demand is consistent across most industry segments, the business conditions generating interest vary considerably. Ever-tightening electronic relationships between consumer packaged goods (CPG) manufacturers and larger retailers are driven by the need to accurately track and forecast demand for billions of fast-moving products through a low-margin, geographically dispersed network. High-tech manufacturers continue to invest in interfacing technologies to regain some of the control relinquished with business process outsourcing contracts. Cash-strapped wholesalers invest in any technology, including TMM solutions, that can reduce the order to cash cycle. Despite differing business concerns, interest in technologies that improve interbusiness process efficiency is high.
TMM technology interest is strong, but demand is constrained. Interest is driven by a number of market dynamics including:
Transaction management systems meet many of the investment conditions that gain significance in a slow-growth economy.
Drivers of Change
Several important technology developments are driving change in the TMM market. First and foremost is the emergence of the Internet as an effective, low-cost means of transporting mission-critical business information between systems. Although the Internet alone does not provide the network quality of service (QoS) demanded for mission-critical data communications, software and service providers have built solutions on top of this nearly free transport network. Data transport cost declines have fundamentally altered the way companies interact.
The second major force of change in the TMM market is the emergence of new technology standards, such as Java?, XML, and Web services. Overcoming communication barriers, which come in many forms, is often expensive. Java, XML, and other technology standards remove a number of machine-to-machine communication barriers and reduce partner integration costs.
Falling integration costs will affect the TMM market in two ways: first, the addressable market for TMM solutions will continue to expand as solution price points fall into ranges acceptable to small and midsized businesses. Second, reducing the cost and complexity involved in deploying and maintaining a TMM system will release corporate resources to other higher-value automation efforts. Many experienced users that bought TMM solutions to control order processing costs have since evolved their systems to manage a demand forecasting process, complex pricing data, and Just-in-Time (JIT) inventory strategies.
TMM Business Benefits
TMM solutions provide organizations with the ability to effectively process heavy order volumes and with the ability to better manage very close, codependent partner relations. Most TMM deployments address one or both of these business objectives.
Now, let?s look at how companies can use TMM technology to process millions of orders a week with just a few support staff. Others may move a few files a day, but the information in those files affects millions of dollars of production costs. For example (according to a recent study by the Yankee Group), summarizes values that are delivered by TMM technologies
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Processing Heavy Order Volumes
TMM solutions can quickly and accurately process thousands, even millions, of orders a week. Consumer packaged goods manufacturers, apparel manufacturers, retailers, wholesalers, and companies in similar industries manage high order volumes for fast-moving, made-to-stock products. In industries such as pharmaceuticals, health products, and electronic components, where both order volumes and per-SKU prices are high, fast and accurate order processing is essential to staying in business. Companies facing these conditions leverage TMM technology to scale business without scaling operational costs.
Combining on-site translation software with electronic trading network service has proven a very effective means of managing order volume growth without scaling order processing head count. By working with a network service provider, transaction volume growth (and related corporate expansion) is not encumbered by technology skill and staff development needs.
It is difficult to compare manual and automated order processing costs. The comparison would be interesting, but is not necessary. In a high-growth, heavy order volume industry, TMM technology is not a cost-savings option, but a business requirement. Therefore, despite TMM?s mission-critical nature in heavy order volume industries, many companies use innovative forecasting, direct shipment, and customer service capabilities, as the most significant advantage to their organization?s gains from TMM service usage today.
Managing Codependent Relationships and Complex Products
In industries with less demanding order volumes, but more complicated products and relationships, transaction management systems are used for equally valuable but very different business reasons. In the high-tech, automotive, and chemicals manufacturing industries, products are complex, highly engineered, and often expensive. Companies in these industries are highly dependent on partners to produce high-value, high-complex products. In these industries and others, dependencies are becoming stronger and products are becoming more complex. TMM systems support codependent relationships, allowing companies to play an effective role in complex production processes.
Companies using TMM technology to manage codependent relations move complex products through the supply chain, and require robust process management capabilities and timely access to information. Developing a JIT inventory management program demands near-real-time information exchange and complex business rules management. Providing a single available-to-promise date for a solution bundle, including multiple vendor products, requires similar functional capabilities.
Today, companies are extending, or planning to extend, their TMM systems into interesting new business automation scenarios. Several of these best-practice examples are described next.
Speed and Competitive Advantage
Speeding business process and improving customer service to gain competitive advantage is not cheap. A company could spend nearly $5 million annually to support its machine-to-machine order processing system. But, business benefits and competitive distinction greatly outweigh the costs of the system.
For example, in the food-and-beverage industry, paper and mail are slow. Money makes money. Anything that slows down money or products costs money. Companies usually tackle banking communications first to speed the processing of thousands of small monthly order volumes. Most companies usually tackle logistics management challenges next, which is followed by an incremental deployment with a supplier connectivity solution. In addition, most companies claim to have achieved a positive ROI in less than 12 months after going live with the banking stage of their implementation.
Managing Outsourced Business Relationships
Most high-tech companies shift their business strategies as the economy begins to slow. With cost control pressures mounting and shareholders demanding improved returns, the companies choose to outsource production and certain support services to contract manufacturers (CMs). To support the outsourcing strategy, the firms identify and implement TMM technology. The solution manages the mission-critical information flowing between a company and its new CM partners. A system could cost less than $400,000 to deploy (including hardware, software, and services). Ongoing costs run approximately $230,000 annually.
It is difficult to measure the value a solution provides a company, but, an outsourcing business strategy would not be possible without the TMM solution. Because of difficult economic conditions and financial turmoil in the industry it services, firms have limited visibility into future demand. Companies expect demand to increase as the economy recovers. Their new CM relationships should allow them to react rapidly to changing demand and avoid losing sales through lack of production capability.
Expansion Strategy Support
Companies are using TMM technology to support complex operational strategies,The role of TMM technology will continue to expand as costs fall, as standards develop, and as innovative best-practice use cases emerge from the fog of the current recession.
The Service Provider Advantage
Value added network (VAN) service charges have gained an onerous reputation since the emergence of the Internet as a corporate communications tool. The idea of charging per-transaction fees to move data across a network (which is how VAN service charges accrue) riles free-spirited Internet enthusiasts. But the Internet?s greatest strength (ubiquity) is also its fatal flaw.
The last thing a company wants is ubiquitous access to its data traffic, nor are companies interested in the lack of control inherent in a ubiquitously managed network. Absent the addition of robust technology, the Internet is insecure, unreliable, and unworthy of mission-critical corporate data. VAN service providers offer subscription-based technology services that meet corporate data communication needs. VANs ensure that data gets from point A to point B securely, reliably, and with an audit trail. Companies pay usage-based subscription charges for access to VAN bandwidth.
Accessing network QoS functionality from a third party also helps separate business objectives from technology plumbing. Companies interested in deepening partner collaboration or automating more complex business processes are faced with a myriad of business challenges. One-time partners become next-project competitors. Partners are contracted to ship to a production plan, regardless of the status provided by a real-time system. Processes, which vary by both company and division, need to be reviewed and aligned. Obstacles abound in a value chain integration scenario. VAN and electronic trading network service providers remove the interenterprise communication obstacle, allowing staff to focus on business, not technology problems.
It is expensive to build and maintain a TMM system. The business benefits can be impressive.
Ongoing costs are more easily captured and measured. The average annual cost to operate a TMM solution is a hefty $2.05 million. Average annual VAN cost is approximately $650,000 per year, and the average annual internal operational cost (business and IT support and management labor) totals $2.5 million. These figures capture the bulk of ongoing costs associated with operating a TMM solution. Software maintenance costs, which were difficult to capture, are not usually included in this costs assessment.
As the $2 million per year in operational costs indicate, TMM systems are expensive to run. When considered as a percentage of IT budget or total revenue, the figures are much less daunting. When considering the business strategies TMM systems support, operational costs are well within acceptable ROI and total cost of ownership (TCO) calculation boundaries.
Finally, let?s look at possible roadblocks to e-commerce. Is e-commerce alive and well and feeling fine? Recently, e-commerce has been associated with some fairly humiliating phrases: ?dot gone? and ?dot bomb? being just two of them. At times, e-commerce has become almost worthy of a snicker when the term comes up in conversation, and lately it?s hard to open a newspaper without reading about ?pink slip parties,? which former dot-com employees attend to network, write resumes (which they didn?t need during the venture capital boom), learn that flip-flops and cutoff jeans are not appropriate work attire in the real world and, finally, come to accept that the fairy-tale employment they have experienced in recent years has disappeared as spectacularly as Cinderella?s royal ball accessories at midnight.
Roadblocks to E-Commerce
Roadblocks to E-Commerce
From the sounds of the media, you would think that e-commerce was a landscape of post-Armageddon. That must be why eBay experienced a 260% growth in 2002.
Want to know a secret? Total e-commerce sales have been predicted to grow somewhere in the area of 60% in 2003. A study by the National Association of Purchasing Management and Forrester Research indicates that business-to-business e-commerce is still in its infancy, with nearly unlimited potential to grow. A recent survey conducted by both organizations revealed that 95 percent of companies polled indicated they would be moving forward to implement e-procurement sometime in 2003. This growth is modest compared to what?s happening offshore. Boston Consulting Group recently reported that Asian e-commerce continues to triple annually.
With the preceding in mind, e-business has taken a major hit to the collective solar plexus. Amazon seems to be hanging on moderately well, though probably not flourishing. It is generally acknowledged that the implosion of many players on the e-commerce stage, most notably the ones headed by 24-year-old CEOs, has enabled the companies left standing to reap more profits due to Web-enabled natural selection.
Old Dogs Have Learned New Tricks
Research firm McKinsey & Company recently unearthed a fascinating statistic: 86 percent of the most successful e-tailers are online channels of existing, established brick-and-mortar companies. Someone a long time ago put forth the radical theory that a company needs a business plan to survive in the long-term. Web-based companies slapped together on a Saturday afternoon in someone?s home office are not likely to have as sound business plans as a company such as Eddie Bauer that has been around for generations. In 1998, the retail giants were laughed at for their hesitant and puny efforts to join the e-commerce party. Today, they are the ones left standing. It?s obvious that there?s a lesson to be learned from that.
Here?s another interesting trend. In the days of yore (1999 to 2000), many Internet-savvy consumers indicated that when it came to shopping for larger ticket items, such as audio, video, and computers, they would do their research online before heading down to a large electronics superstore such as Circuit City to make a purchase. Today, many people have taken to wandering the aisles of the large electronics stores to see and touch items, and then return home to make their purchases from online electronics e-tailers. Why not? Online return policies have improved about 2,000 percent since the early days of e-commerce and in many instances, there is no sales tax on items purchased from e-tailers. Not to mention the fact that buying online enables you to spend the time you would have dedicated to getting to the mall on some vital task such as sleeping late or reminding yourself what your family looks like.
E-commerce companies that continue to grow seem to be the ones that better understand CRM and what it means to their firms. There?s no question, purchasing over the Internet is as popular as ever and will continue to grow. What many e-tailers didn?t foresee is that the Internet business model enables customers to be fantastically fickle, and all it takes is one misstep to lose a customer forever. Good self-service is worth its weight in diamonds, but it should never entirely replace human interaction. As a result, it becomes fairly safe to conclude that the e-businesses still standing today are the ones that screwed up CRM the least.
The survivors have another thing in common: easily navigable Web sites. Remember some of the disastrous Web sites that first appeared in 1997 and 1998? The designers sacrificed ease-of-use for art and profundity, with the result that many potential buyers arrived on the site, admiringly commented, ?Ooooh, pretty? and logged off to find a site that was easier to use. Part and parcel of ease-of-use is a friendly and comprehensive search engine, and this is another element you will find on the sites of the little e-tailers who could. Search engines driven by natural language processing are rapidly gaining in popularity as they allow shoppers to pose questions in much the same manner they would to a live store representative. For instance, compare brands of digital cameras in the mid-price range. Not only do searches conducted with natural language processing help the customer, but the technology can also help the e-tailer understand what its customers want and how they want it.
Yet another element that has helped some e-tailers remain strong is the issue of privacy. Many companies with Web channels have had some decisions to make recently: collect customer data and e-mail addresses and sell the information for a price to boost sagging profits, or prominently reassure customers that their information is private and will remain so in the future? The former choice represents a short-term fix and the latter choice is the ticket to the long-term payoff. Many companies that sold customer data from the get-go or made a decision later to sell information seemed to think that their activities would not be noticed, or that the average consumer wouldn?t care if they received a few extra spams brought on by the sale of their personal information. This was a serious miscalculation. In a crowded information age of little free time and space to breathe, most consumers are becoming rabidly protective of the little privacy they have. More importantly, e-tailers and Web marketers that chose to collect information from children not only earned the ire of parents, they began to draw fire from federal and state regulators.
Finally, the vast majority of companies that made a go at succeeding in e-commerce only to fail a year or two later are like kids who begin playing with a complex toy and give up in a huff when they can?t operate the toy based on the fact that they didn?t read the instructions. All?s well and it ends well. The toy becomes available to the kid who values it and knows how to use it.
SummaryIn a remarkably short time, the Internet has grown from a quirky playground into a vital, sophisticated medium for business, and as the Web evolves further, the threshold for conducting successful business online will move increasingly higher. Online consumers are flooding to the Internet, and they come with very high expectations and a degree of control that they did not have with traditional brick-and-mortar companies. Businesses, too, are rushing to join the Internet revolution, and new, viable competitors are emerging in all industries.
The enticement of doing business online must be tempered by the understanding that when the dust settles, a significant percentage of e-businesses will have failed. The ones that succeed will be those that are able to deliver a satisfying and consistent customer experience online, building brand loyalty and guaranteeing high rates of customer retention.
Although customer experience includes intangible, nonquantifiable aspects, it also includes a wide range of entirely measurable Web site elements. It is necessary for any organization wanting to succeed in e-business to define a broad spectrum of performance parameters, establishing benchmarks for speed, reliability, availability, and accuracy, and to monitor all of those parameters. Nothing works perfectly all the time, and the spoils will go to those e-businesses that constantly and efficiently monitor their Web sites, immediately identifying any glitches that do occur and fixing them promptly.
Moving forward, all businesses will be affected by the global move to electronic commerce. Business operations will change, and new processes will be created. Companies that start learning in this new environment today will be leaders in the future.
Furthermore, as future technologies are developed, the SIP will continue to play a pivotal role in the adoption of multimedia e-commerce. SIP?s simplicity, easy integration, and extensive interoperability ensure its longevity as the preferred multimedia platform.
In fact, SIP pundits speculate that it will pave the way for carriers to roll out the innovative voice services only possible with IP. These services most likely will include Web integration to simplify follow-me services, call conferencing, and ways for users to speak with a live agent just by clicking a Web site button.
Although the road ahead looks clear, there are potential obstacles to the wide-scale adoption of multimedia e-commerce. Users will need new or upgraded equipment to take advantage of SIP technology. Incorporation of SIP into operating systems and in preconfigured PCs will take some time. Some movement is being seen in this area, however, with Microsoft? and a number of the third generation (3G) wireless associations adopting SIP as the protocol of choice
So, despite difficult economic conditions and negative sentiment resulting from the e-marketplace catastrophe, much is happening in the e-business world. Nearly every company involved in e-business has expressed interest in improving machine-to-machine communication with customers, suppliers, or service providers. The majority (approximately 74%) increased their e-commerce technology budget in 2003 compared to 2002; and, despite difficult economic times and contracting IT budgets, half of the e-business companies expect the transaction management market (TMM) budget to increase in 2003 compared to 2002.
Java, XML, and related standards are changing the nature of machine-to-machine communication. These technologies are driving down integration costs and improving integration flexibility. As economic conditions improve, these factors will drive increased spending on technologies that interface with the external business ecosystem.
Furthermore, transaction management systems support a wide range of innovative business strategies. Many companies are extending EDI systems to manage more complex interbusiness automation scenarios. Others are rethinking e-commerce strategies and exploring new intercompany transaction cost/benefit scenarios. This trend toward complex interbusiness process automation and transaction management will accelerate as IT budgets expand and Java and XML technologies mature.
Electronic trading network service providers deliver an important and often misrepresented value proposition to an e-commerce solution. Security, reliability, and nonrepudiation are foundational requirements for effective interenterprise solutions.
Most transaction management technology users are not in the business of building and operating secure, reliable, auditable data communications networks. Outsourcing these data communication requirements to a third-party service provider can be an effective way to scale transaction volumes without scaling operation costs, and to avoid plunging valuable business executives into the integration technology morass.
Consistent with the buy low and sell high mantra, now is the time to develop and, if possible, execute e-business strategy. The following e-business actions are recommended for companies interested in automating partner information flow:
Developing the Business Case for TMM Technology Use
You should define business objectives and understand technology capability and limitations relative to automation opportunities. EDI deployments are often driven by very basic cost-savings arguments or by brute-force customer requirements. TMM systems are capable of managing much more than purchase order and invoice exchange process. You should understand your customer (and supply) base and how you can leverage TMM technology to take advantage of these relationships.
Leveraging Existing Investments
Exploring the ways existing systems interoperate can reap significant benefits. For example, you could use a content management vendor?s workflow engine to automate process across both Web site and EDI assets. You should be able to streamline exception management across multiple platforms. You should also be able to provide consistent information to partners, regardless of the partner?s means of access (browsers or machine interface). Systems synergies and cost-savings opportunities abound in the TMM market.
Taking Advantage of Technology Change
Finally, the costs and capabilities of TMM technologies are changing rapidly. Understanding the implications of changing conditions will help organizations make wise decisions today, without creating cost of ownership nightmares for tomorrow. It is also important to understand how individual vendors are reacting to changing conditions. Can a vendor support your architectural strategy and your Web service plans? And if so, how willing will the vendor be to negotiate price to move a new e-business product in a down economy? Well-researched answers to these questions can speed ROI and reduce implementation complexity.
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