2.3 The Evolution to e-Commerce | Internet-Enabled Business Intelligence


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	Internet-Enabled Business Intelligence By William A. Giovinazzo
	Table of Contents

	Chapter 2. Evolution to e-Enterprise

2.3 The Evolution to e-Commerce

In the 1800s, when telegraphic communication was first established between Texas and Maine , Thoreau pondered the possibility that it perhaps was an improved means to an unimproved end. He observed that "our inventions are wont to be pretty toys, which distract our attention from serious things. They are but improved means to an unimproved end." The essence of Thoreau's point is that we may have improved the mechanics of communication, but we may not really have improved what we are communicating. In this information age, have we really anything meaningful to say to one another? Simply establishing the infrastructure, the hardware and the software that enables the Internet, is one thing; having something meaningful to say is quite another.

Consider the role played by the telegraph in America's westward expansion. Without it, the railroads would not have been able to span the western frontier. How many times have we seen in movies about the Old West telegraph lines strung alongside railroad tracks? This is actually one of the few cases where Hollywood got it right. The telegraph provided railroad management with a means to coordinate the resources of the organization over a wide geographic area. During the Civil War, the telegraph was used to coordinate the movement of units and deliver intelligence information. Grant, recognizing the telegraph's use in command and control, would often cut his own telegraph lines to free himself of centralized command. In answer to Thoreau's question concerning the telegraph, yes, we did have something meaningful to say. The first attempts at e-commerce, however, were an entirely different matter.

2.3.1 BILLBOARDS ALONG THE INFORMATION SUPERHIGHWAY

In 1994 I was involved in a large data warehouse project. The system, when all was said and done, required a budget of approximately $1.5 million. In order to receive funding, I had to justify this cost in front of the board during the semiannual budget review. On the schedule, just prior to my presentation, was the manager in charge of researching new technologies. No one really knew what he did, and he didn't really have anyone working for him. Yet, he always seemed to be doing something. In the couple of months prior to our meeting with the board, he had been fooling around with the Internet. He was trying to create a presence for our company on the Web. When he demonstrated a corporate Web site to the board, they were impressed. The site gave a rundown on our company, our office locations, and even a picture of the CEO. The concept he presented was simple, a new slick way to promote the organization. The Internet, as far as the board was concerned , was just another communication medium, not much different from a newspaper or television. The data warehousing stuff was something radical , something requiring change, something entailing risk. The data warehouse was a solution: Being a solution it was going to change the way the company did business. Unfortunately, it was a solution to a problem they didn't realize they had. Hence, they did not see the ROI. In the end, the new technologies manager received funding, and I did not.

What my colleague had demonstrated was something safe, something to which the CEO could relate. It was what has become known in the industry as brochureware . At first, companies didn't know how to take advantage of the World Wide Web. People began with simply creating Web sites that provided information about a company or product. These early Web sites were mere billboards along the information superhighway. They were little more than electronic copies of company brochures . Business processes such as purchasing and sales were still carried out in the traditional manner. Some sites went as far as providing a way to contact the company over the Web, but no real transactions were carried out.

Contrast these early attempts at e-commerce with the telegraph. The telegraph was used to do things differently. It enabled a nation to expand. It allowed industry to coordinate resources across great distances. The telegraph was part of a solution. Brochureware did nothing new. It used the Internet as just another venue for publication, little more than an electronic newspaper. Brochureware lacked the imagination and innovation to take advantage of the capabilities of the Web.

2.3.2 THE CHALLENGES OF EARLY E-COMMERCE

Before we start to vilify these early Web designers, we should remember that most organizations couldn't do much more than brochureware. To achieve true e-commerce, three main issues needed to be resolved. As we shall see, two of them weren't even technological. The first was how to actually sell something over the Internet. We needed to develop a means by which we could carry out secure transactions. If I were giving you all the information necessary to purchase something, I needed to feel secure that you were the only one to receive this information. Then, assuming you received the information, I had to feel secure that you would use it only for the purposes for which it was sent.

Creating a secure transaction was only part of the problem of carrying out a sale over the Internet. The second issue was order fulfillment. Sure, the Internet was a great way to exchange information, but we still had to get the product in the hands of the customer. Even with a T1 line, this was a problem. The challenge of order fulfillment varies with the characteristics of the product. With some products, an order must be delivered immediately, while other products lend themselves to delivery times of a week or more. Order fulfillment is dependent on the nature of the products and the way in which people otherwise purchase the item.

When purchasing a book, for example, I might find a week to 10 days an acceptable period to wait. My alternative to buying a book over the Web is to go down to my local bookstore. If they don't have the book, which is usually the case for me, I have to order it, wait, and then make another trip back to store when the book arrives. Purchasing over the Web eliminates most of this process. I just order the book and wait approximately a week. Purchasing groceries over the Web has a different set of characteristics. Order fulfillment must be immediate. When I normally buy groceries, I simply go to the store, buy what I want, and go home. When I purchase groceries over the Web, I order what I want, and when I get home, the order is there. The process is simpler than the normal method, and fulfillment is easier. Each product has its own set of fulfillment requirements. When moving to e-commerce, a company needs to understand the normal purchasing patterns of the consumer and the demands it must meet to compete .

The third issue was perhaps the most important. No one knew what kind of market we were facing . Why should I, Billy Boy Bowling Balls, supplier to King Pins across the world, be interested in resolving these issues? Why should I make that investment in technology? Who the heck wants to buy bowling balls over the Internet anyway? Remember that most people in the mid-1990s didn't have an Internet connection in their home. True, some people were getting online, but mostly it was through some service that charged on an hourly basis. While the person with an email address is the norm and not the exception today, it was just the opposite back then. If you weren't connected to a business that used the Internet, you probably didn't have Internet access. The Internet was still the domain of geeky programmers who wore thick glasses and pocket protectors. (As a spokesperson for this group , I must say that pocket protectors have been greatly maligned. When one invests good money in a nice shirt, it is only natural to not want to mess it up with ink and pencil marks!)

2.3.3 THE NAKED TRUTH ABOUT EARLY E-ENTERPRISES

This brings us to a part of the Internet story that most people don't like to discuss. There was one industry that was extraordinarily well suited to e-commerce. The characteristics of the Internet made it the perfect medium for this industry to conduct business. It is one that has consistently blazed new cybertrails across the Internet. What developed between this industry and the Internet was a type of symbiotic relationship in which each thrived off the other. In spite of its contribution to the health of the Internet, most professionals seldom give it credit for its contributions. In fact, many work at suppressing the first true e-commerce industry. Which industry has done so much for the Internet? The adult entertainment industryin short, pornography. The benefits of cyberporn we are discussing here are technological. It is not my intention to suggest that pornography is beneficial either socially or morally. As the old expression says, however, one must give the devil his due. Sociologists and ministers can best deal with whether this expression is either figurative or literal when applied to cyberporn. Here, we are simply discussing the technological benefits this industry has brought to the Internet.

Cyberporn did three things for the Internet, two of which resolved the initial challenges to e-commerce. First, it helped spur the market. People became interested in the Internet. Let's face it: Sex sells. In the early 1990s, the traditional media spent more time discussing the evils of cyberporn than reporting the educational benefits of Internet communication. The evening news did stories on chat rooms and online sex. Talk shows discussed pornography on the Internet. News magazine programs did stories on sexual addiction and the Internet. A technology users' group in the Santa Monica area held a symposium on cybersex. In addition to discussing the current state of sex over the Internet, there were designs for peripheral devices that would allow people to do more than just talk about sex on the Internet.

It was all about sex. Radio and television broadcasters along with publishers had their own motivations: Titillate the viewer and drive up ratings. These shows did something else though. They also sold people on the Internet. Just as the sex stories drove people to tune in, they also drove people to get connected. The image of the Internet went from some network frequented by techno-nerds to a place where something exciting was happening. People were meeting other people over the Internet. Heck, people were even having affairs over the Internet! It wasn't necessarily that people were getting connected to be sexually stimulated, although some obviously were. It was really that the basic image of the Internet had changed. It was where things were happening. If all this sex stuff was going on, what else was happening?

Second, cyberporn demonstrated that money can be made over the Internet. The right product with the right profile could create a profitable market on the Internet. The pornography industry is perhaps the most successful because it is so well suited to the Internet. The entire transaction is carried out over the Internet, from the purchase to the delivery of the product. There is no need for the supplier to develop relationships with third parties for product delivery. The transaction completes immediately. Product purchase and delivery is virtually simultaneous. This is different than with books or groceries that involve product shipment. Most importantly, the Internet offered anonymity. Normal purchasing methods are embarrassing for the consumer. Think of the embarrassment one would feel if his or her minister or neighbor were to see him or her with a copy of Hot, Nasty Monkey Love. The Internet is private; no one other than the individuals involved know about the transaction. As we can see, cyberporn has advantages over traditional pornography.

Finally, cyberporn developed some of the basic technology necessary for e-commerce. Since this industry was the first, it was the one that had to figure out how to carry out secure transactions over the Web. It was among the first to deliver large volumes of images, sound, and video over the Web. It pushed the technology.

Cyberporn in fact serves as an excellent case study for companies attempting to go to the Web. It was able to find ways to leverage the technology to compete with traditional distribution channels. It was also able to offer products and services that were not readily available in other venues . What is the equivalent of a chat room? Where could one go to receive the benefits of a chat room and still maintain his or her anonymity? As companies explore e-commerce, they must offer more than the standard distribution channels. To do this, some companies may have to do away with the old way of doing things. Again, we return to the concept of a solution. Applying the new technology means doing things differently.

2.3.4 THINKING DIFFERENTLY

It is all well and good for us to sit here and extol the virtues of thinking differently, of doing things in bold new ways, but what does it mean to think differently? As we have seen in the first section of this chapter, the Internet has been the catalyst for enormous change in our culture. How we do business is part of this culture and has not been impervious to these changes. This should be obvious to anyone who has been not been trapped on a deserted island for the last 10 years . Yet, many do not understand how business has been transformed. To many, the Internet is just another way of doing the same old thing. To others, it is all encompassing, completely transforming the purchasing process. We are back to the two camps, derision and hype.

In their book Convergence Marketing , ^[4] Yoram Wind and Vijay Mahajan discuss a third and more accurate alternative: convergence. Convergence is where the two marketsthe traditional and the Internet-enabledcome together. No longer do we have consumers who are completely in one camp or the other. Modern consumers are a hybrid of the two, combining the two different methods of purchasing into one. Wind and Mahajan describe this hybrid consumer as the centaur. They discuss in their book strategies for reaching this new mixed breed. The first step in their strategy is to understand the centaur. They then explain how to use this understanding to run with the centaurs.

^[4] Wind, Yoram, and Mahajan, Vijay, Convergence Marketing: Strategies for Reaching the New Hybrid Consumer , Prentice Hall, 2001.

A realization that the focus for the e-business is on a new breed of consumer is critical to success. The first Business-to-Consumer (B2C) sites moved the actual process of sales and support to the Internet. The emergence of B2C gave rise to an entirely new set of Internet organizations. Companies such as Amazon.com gave customers the ability to search catalogs, choose an item, purchase the item, and select the method of delivery, all from the comfort of their own homes . We now know that not all B2C sites were successful; most weren't. The successful ones recognized that the automation of a manual process was not enough. They had to do more. They had to take what was the normal process and improve it.

This improvement came in the form of personalization . The Internet provides capabilities that cannot be met in the brick-and-mortar world. On the one hand, the Internet gives the e-business a global reach, a market in which there are tremendous economies of scale. On the other hand, through personalization, the organization can give each customer individualized attention. No longer are customers dealing with a cold, impersonal corporation. They are dealing with a trusted advisor, someone with whom they have a relationship. In Chapter 12, we will discuss how to personalize the customer's experience and develop a relationship.

What we are saying is that we use the Internet as a tool in our Customer Relationship Management (CRM) strategy. Let's be clear: Establishing a relationship with the customer is not just some warm fuzzy way of doing business. It is something of actual and real value to both the customer and the business. The objective of CRM is to establish a mutually beneficial relationship with the customer. As we shall see, it is impossible to manage your customer relationships without customer knowledge. It is impossible to have this knowledge without intelligence, business intelligence. In the Internet age, this intelligence needs to be Internet-enabled. It needs to be IEBI.

2.3.5 INTEGRATING THE SUPPLY CHAIN

For the most part, when people discuss e-commerce, they have focused their attention on the B2C market. The burst of the dotcom bubble has caused those with such myopic views of the Internet to become disenchanted. The B2C market is, however, only a part of the Internet revolution. The real money to be made over the Internet in the future is not in the B2C market, but in the Business to Business (B2B) market.

The repercussions of B2B markets will be far greater on the economy than anything we have seen in B2C. It is a new infrastructure, a new way of doing business. To understand these implications, look at B2B from a historical perspective. One of the reasons for the success of the American industrial revolution was that we started with a clean slate. There was no infrastructure. Industry was able to carry out business in unique ways. For the Europeans to develop a new way of doing business, they would have to replace a preexisting infrastructure. This European resistance crushed innovation. One such modification that was actually developed in France and implemented in America is the concept of manufacturing a product all in one factory. Raw materials go in one end of the factory and finished goods come out the other. Europeans visiting the early states were amazed by American industry. This was drastically different than in Europe, where each step of the supply chain was carried out by different suppliers. Wool was converted to yarn in one location, dyed in another, and made into garments in yet another. Germany and Japan in World War II had their infrastructures destroyed . During reconstruction, they found new and more efficient means of production that spurred tremendous economic growth. Keep in mind that the Internet is a new phenomenon . We are just beginning to understand how to take advantage of its capabilities.

One example of how the Internet can improve how businesses work together is in the procurement process. For most organizations, the procurement process has remained relatively unchanged for years. Figure 2.1 shows the typical flow for purchasing a product. First, some employee identifies a need. Perhaps his or her laptop is no longer functioning properly, or he or she is running low on direct materials. The employee manually completes a requisition, which is manually forwarded to a manager for approval. The approval process, especially for items that are out of the ordinary, may require the signature of several managers. If there is some question, the requisition is bounced back to the original employee, who must justify the purchase and start the process over again. When the appropriate approvals are finally received, the requisition is sent to purchasing. Purchasing may in turn question the requisition, and the employee or the manager must then justify the expense. In many cases, purchasing sends requests to suppliers for quotes. Once a supplier has been chosen , a purchase order is manually generated and the product is ordered. After the product is received, purchasing pays the supplier. As we can see, this is primarily a manual process and remains so in most companies today.

Figure 2.1. The requisition process.

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Organizations that move from a manual process to e-procurement will experience significant savings and operational efficiencies. It has been projected that a significant percentage of purchasing costs are attributed to the manual effort involved in processing and managing the purchase request. It is common for the administrative cost of a purchase to be greater than the purchase itself. The electronic processing of these requests removes the manual intervention and reduces overall cost. We have emphasized throughout this text that systems need to do more than automate a manual process. This holds true for e-procurement as well. When implementing an e-procurement system, we need to look beyond the manual process and understand how we can truly leverage the power of the Internet.

We should begin with putting as much of the process as possible in the hands of the employee making the request. Employees with a need for direct or indirect materials should be able to easily select from catalogs of preapproved vendors. They should be able to compare similar products of multiple vendors to get not only the best price, but also the best product for that price. Once an employee has selected a product, the system should provide online forms that can be processed electronically. Management approval should be electronic as well, automatically routing the request to the appropriate managers. If the manager does not approve it within a specific period, the request should be sent either back to the original requestor or to the manager's superior . When the request receives all the required approvals, it should be passed to purchasing to be consolidated with other requests prior to being electronically sent to the supplier.

One of the most important features of the e-procurement system is improved purchasing intelligence. The integration of IEBI into this environment provides purchasing with the information it needs to improve the purchasing process. With purchasing consolidated into a single electronic system, detailed reports can be easily generated. Purchasing can see which suppliers are providing what products to whom. We will be able to detect individuals and departments that purchase products outside of our accepted purchasing practices. Online Analytical Processing (OLAP) provides analysis of purchasing by individuals, departments, and divisions within the organization. Data-mining applications can detect patterns in the organization's purchasing habits. Armed with this information, purchasing can forecast needs more accurately, plan more efficiently , and negotiate with suppliers more effectively.

As we become more intelligent in our purchasing, competition among our suppliers increases and markets become tighter. A true free market is very much a Darwinian environment; only the fittest survive. As markets tighten and competition intensifies, the battle for survival becomes much more fierce. It is the ability of the organization to adapt to this changing environment that will mean the difference between survival and extinction . As we learned in the pervious section, we need to learn to do things differently to meet the challenges of an evolving market. The answer to competing in a more demanding B2C market is to establish a relationship with our customers. The answer for suppliers competing in a more demanding B2B market is to establish a relationship with their customers and other trading partners .

When we discussed CRM in the B2C market, we talked about personalization. We could see how personalization changes the customer's view of our organization from a faceless corporation to a trusted advisor. In the B2B space, businesses seek to do the same with one another. Both the supplier and the supplier's customer recognize the value of establishing a long- term mutually beneficial relationship. Both organizations recognize that just as the Internet has created a market in which a relationship is necessary, it has also provided the means to establish it. We can envision this relationship as establishing a virtual company, a single, uninterrupted supply chain that extends from the consumer through the distributors and manufacturers to the actual suppliers of raw material. For a more complete understanding of such a virtual organization, refer to e-Procurement from Strategy to Implementation ^[5] by Dale Neef.

^[5] Neef, Dale, e-Procurement: From Strategy to Implementation , Prentice Hall, 2001.

Consider for a moment what such a virtual organization can do for our manufacturing processes. As our organizations work in conjunction with one another, we are able to meet one another's needs in a more timely and efficient manner. Organizations can begin to implement Just-In-Time (JIT) manufacturing, where we reduce safety stock and excess inventories. For example, let's say that I am the map king of Southern California. I make every kind of street, city, and state map for which you could ever possibly hope. One of my hottest products is a map to the homes of both the famous and infamous. My suppliers are the printers. My distributors are the folks who sell the maps on the street corners of Hollywood and Los Angeles. When one of my distributors goes to my Web site and orders another shipment of maps, the system immediately checks the inventory levels. If we are unable to fulfill the order, the system communicates with our printer and we receive a shipment date. The system responds to the distributor with a promised delivery date based on the printer's commitment to deliver the maps to our offices.

In Chapter 1 we discussed how business intelligence permeates the organization. We discussed how the information infrastructure is to the organization what the nervous system is to the organism. If we are to extend our organization to form a virtual organization with partners and supplier, must we also extend this information infrastructure. In the past there were significant barriers to establishing such tight integration between information systems. Remember that it was little more than 10 years ago that the passage of the Gore Bill made it possible to do business over the Internet. The power of this integration is more than just the ability to pass information between companies. The real benefit, the real power, the real strategic competitive advantage is in the organizations' ability to work as one. It is the power to act intelligently with one another. In order to work and cooperate with one another in this manner, we need intelligence, business intelligence. The Internet is the medium through which we communicate, the link between our information systems. This, of course, means that we will need to employ IEBI.


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