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Instructor’s Manual
Digital Business and

E-Commerce Management
Strategy, Implementation
and Practice
Sixth edition
Dave Chaffey
For further instructor material

please visit:
www.pearsoned.co.uk/chaffey
ISBN: 978-0-273-78656-6
 Pearson Education Limited 2015

Lecturers adopting the main text are permitted to download and photocopy the manual as required.
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First published 2006

This edition published 2015 (electronic)
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ISBN: 978-0-273-78656-6
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© Marketing Insights Limited 2015
Contents
Chapters Pages
Part 1 Introduction 5
1. Introduction to digital business and e-commerce 6
2. Marketplace analysis for e-commerce 24
3. Managing digital business infrastructure 37
4. E-environment 49
Part 2 Strategy and applications 62
5. Digital business strategy 63
6. Supply chain management 78
7. E-procurement 91
8. Digital marketing 103
9. Customer relationship management 115
Part 3 Implementation 125
10. Change management 126
11. Analysis and design 143
12. Digital business service implementation and optimisation 158
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PART 1
Introduction
5
CHAPTER 1
Introduction to digital business and e-commerce
Table of contents
Learning outcomes 6
Management issues 6
Chapter at a glance 7
Suggested teaching and learning approaches 7
Case studies 10
Questions for debate 14
Exercises 15
Activity answers 21
Learning outcomes
After completing this chapter the reader should be able to:
• Define the meaning and scope of digital business and e-commerce and their different
elements
• Summarise the main reasons for adoption of digital business and barriers that may
restrict adoption
• Outline the ongoing business challenges of managing digital business in an

organisation, particularly online start-up businesses
Management issues
The issues for managers raised in this chapter include:
• How do we explain the scope and implications of digital business to staff?
• What is the full range of benefits of introducing digital business and what are the risks?
• How do we evaluate our current digital business capabilities?
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Chaffey, Digital Business and E-Commerce Management, 6th edition,
Instructor’s Manual on the Web
Chapter at a glance
Main topics
• The impact of electronic communications on traditional businesses
• What is the difference between digital business and e-commerce?
• Digital business opportunities
• Business adoption of digital technologies for e-commerce and digital business
• Digital business risks and barriers to business adoption
Case studies
1.1 The Facebook business model
1.2 eBay – the world’s largest online business
Suggested teaching and learning approaches
Notes on use of Figures in slides:
Please refer to the slides prepared for each chapter when reading this section. The headings
below are intended to mirror those in the text to assist cross referencing.
Slides within the deck focus on line and block diagrams to help lecturers explain and discuss
issues.
We have not included the screen capture slides since it is clearer for lecturers to visit the
example sites or others during lecturers.
The opportunities of digital business?
Start by generating interest in the innovation made possible by the web through familiar
consumer facing examples of startup brands in Figure 1.1 and Table 1.1. Ask students about
other innovative businesses that have been launched online which aren’t on the list.
The challenges of digital business management
These can be discussed by asking students to read the Facebook Case study 1.1 and asking
them to think of the challenges of an existing brand adjusting to digital business. Since the
authoring of the book in 2014 these challenges have collectively been called ‘Digital
Transformation’ by many commentators. See http://www.smartinsights.com/manage-digital-
transformation/ for articles discussing this concept.
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Typical issues to discuss with students include:
• The rate of innovation – techniques like social media and search engine marketing
evolve each month so companies can lose market share
• Reviewing new business and revenue models
• Reaching potential customers given fragmentation of media and new marketing

techniques introduced in this chapter
• Losing market share to competitors who are more agile online
• The need for new processes, people and tools to manage digital technology – the
McKinsey 7S discussed at the end of the Chapter 1 is a good framework for discussing
these
• Reviewing the return on investment of new initiatives.
The impact of electronic communications on traditional business
Lecturers can introduce with the Andy Grove quote to show how impact varies by business type
or review changes in communications and behaviour based on the definitions about:
• ZMOT
• Inbound marketing
• Content marketing
• Social media marketing

(See the social media marketing radar for the range of options)
• Mobile communications (all of the techniques above can be delivered via smartphone or
tablets)
These concepts can be introduced in the context of the startup businesses covered in Table 1.1
and referencing Facebook, Case study 1.1.
Also review operational risks using a ‘blank slide’ encouraging students to fill in the gaps:
• Poor site availability or performance
• Products unavailable although advertised
• Poor experience or service – negative reviews
• Managing security and data privacy of customers.
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What is the difference between digital business and e-commerce?
Use Figures 1.4 and 1.5 to agree differences between e-commerce and digital business
with students. This works well to highlight the misconception that digital business refers
only to sell-side e-commerce.
It is also useful to ask different groups to identify the different types of sites defined in Activity
1.3.
In an interactive lecture we recommend visiting examples of each of the sites below and then
indicate which of the five categories of online presence are their primary and secondary focus:
1. Transactional e-commerce site
2. Services-oriented relationship-building website
3. Brand building site
4. Portal or media site
5. Social network.
Of course, these aren’t mutually exclusive – most sites will have elements of all of these.
Digital marketing
Introduce the different type of Paid-Owned and Earned media (Figure 1.7) and the six key
types of digital marketing communications (Figure 1.8) which need prioritisation of
investment and management to achieve online visibility for a brand.
To introduce these tools ask students to match against the definition of the terms.
Figure 1.10 is the classic categorisation of sites by audiences with examples. The Tatu case
study (Mini case study 1.3) gives an example of applying these digital media to build a new
brand.
Digital business opportunities
Box 1.1 introduces the Reach–Richness–Affiliation model for success.
Drivers of digital technology adoption
Consumer adoption (listing drivers and barriers to adoption) can be discussed using the
boxes at the end of the slide deck. Ask students to suggest drivers and barriers and how
businesses can persuade businesses to overcome these.
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Risks and barriers to digital business adoption
Consumer adoption (listing drivers and barriers to adoption) should also be discussed,
perhaps through taking an example such as grocery e-retail and relating this to students’
adoption and Table 1.3 and Figure 1.13.
Two tables are provided in the slide deck showing how drivers and barriers can be listed and
then marketing approaches to overcome these are discussed.
Case studies
Case study 1.1 The Facebook business model
Note – Updates to this case study are provided at: http://www.smartinsights.com/social-

media-marketing/facebook-marketing/facebook-case-study/.
Questions
1. As an investor in a social network such as Facebook, which financial and customer-

related metrics would you use to assess and benchmark the current business
success and future growth potential of the company?
From comments in the case study, the main revenue model is ad-based advertising (CPC and
CPM). Facebook has said it will not sell customer data and there is no indication of affiliate-
related models.
Customer-related metrics are related to engagement which indicates capability to sell ad space –
not simply users, but active returning users and the number of pages viewed per day. The
proportion of ad inventory sold is also important.
A basic answer will provide:
• Understanding of financial metrics. Revenue, costs, growth.
• Clear framework of different metrics types – efficiency vs. effectiveness.
• Audience engagement and satisfaction metrics such as those mentioned in the case.
A more competent answer will reference elements of profitability (e.g. ad revenue, alternative
models), e.g. subscription (although clear data not sold), costs (e.g. R&D, Development),
operational costs of managing business (on a per active user basis).
2. Complete a situation analysis for Facebook focusing on an assessment of the main

business risks which could damage the future growth potential of the social network.
Typical risks are:
• Ad revenue limited because of difficulty of engaging audience in ads.
• Major privacy problem as with Beacon.
• Intellectual Property Rights.
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• Technical problems with scalability leading to performance problems and increased
technical costs.
• New entrant or alternative company offers superior experience – what is the likelihood
of this?
Students could be encouraged to create a SWOT analysis. The likely probability and impact of
each risk should also be reviewed.
3. For the main business risks to Facebook identified in Question 2, suggest

approaches the company could use to minimise these risks.
• Ad Revenue – review different forms of advertising. Test with users and advertisers.
• Privacy. Explain clearly at signup. Test changes to use of data with user-group of trusted
users. Explain reason for future changes clearly.
• Technical problems. Testing programme focusing on load testing.
• New entrants – developing proposition to lock-in existing users, forming partnerships

to approach new audiences.
Case study 1.2 eBay – the world’s largest online business?
Updates to the eBay case study are available at: http://www.davechaffey.com/E-

commerce-Internet-marketing-case-studies/eBay-case-study-e-commerce.
Questions
Assess how the characteristics of the digital media and the Internet together with strategic
decisions taken by its management team have supported eBay’s continued growth.
Students should be guided as to whether they review the whole eBay business or the core
business (The Marketplace).
It is best to divide this question into two parts.
1. How the characteristics of digital media have supported eBay’s growth.
The particular characteristics of digital media compared to traditional media that are important
to eBay are straightforward:
• Change from a one-to-many communication model to one-to-one or many-to-many

communication model.
• The ability to create user-generated content listing products is also related to the one-to-one
aspect. This is important as well.
• From Push to Pull – eBay offerings are often visible within search engines.
• From monologue to dialogue (a two-way information exchange for enquiries about products
facilitated by email).
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• Ratings for sellers are important to generate trust (although there are methods of falsifying
these).
• Community – the sense that users are part of a community and additionally are
bypassing traditional retail channels will be important from some users.
See section starting on p. 43 for more details on these characteristics.
2. How strategic decisions have supported growth.
As with other cases based on SEC filings that is, United States Securities and
Exchange Commission submission, this case is useful for showing how growth is
dependent not only on exploiting the right opportunities but also is about managing risks
successfully.
Students may structure strategic decisions in different ways according to the level of course they
are following, but since the case is early on in the book, they could be advised to simply look
for success factors. Alternatively, if they have completed Chapter 5 on Strategy and Chapter 8
on the Marketing mix (p. 382), then these provide alternative frameworks.
Strategic success factors that students may mention include the following:
• Branding – a distinctive brand – the earlier brand name was perhaps less appropriate
although more direct.
• First mover advantage – gaining a critical mass through the foresight of the owner.
• Security and fraud – realising that this is important to its reputation eBay has developed
‘Trust and Safety Programs’ to manage this, thereby investing in managing this and
controlling PR related to this.
• Partnerships and acquisitions, which fit relate well to the service, that is, PayPal and Skype.
• Communication of customer value proposition – the case describes how eBay explains this.
• Revenue model – the market has judged that this gives a good balance for sellers,
purchasers and eBay. Setting fees at the right level has enabled eBay to scale for some
time.
• Process efficiency – the case describes how eBay measures and then seeks to improve the
key areas of acquisition, activation and activity.
• Growth strategies – these are covered in Chapter 4 and include market development
(geographic) and product development (new categories for consumers and businesses).
• Technology scalability – not referred to in the article, but eBay has been successful
in deploying technology that has supported the company's rapid growth.
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Introduction to how to use Questions for Debate in classes
The text below shows how the debate can be introduced for students. This example is
taken from an approach we developed at the University of Derby. Students were assessed
on their presentations and contribution.
Two debates each week will take place during normal tutorial sessions. Each debate will be
argued between two groups of two or three students.
For each debate, the format will be as follows:
• An initial vote will be taken amongst the non-presenting members of the tutorial group
for an initial benchmark.
• The team presenting the case FOR the statement will make a 10-minute presentation
supporting the topic statement.
• Each team in the opening part of their presentation should take care to define terms
used in the topic in question.
• The team presenting the case AGAINST the statement will then make an
appropriate 10-minute presentation.
• The teams presenting each side of the case question the other in turn for 5 minutes each.
• Questions and discussions involving the whole tutorial group will follow for 10 minutes.
• FOR followed by AGAINST, each to make a short summary of their key points
and observations.
• Final vote to take place FOR and AGAINST the statement – this will reflect the
success of the various arguments presented.
• Remember tutors do not play a role here and students must take ownership of
classroom management, etc.
Assessment
Assessment will be made by the tutor of each presenter’s performance. Criteria will include
the following:
• Strength of argument
• Use of current Information System (IS) industry examples
• Use of academic references
• Quality of presentation (visual and verbal)
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• Response to questions and counter arguments
• Accuracy of observations and conclusions
• Discretionary mark for involvement in other debates.
The voting will not influence the marks awarded unless it is clearly the result of a poorly
presented case. A ‘difficult’ case well presented and defended will not be penalised even if no-
one agrees with it!
Questions for debate
Debate 1.1 How new is the digital business concept?

‘Digital business is just a new label – there is no distinction between the role of digital
business and traditional information systems management’.
Summary of arguments for are as follows:
• The tools are the same – hardware, software and communications technology are not new –
witness use of EDI (Chapter 3)
• IS strategies have always looked at portfolio of applications across the business and links
with third parties and how they can be utilised for competitive advantage (Chapter 4)
• Control of digital business usually resides with the IT department
• Only the largest companies tend to have specific responsibilities and departments for
digital business – typically part of IS function.
Summary of arguments against are as follows:
• The emphasis is different – away from technology to how information can support business
• The expenditure on digital business has exceeded traditional IS expenditure
• New organisational structures and new processes have been introduced (see Chapter 4)
• Digital business is seen as a board-level issue with board-level responsibility.
Debate 1.2 Limited SME adoption of digital business

‘Adoption of digital business by established SMEs is generally less than that in larger
businesses. This is principally a consequence of the negative attitude of managing
directors and CEOs to the business benefits of information and communication
technology (ICT)’.
• Refer to the International Benchmarking study data in Chapters 4 and 6 which show that
SME adoption is lower than larger businesses.
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• Look at the arguments presented in benchmarking data in Chapter 1 – many of these
arguments show that the benefits on investment are not clear.
• More a matter of resources – would like to invest, but there are other priorities; not enough
time.
• Depends on the type and age of business and market – technology start-ups and innovators
are active adopters.
• Many customers of SMEs are themselves SMEs and adoption rates for these groups are
lower (Chapter 3).
Exercises
Self-assessment questions
1. Distinguish between e-commerce and digital business.
This can best be explained by referring to different elements shown in Figure 1.2 that:
• sell-side e-commerce;
• buy-side e-commerce;
• internal use of electronic communications to support business processes.
Digital business is generally understood to include all three elements. E-commerce is commonly
used to refer to either the first one or first two of these elements, but less commonly the
third. Digital business is broader in scope than e-commerce.
2. Explain what is meant by buy-side and sell-side e-commerce.
Again refer to Figure 1.2. Buy-side e-commerce is using communications technology to support
the upstream supply chain from procurement to inbound logistics. Sell-side refers to selling and
distributing products and services from an organisation to its customers.
3. Explain the scope and benefits of social media and social commerce to an
organisation of your choice.
The scope of social media can be explored using this classification described in the chapter
when social media is first introduced:
1. Social networking
2. Social knowledge
3. Social sharing
4. Social news
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5. Social streaming
6. Company user-generated content and community.
The benefits can be explained with regard to the customer life cycle and RACE mnemonic
described later in the book, i.e.
• Reach audience – social media sharing gives ‘amplification’ of a message through

sharing
• Encourage interaction lead to lead or sale – includes interactions with share buttons, or
completion of forms.
• Convert to sale – online or through traditional channels – social proof of seeing other
recommendations can help here
• Engage – develop long-term social media engagement to encourage repeat purchase.

Also includes social customer-service.
4. Summarise the consumer and business adoption levels in your country. What seem
to be the main barriers to adoption?
This page has 10 key sources for the latest digital marketing adoption levels:
http://www.smartinsights.com/marketplace-analysis/customer-analysis/digital-marketing-
statistics-sources/
• Lack of imperative
• Security risks.
For consumers, the ‘Which’ report highlights fears about security and privacy as well as the lack of
a perceived need.
5. Outline the reasons why a business may wish to adopt e-commerce.
The 6Cs are a good framework here:
• Cost reduction – less use of physical resources and staff.
• New capability – for example, to sell into an overseas market.
• Improved communication – internal and external.
• Control – better visibility/information for managers of trading relationships.
• Customer service – more detailed information, faster response can be provided

24 hours, and 7 days a week.
• Competitive advantage – any of the above.
• Factors may provide this, but it is likely to be short-lived.
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6. What are the main differences between business-to-business and business-to-
consumer e-commerce?
Please refer to the table below for a summary of the differences. Note that this table was
originally included in earlier editions of the book.
Table: Differences in characteristics of B2C and B2B trading
Characteristic B2C B2B

Proportion of adopters Low to medium High to very high
with access
Complexity of buying Relatively simple – individual and More complex – buying
decisions influencers process involves users,
specifiers, buyers, etc.
Channel Relatively simple – direct or from More complex, direct or via
retailer wholesaler, agent or distributor
Purchasing Low value, high volume or high Similar volume/value. May be
characteristics value, low volume. May be high high involvement. Repeat
involvement orders (rebuys) more common
Product characteristic Often standardised items Standardised items or bespoke
for sale
7. Summarise the impact of the introduction of digital business on different aspects of

an organisation.
The McKinsey 7S model is a useful framework for looking at the different aspects of a business
that may be affected by the move to digital business.
• Strategy – new strategic responses are required.
• Structure – new structures and responsibilities may be required.
• Systems – new information systems and new processes will be required.
• Style – less likely to change, but some organisational styles are more responsive to
change.
• Staff – new responsibilities.
• Skills – new skills.
• Superordinate goals – higher level aims may be updated depending on the business.
8. What is the relevance of intermediary or influencer sites to a B2C company?
Companies must think about whether they are represented on such intermediaries. If they are
not, they may lose potential business. They also need to consider the positioning of their
products relative to competitors who also use the intermediary.
Note that Mondus wound down operations in 2002. Another example is Clearly Business, a
joint venture between Barclays and Freeserve.
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Essay and discussion questions

1. Suggest how an organisation can evaluate the impact of digital technology on its
business. Is it a passing fad or does it have a significant impact?
Suggested approach:
This is covered by the situation analysis in Chapters 5 (p. 250) and 8 (p. 391).
Situation analysis should concentrate on the micro-environment (Figure 2.1) including demand
for online services from customers. Services should be considered across the buying cycle from
pre-purchase (supplier and product selection), purchase and post-purchase support. Demand
levels can be assessed by reviewing figures of percentage of customers with access and
those who are prepared to use it for information gathering and purchase. Competitor activity can
also be benchmarked. Macro-environment SLEPT factors should also be reviewed, but they are
not the main thrust of the question.
Assessment of whether the impact is transitory or permanent can be done through developing
projections of the online revenue and promotion contribution (Chapter 8, p. 401).
2. Explain the concepts of social media and social commerce and how they can assist
organisations in reaching their objectives.
The scope of social media can be explored using this classification described in the chapter
when social media is first introduced:
1. Social networking
2. Social knowledge
3. Social sharing
4. Social news
5. Social streaming
6. Company user-generated content and community.
The benefits can be explained with regard to the customer life cycle objectives of business
using the RACE mnemonic described later in the book, i.e.
• Reach audience – social media sharing gives ‘amplification’ of a message through

sharing.
• Encourage interaction lead to lead or sale – includes interactions with share buttons, or
completion of forms.
• Convert to sale – online or through traditional channels – social proof of seeing other
recommendations can help here.
• Engage – Develop long-term social media engagement to encourage repeat purchase.

Also includes social customer-service.
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3. Similar benefits and barriers exist for the adoption of sell-side e-commerce for both
B2B and B2C organisations. Discuss.
It is recommended that students review the common benefits initially from the point of view of
the business using e-commerce to sell services. Then look at exception by business type.
Common benefits?
• Wider, potentially global reach
• Opportunities to improve brand preference through content and services
• Lower cost of reach (e.g. through search engine optimisation)
• Lower cost of service (web self-service).
Barriers:
• Organisational changes needed
• Cost of set up
With B2B organisation there are more potential channel conflicts if someone is already selling a
product.
4. Evaluate how social media marketing techniques can be applied within an

organisation and with its stakeholders.
This question is similar to Question 2 in this section since it asks how social media can applied
across a business. The customer life cycle of RACE is a suitable technique can be used to
review how social media can be applied. This question also looks at the organisational issues of
managing social media, so the Mckinsey 7S framework introduced at the end of the chapter is
suitable to structure the answer around.
5. The web presence of a company has similar aims regardless of the sector in which
the company operates.
This question can be tackled in different ways, e.g. functions by position in customer-life
cycle/conversion funnel, e.g. RACE.
Alternatively, but similarly, the answer can review the opportunities by methods of enhancing
the brand:
• Brand awareness, e.g. better online visibility in search engines and social media
• Brand familiarity – by explaining about the companies, products and services
• Brand favourability – by providing free value-added services
• Brand purchase intent – using the website to prompt sale through online or offline
channels, e.g. through promotions or communications (social or email marketing).
The answer can be tackled for different platforms such, e.g. desktop site, mobile site.
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Examination questions
1. Explain the relationship between the concepts of e-commerce and digital business.
E-commerce is generally understood to be a sub-set of digital business. E-commerce

refers to financial and non-financial transactions between organisations. These transactions
are often considered in the context of a supplier organisation distributing and selling its
product to consumers. Digital business includes transactions from a buy-side and sell-side e-
commerce perspective and also the use of communications technology to improve internal
process efficiencies.
2. Distinguish between buy-side and sell-side e-commerce and give an example of the
application of each.
Buy-side e-commerce refers to electronic transactions concerned with the purchase and inbound
logistics of goods such as a supermarket coordinating purchases from its suppliers. Sell-side
e-commerce concerns transactions related to the sale and distribution of goods such as a
supermarket selling direct to its customers.
3. Summarise three reasons why a company may wish to introduce e-commerce.
• Cost reduction in purchasing or selling through less human involvement and lower
resource costs.
• Increased efficiency enabling faster cycle times for purchasing or sale of goods.
• Capability to sell to overseas markets or previously untargeted markets.
4. Describe three of the main barriers to adoption of e-commerce by consumers and

suggest how a company could counter these.
• Security fears – fraudulent use of credit cards.
• Privacy fears – personal data held by companies or criminals.
• Cost of access devices and online costs.
• Lack of perceived need.
Education and reassurance via the website and offline communications can counter these.
5. Outline the internal changes a company may need to make when introducing digital
business.
No suggested answer.
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6. Name three risks to a company that introduces buy-side e-commerce.
• Payback period may be long due to cost of implementation.
• Maverick purchasing (Chapter 7).
• Some purchasing staff may need to be redeployed or made redundant.
• Security risks of outside organisations accessing company data.
7. Name three risks to a company that introduces sell-side e-commerce.
• Payback period may be long due to cost of implementation.
• High cost of sales due to fraudulent use of credit cards.
• Security risks of outside organisations accessing company data.
Activity answers
Activity 1.1 Innovative digital businesses
1. Think about the innovation that you have witnessed during the time you have used the
Internet and World Wide Web. What would you say are the main sites used in your
country which have changed the way we spend our time or buy online?
Not applicable – depends on student opinion and country.
2. We talk about these businesses being ‘successful’, but what is success for a start-up
digital business?
For established businesses, success is stable or growing profitability, but start-ups will rarely be
able to achieve this. What becomes important are:
• Unique visitors – number of individuals per month.
• Engagement or stickiness – page views per visitor (useful for advertising) and percentage of
active or returning visitors (essential for a social network such as Facebook).
• Monetisation – is it possible gain revenue, for example, ad revenue from visitors.
• Growth.
• Publicity – this will help fuel the other success measures given above.
3. What do these sites have in common that you think has made them successful?
• All these sites are American, so the funding and publicity they can achieve is significant.
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• You will notice that many of these sites (other than Joost, Last.fm and Skype which
were founded in Europe) were originally developed in the United States, with the
majority now used around the world. But in each country, similar types of businesses
have evolved, for example, the search engines Baidu in China and Yandex in Russia.
• Meet a fundamental consumer need.
• Clear revenue model.
• Memorable branding and experience.
• Initially they had a straightforward proposition – offering one service.
• Generally they were first-movers.
• Notable that many have taken several years before becoming widely known and used.
Activity 1.2 The most popular apps today
1. Identify the most popular categories of apps from the top 10 or 20 most popular apps,
including browser apps such as Google’s Chrome or Apple’s Safari.
2. Discuss the opportunities for companies to promote their brands or services using
apps in comparison with mobile sites delivered through web browsers.
Activity 1.3 Understanding different types of online presence
Review the popularity of the different site types in your country or globally.
Visit each of the sites below and then indicate which of the five categories of online
presence are their primary and secondary focus:
3. Brand-building site
5. Social network.
You should also indicate their secondary focus in terms of these four site types.
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Bank, for example, HSBC (www.hsbc.com), secondary purpose is relationship-building or

brand-building.
Travel company, Thomas Cook (www.thomascook.com), secondary purpose as for HSBC online
retailer such as Amazon (www.amazon.com). Secondary objectives are to be a portal?
Management consultants such as PricewaterhouseCooper (www.pwcglobal.com) and Accenture

(www.accenture.com). Secondary aim – brand-building.
A end-product manufacturer such as Vauxhall (www.vauxhall.co.uk). Secondary objectives are

building brand and referring leads or transactions to offline sources.
3. Brand-building site
Lingerie manufacturer, for example, Gossard (www.gossard.com). Secondary objectives are

linking to transactional sites.
Beverage manufacturers, for example, Tango (www.tango.com), Guinness (www.guinness.com).

Secondary objectives are supporting relationship building.
• Business site: Silicon (www.silicon.com) (secondary transactional site for subscriptions).
• Consumer site Yahoo! (www.yahoo.com). Yahoo! is more than a search engine – it is

an online portal. Secondary objectives are encouraging transactions.
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CHAPTER 2
Marketplace analysis for e-commerce
Table of contents
Learning outcomes 24
Management issues 24
Case studies 26
Exercises 28
Activity answers 33
Learning outcomes
• Complete an online marketplace analysis to assess competitor, customer and

intermediary use of digital technologies and media as part of strategy development
• Identify the main business and marketplace models for electronic communications
and trading
• Evaluate the effectiveness of business and revenue models for online businesses,
paticularly online start-up businesses
Management issues
The fundamentals of e-commerce imply these questions for managers:
• What are the implications of changes in marketplace structures for how we trade
with customers and other partners?
• Which business models and revenue models should we consider in order to exploit the
Internet?
• What will be the importance of online intermediaries and marketplace hubs to our
business and what actions should we take to partner these intermediaries?
24
Chapter at a glance
Main topics
• Online marketplace analysis
• Location of trading in the marketplace
• Business models for e-commerce
Focus on
• Auction business models
• Online start-up companies
Case studies
2.1 i-to-i – a global marketplace for a start-up company
The headings below are intended to mirror those in the text to assist cross referencing.
• Introduction. What type of influences are there and why are environment influences
important? Activity 2.1 (based on Figure 2.2) gives a structured approach to
highlighting changes in the macro- and micro-environment.
• Marketplace analysis for analysis. This section starts by reviewing the importance of
strategic agility with the interview showing the importance of reviewing the
marketplace. The section ‘A process for online marketplace analysis’ is most important
section since it provides students with a technique/tools they can use to evaluate a
company within its online marketplace for assignments or in the workplace. Work
through an example of creating a marketplace map, for example, for a retailer or a bank
for Figure 2.4. This is good example of a marketplace map.1
Show students examples of research sources shown in Table 2.2 to illustrate data
available on customer demand for products through search engines (Google Keyword
Planner) and comparing site popularity (Google Trends).
• Review of marketplace channel structure. Use diagrams such as Figures 2.6–2.8 for
a particular industry such as the car industry to explain these terms. Talk about these as
strategic responses. What are the penalties for ignoring these?
1
Marketplace map example
25
Understanding customer journeys across online and offline channels through using channel
chains (Figure 2.9) should also be covered.
• Different types of online intermediary. The different types of intermediary shown in

Table 2.5 and their relative importance through the buying process should be discussed
with students. As a group activity, intermediaries important in different sectors such as
retail, banking, financial services and travel can be identified.
• Business and revenue models. This will be the most interesting sections for many
students interested in their own online venture. Ask students to consider different
models in the context of Figure 2.10 and 2.11 or by reviewing different revenue models
of different companies such as those introduced in Table 1.1. Different advertising
revenue models such as CPM, CPC and CPA should be reviewed and the example in
Figure 2.12 can be reviewed or used as an activity. A spreadsheet version of this model
is available from:
http://www.smartinsights.com/conversion-model-spreadsheets/.
The Business Model canvas is new in the 6th edition. This is an excellent tool which has
been applied to many of the companies in Table 1.1. A Google search will reveal examples
of these. We recommend students review http://www.businessmodelgeneration.com/ and
check the newer Value Proposition canvas.
Lecturers often ask for examples of failure amongst online startups. We have included Mini
case study 2.3 Ecomum as a recent example of failure in this edition and there is the
infamous Boo.com example in Chapter 5.
Case studies
Case study 2.1 i-to-i – a global marketplace for a start-up company
This case is about a specialist travel and education company, focusing on its online
TEFL (Teaching English as a Foreign Language) courses. The case illustrates the
importance of marketplace analysis.
Questions
1. Select one country that i-to-i operate in and summarise the main types of sites and
businesses involved using a marketplace map (Figure 2.4).
Marketplace map not supplied. Since this will differ by market. See http://www.smart
insights.com/digital-marketing-strategy/online-marketplace-analysis/ for examples.
2. Review the different factors that i-to-i will need to review to gauge the commercial
effectiveness of its online presence in different geographic markets.
i-to-i will need to review the different drivers or leads and sales in different markets as
referenced in the chapter with search visibility being most important.
• Search visibility – how well does i-to-i rank for different terms in paid and natural search
results (many people will search for the type of the services they offer, e.g. ‘TEFL courses’
26
• Conversion rates – are there issues with the content assets or product, pricing which limits
conversion
• Social sharing – how active are social media advocates.
Source: Smart Insights (2010) i-to-i case study. Written by Dave Chaffey and Dan Bosomworth
with agreement from the company.
Debate 2.1 Countermediation

‘The advent of e-commerce means that marketers cannot rely on the online presence of
existing intermediaries – instead they must create their own online intermediaries’.
Examples from particular industries should be used to demonstrate this. Summary of arguments
for are as follows:
• Intermediaries are important online because of service and product comparison online –
missed opportunity to communicate.
• Cost of paying referrals to third party.
• Company can use intermediary to explore new concepts and markets while minimising
damage to core brand.
• Cost of setting up independent intermediaries.
• Risk that intermediaries will not appear as independent and may not be used.
• Risk of failure in already crowded marketplace.
• Can form partnerships instead at lower risk.
Debate 2.2 Innovative business models

‘The new business models associated with the dot-com era were, in fact, existing models
in an online context. Business models and revenue models have not changed’.
• Look at online business model proposed by Timmers in the section on business models –
few have changed.
• Look at online revenue mechanisms – similar to previous, for example, sale, commission,
subscription.
• Look at payment mechanisms – again similar to before.
27
• New business models such as C2B.
• Change in emphasis – for example, more reverse auctions.
• Look at examples of companies that have changed sectors, for example, eBay auctions,
Lastminute travel.
Exercises
1. Outline the main options for trading between businesses and consumers.
These are:
• B2C – retail to consumers
• B2B – interorganisational
• C2C – consumer interactions for example, auctions
• C2B – customer make offers to businesses, for example, Priceline.
2. Explain the concepts of disintermediation and reintermediation with reference to a

particular industry; what are the implications for a company operating in this
industry?
Example, air travel. A carrier has the option of:
• Distintermediation – selling direct from its website
• Reintermediation – selling via new online intermediaries with new pricing models
such as Priceline, Lastminute or Expedia.
3. Describe the three main alternative locations for trading within the electronic
marketplace.
• From company’s own website
• From an intermediary website or marketplace
• By making bids after reviewing customers’ websites.
4. What are the main types of commercial transactions that can occur through the
Internet or in traditional commerce?
See Table 2.4.
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Commercial (trading) mechanism
1. Negotiated deal
2. Brokered deal
3. Auction
4. Fixed-price sale
5. Pure markets
6. Barter
5. Digital business involves re-evaluating value chain activities. What types of changes
can be introduced to the value chain through digital business?
• Improve speed of information flow between primary activities of value chain
• Increase depth of information shared between activities
• Reduce costs of information processing.
6. List the different business models identified by Timmers (1999).
Timmers (1999) identifies no less than 11 different types of business models that can be
facilitated by the web as follows:
1. E-shop – marketing of a company or shop via web.
2. E-procurement – electronic tendering and procurement of goods and services.
3. E-malls – a collection of e-shops such as Barclays Square (www.barclays-

square.com).
4. E-auctions – these can be both for B2C and B2B as is the case with eBay.
5. Virtual communities – these can be B2C communities such as Xoom

(www.xoom.com) or B2B communities such as Vertical Net (www.vertical.net);
these are important for their potential in e-marketing and are described in the
Focus on Online Communities section in Chapter 9.
6. Collaboration platforms – these enable collaboration between businesses or

individuals for example, E-groups (www.egroups.com), now part of Yahoo!
(www.yahoo.com) services.
7. Third-party marketplaces – Marketplaces are described in the Focus On section

of Chapter 7.
8. Value-chain integrators – offer a range of services across the value chain.
9. Value-chain service providers – specialise in providing functions for a specific part

of the value chain such as the logistics company UPS (www.ups.com).
29
10. Information brokerage – providing information for consumers and businesses, often
to assist in making the buying decision or for business operations or leisure.
11. Trust and other services – examples of trust services include Which Web
Trader (www.which.net/webtrader) or TRUSTE (www.truste.org) that authenticate
the quality of service provided by companies trading on the web.
Timmers, P. (1999) Electronic Commerce Strategies and Models for Business-to-Business

Trading, John Wiley series in information systems. Chichester, England.
See Figure 2.11 (alternative perspectives on business models) and Table 2.5.
7. Describe some alternative revenue models for a website from a magazine publisher.
See Figure 2.11 (alternative perspectives on business models). Subscription: per-month payment.
Pay-per-view: pay for each article, or articles up to a value. Advertising revenue – for advertising
space on site. Affiliate revenue – for referral to other sites leading to sale.
8. Draw a diagram summarising the different types of online marketplace.
Refer to Figure 2.9.

1. ‘Disintermediation and reintermediation occur simultaneously within any given
market.’ Discuss.
Suggested approach:
• Research intermediaries in market by using a directory such as Yahoo!
• Research disintermediation by online services offered by existing players.
• Evaluate whether existing players are making use of the new intermediaries to
promote their services through advertising or listing on a trade directory.
• Define the terms with reference to this market.
• Demonstrate that both do occur simultaneously.
• Explain that this is a consequence of companies simultaneously following a

disintermediation and reintermediation strategy.
2. For an organisation you are familiar with, examine the alternative business and
revenue models afforded by the Internet and assess the options for the type and
location of e-commerce transitions.
Suggested approach:
Research this question by referring to Figures 2.9 and 2.11.
30
3. For a manufacturer or retailer of your choice, analyse the balance between partnering
with portals and providing equivalent services from your website.
An example of this approach is Boots The Chemist that have produced their own portal
Handbag.com (www.handbag.com).
Suggested approach:
Review the benefits of creating a separate independent portal (new market, new positioning,
perceived independence) against the negatives (cost of building traffic, maintaining content –
becoming a publisher, establishing brand, lack of credibility).
4. Contrast the market potential for B2B and B2C auctions.
Suggested approach:
• Research current and sales history of major B2C players such as eBay.
• Research current and future trading of commodities in different B2B

marketplaces that could be possible though auctions, e.g. steel at eSteel.
• Review buyer behaviour – what are the barriers to purchasing in this way, for
example, trust, authenticating purchase?
• Explain difference in magnitude: B2B much greater than B2C.
5. Select an intermediary site and assess how well it makes use of the range of
business models and revenue models available to it through the Internet.
Suggested approach:
• Make sure these types of revenue models are included
• Subscription: per-month payment
• Pay-per-view: pay for each article, or articles up to a value
• Advertising revenue – for advertising space on site or listing in directory
• Affiliate revenue – for referral to other sites leading to sale
• Transaction revenue – proportion of all transactions completed.
1. Explain disintermediation and reintermediation using examples.
Disintermediation
The removal of intermediaries such as distributors or brokers that formerly linked a company to
its customers.
31
Reintermediation
The creation of new intermediaries between customers and suppliers providing services such as
supplier search and product evaluation.
2. Describe three different revenue models for a portal such as Yahoo!
• Advertising revenue
• Affiliate revenue
• Content subscription revenue.
3. What is meant by buy-side, sell-side and marketplace-based e-commerce?
• Buy-side – suppliers visit customer’s website to bid and win business
• Sell-side – customers visit supplier’s website to make purchase
• Marketplace-based – suppliers meet customers in neutral marketplace to agree

sales.
4. What are the different mechanisms for online auctions?
• Forward, upward or English auction (initiated by seller). These are the types of
auctions available on consumer sites such as eBay. Increasing bids are placed
within a certain time limit and the highest bid will succeed provided the reserve
(minimum) price is exceeded. According to Commerce One, companies may use
online forward auctions to sell slow moving, excess or obsolete inventory items.
The forward auction could also potentially be used to perform price discovery in a
market.
• Reverse or downward auction (initiated by buyer). These are more common on

business-to-business sites such as Commerce One. Here, the buyer places a
request for tender or quotation (RFQ) and many suppliers compete, decreasing
the price, with the supplier with the lowest price getting the contract. According to
Commerce One, companies may use reverse auctions to:
• Rationalise suppliers in a particular spending category
• Source new components in an area they are unfamiliar with.
5. Describe two alternative approaches for using digital business to change a

company’s value chain.
Disintermediation
its customers.
Reintermediation
The creation of new intermediaries between customers and suppliers providing services such as
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6. Explain what a business model is and relate it to an Internet pureplay of your choice.
A summary of how a company will generate revenue identifying its product offering, value-
added services, revenue sources and target customers.
Revenue sources for the pure-play, for example, lastminute.com include:
• Subscription: per-month payment
• Pay-per-view: pay for each article, or articles up to a value
• Advertising revenue – for advertising space on site or listing in directory
• Affiliate revenue – for referral to other sites leading to sale
• Transaction revenue – proportion of all transactions completed.
7. Outline the elements of the digital business environment for an organisation and
explain its relevance to the organisation.
Micro-environment – customers, competitors and intermediaries
Macro-environment – social, legal, economical, political and technological constraints.

Organisations need to audit these influences when developing strategies and monitor
them continuously to respond to changes.
8. Give three different transaction types that an industry marketplace could offer to
facilitate trade between buyers and suppliers.
• Straight fixed-price transaction
• Auction to lowest bidder – reverse auction
• Barter.
Activity answers
Activity 2.1 Online ecosystems
Discuss in a group, or make notes to identify, the main companies (e.g. Facebook) and
platforms (e.g. tablet devices) used by consumers that are important for companies to
review their presence on. Once you have identified the main company or service types,
group them together so that their overall importance can be reviewed.
These are typical types of sites and the combination of software and hardware platforms.
1. Search engines
33
2. Social networks
3. Publishers (broad and niche)
Apps – e.g. iOS iTunes store vs. Andriod Play Marketplace.
Activity 2.2 Exploring business models
Identify overlap between the different business models identified by Timmers (1999). Can
you group the different business models into different types of services? Do you think
these business models operate in isolation?
An immediate distinction can be made between the operation of individual companies (e-shop)
using the web to sell direct to the customer and deal with suppliers (e-procurement) and
intermediary services such as e-auctions and third-party marketplaces that make up most of the
remaining services. For some business models such as virtual communities and e-auctions it
could be argued that these services could be provided by intermediaries or businesses, but they
are often best provided by neutral intermediaries.
Overlap can be identified between e-auctions, e-malls, third-party marketplaces and business
communities since they all facilitate the exchange of products between sellers and buyers. It can
be argued that the business model is similar, but the mechanism for exchange is different. It
can also be argued that some of the business models referred to are simply instances of the
mechanism of exchange, for example, e-auctions as distinct from fixed-price sales (e-shop).
Auctions could potentially occur for the e-shop and third-party marketplace as well as e-auction.
Activity 2.3 Revenue models at online media sites
1. Summarise the revenue models which are used for each site by looking at the
information for advertisers and affiliates.
E-consultancy (www.econsultancy.com)
• Online revenue models include annual subscription and pay-per-view access to articles.
The site has limited advertising on a fixed monthly term basis.
• Traditional revenue models include training courses and conferences related to digital
business.
Marketing Sherpa (www.marketingsherpa.com)
• This mainly offers a pay-per-view model for articles and reports. Surprisingly, it has
limited advertising, so as not to annoy site visitors. Some of its reports are syndicated
from other online sources, so this is a commission-based model.
34
2. What are the advantages and disadvantages of the different revenue models for the
site audience and the site owner?
This answer can be broken down by the different revenue models as shown in the table given
below. Given the advantages and disadvantages of each, it makes sense to have several models
to maximise monetisation of site visitors.
Revenue model Advantage Disadvantage

Online subscription Continuous revenue stream Difficult to get visitors to commit
to an ongoing agreement
Pay-per-view Instant fulfilment likely to appeal if Difficult to provide sufficiently
article or reports meets compelling unique content that
someone’s immediate need. is not already freely available
Reports are often more on the web
specialised and more immediate
Advertising Relatively easy to setup, Advertisers have to be
particularly if an established recruited and payments
programme like Google AdSense managed. If this fails, then
where no advertisers have to be online ad inventory may be
recruited unsold and so wasted
Affiliate Individual transactions can be Difficult to recruit affiliates and

significant value work best with high volume
consumer markets rather than
business markets
Revenue only generated if sale
is made. A cost per click
arrangement is better for
publisher
3. Given an equivalent audience, which of these sites do you think would generate the
most revenue? You could develop a simple spreadsheet model based on the following
figures:
• Monthly site visitors: 100,000, 0.5 per cent of these visitors clickthrough to affiliate
sites where 2 per cent go on to buy business reports or services at an average
order value of €100.
• Monthly page views: 1,000,000, average of three ads displayed for different advertisers
at €20 CPM (we are assuming all ad inventory is sold, which is rarely true in reality).
• Subscribers to weekly newsletter: 50,000. Each newsletter broadcast four times per
month has four advertisers each paying at a rate of €10 CPM.
A commission percentage is required to calculate this. Assume 25 per cent of average order
value.
You can also download the spreadsheet of Figure 2.16 from www.davechaffey.com/Spreadsheets.
35
Calculation:
Visitors Clickthrough Affiliate Conversion Sales Average Revenue

rate site visits rate order at 25%
value commission
(Euros)
100,000 0.50% 500 2% 10 100 250
• Monthly page views: 1,000,000, average of three ads for displayed for different
advertisers at €20 CPM (we are assuming all ad inventory is sold, this is rarely true in
reality).
Calculation:
Monthly Ad units per Inventory sold Total ads Cost per Total
page page served 1000 revenue
views (Euros)
1,000,000 3 100% 3,000,000 20 60,000
You can see that this model is more appealing for the publisher in terms of revenue earned.
• Subscribers to weekly newsletter: 50,000. Each newsletter broadcast four times per
month has four advertisers each paying at a rate of €10 CPM.
Newsletter Newsletters Advertisers Inventory Total ads Cost per Total

subscribers per month sold served 1000 revenue
(Euros)
50,000 3 4 100% 600,000 10 6000
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CHAPTER 3
Managing digital business infrastructure
Table of contents
Case studies 39
Exercises 41
Activity answers 45
Learning outcomes
• Outline the range of hardware and software technologies used to build a digital
business infrastructure within an organisation and with its partners
• Review the management actions needed to maintain service quality for users of digital
platforms
Management issues
• What are the practical risks to the organisation of failure to manage the e-
commerce infrastructure adequately?
• How should we evaluate alternative models of delivering web services?
Chapter at a glance
Main topics
• Digital business infrastructure components
37
• A short introduction to Internet technology
• Management issues in creating a new customer-facing digital service
• Web presentation and data exchange standards
Focus on
• Web services, SaaS, cloud computing and service-oriented architecture (SOA)
• Internet governance
Case studies
3.1 Innovation at Google
Note on Chapter 3
Based on feedback from lecturers, content introducing Internet technology used in previous
editions has been removed from this edition. If you want to cover this in lectures, please
reference slides from the previous edition.
Introduction – key management issues of digital business infrastructure
• Start by reviewing the need for general managers to be aware of technology management
issues. Why they are not simply the job of IT.
• Complete Activity 3.1 to highlight risks that can occur if infrastructure management
is neglected. Alternatively review technology management issues covered in Table 3.1
with students.
Supporting the growing range of digital business technology platforms
• Cover the need to support different access modes listed in this section across desktop and
mobile. To this we can add social media apps, e.g. Facebook apps.
• Mobile commerce challenges can also be reviewed, e.g. see Table 3.2. This is a new
section and emphasis at the start of this chapter. Mobile was covered at the end of this
chapter previously.
Digital business infrastructure components and a short introduction to

Internet technology
• Discuss components to be managed in Figure 3.3
38
• Internet-based communications can be discussed via Figure 3.4
• Managing technology partners – look at digital business functions appropriate for

outsourcing.
Look at worst-case scenario risks if outsourcing agreements fail. How much control is
required?
Management issues in creating a new customer-facing digital service
• What needs to be set up if you are creating your own site, i.e. domain registration and
hosting.
Managing digital business applications infrastructure
• Discuss the challenges of creating cross-business applications linking to partners via Figures
3.5 to 3.7.
Focus on Web services, SaaS, cloud computing and service-oriented

architecture (SOA)
Many services are delivered via SaaS based on cloud computing, so use Activity 3.2 and
examples to discuss the management challenges and solutions.
Focus on Internet governance
• Open-source software
• Net neutrality
• Internet standards
Case studies
Case study 3.1 Innovation at Google
Question
Explain how Google generates revenue and exploits innovation in digital technology to
identify future revenue growth. You should also consider the risk factors for future
revenue generation.
Google’s revenue has traditionally been based predominantly on advertising which is divided
into these models:
39
• Pay-per-click Sponsored links within the Google Search Results (and partner search
engines such as AOL)
• Pay-per-click and CPM model within partner sites of the content network which
includes third-party sites such as newspapers and social networks and Google’s own
properties such as YouTube. Increasingly there is a move from text-sponsored links to
dynamic display ads and advertising such as those in YouTube.
Increasingly, revenue will be from Google Applications and associated storage deployed within
businesses as paid services (although basic services are often free). The Google Search
Appliance is a physical product sold to sites for providing their online search service.
Risk factors for future advertising revenue include:
• Competition in bidding has traditionally driven up prices but this could fall as
companies become more effective at optimising their investment through introducing
wastage.
• Advertising revenue from the content network may fall as site owners explore other
ad models and clickthrough rates on Google Ads fall as familiarity increases.
• Ad-blocking (currently limited since not an automatic feature in browsers).
• Click fraud.
• Quality of search results falls due to spamming, so Google users turn to a competitor
with an improved search service.
Further risks factors are available in the SEC filings referenced in the case study.
Debate 3.1 Best-of-breed vs. single-source systems

Selecting ‘best-of-breed’ applications from multiple system vendors for different digital
business applications such as enterprise resource planning, customer relationship
management, transactional e-commerce and supply chain management is a better
approach for an effective digital business infrastructure than using a single-vendor
solution.
• More effective in delivering results
• Functions meet requirements better – can best achieve competitive advantage
• Less reliant on single supplier
• Less likely to have failure than with a large-scale single-vendor solution/less disruption.
40
• More expensive – single sourcing cheaper for purchase and support
• Difficulty of integrating different systems from different suppliers.
Exercises
1. What is the difference between the Internet and the World Wide Web?
Use TV analogy: Internet is the network for transmitting data globally, web is the method of
delivering the content (channels).
The Internet
The Internet refers to the physical network that links computers across the globe. It consists
of the infrastructure of network servers and communication links between them that are
used to hold and transport information between the client PCs and web servers.
2. Describe the two main functions of an Internet Service Provider (ISP). How do they
differ from applications service providers?
Internet Service Provider (ISP)
A provider enabling home or business users a connection to access the Internet (1). They can
also host web-based applications.
ASPs can host specific business applications.
Application server
An application server provides a business application on a server remote from the user.
3. Distinguish between intranets, extranets and the Internet.
Internet is public, intranet restricted to organisations employees, extranet has restricted access
beyond the company.
Intranet
A private network within a single company using Internet standards to enable employees to
share information using email and web publishing.
Extranet
Formed by extending the intranet beyond a company to customers, suppliers and collaborators.
41
4. Describe the standards involved when a web page is served from a web server to a
user’s web browser.
Request page and deliver page (HTTP), transfer request and information (TCP/IP), render page
in browser (HTML).
TCP/IP
The Transmission Control Protocol is a transport layer protocol that moves data between
applications. The Internet protocol is a network layer protocol that moves data between host
computers.
HTTP (Hypertext transfer protocol)
HTTP or Hypertext transfer protocol is a standard which defines the way information is transmitted
across the Internet between web browsers and web servers.
HTML (Hypertext Markup Language)
HTML is a standard format used to define the text and layout of web pages. HTML files usually
have the extension .HTML or .HTM.
5. What are the management issues involved with enabling staff access to a website?
• Cost of accesss
• Time spent in access lost from main activities
• Access to illegal material.
6. Explain the following terms: HTML, HTTP, XML, FTP
HTML (Hypertext Markup Language)
HTML is a standard format used to define the text and layout of web pages. HTML files usually
have the extension .HTML or .HTM.
HTTP (Hypertext transfer protocol)
HTTP or Hypertext transfer protocol is a standard which defines the way information is
transmitted across the Internet between web browsers and web servers.
XML or eXtensible Markup Language
A standard for transferring structured data, unlike HTML which is purely presentational.
File Transfer Protocol (FTP)
Standard used for uploading and downloading files to and from web servers.
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7. What is the difference between static web content written in HTML and dynamic
content developed using a scripting language such as JavaScript?
Static content appears the same to all users. Dynamic content can be updated to reflect the
environment, for example, time or personal preferences.
8. What software and hardware are required to access the Internet from home?
Software: web browser, operating system, TCP/IP stack.
Hardware: PC plus modem.

1. ‘Without the development of the World Wide Web by Tim Berners-Lee, the Internet is
unlikely to have become a commercial medium.’ Discuss.
Suggested approach:
Contrast the use of the Internet pre- and post-web in terms of business applications and number
of users. Clearly indicates the importance of the web, although an equivalent is likely to have
been developed at some stage.
2. ‘In the future the distinction between intranets, extranets and the intranet for
marketing purposes is likely to disappear.’ Discuss.
Suggested approach:
• Define the differences between them.
• Review reasons for each being produced separately in organisation.
• Review need for shared content and management across each with respect to
a B2B company.
3. Discuss the merits and disadvantages of locating company digital business services
inside a company, in comparison with outsourcing to an ISP or ASP.
Suggested approach:
• Select digital business services, for example, site hosting and email management.
• Review benefits – external: maintenance cost, expertise, responsiveness to

short-term problems, for example, new viruses and longer-term technological trends.
• Review benefits – internal: control and security.
• Assess benefits and risks overall.
4. You are consultant to a small retailer interested in setting up a transactional e-

commerce site. Create a summary guide for the company about the stages that are
necessary in the creation of a website and the management issues involved.
43
Suggested approach:
• Domain name registration
• Content and email hosting
• Content development
• Promotion/launch of site
• Maintenance of site.
1. You have been tasked with arranging Internet access for other employees in your
company. Summarise the hardware and software needed.
Software: Web browser, operating system, TCP/IP stack on each PC.
Hardware: PC plus network card to connect to modem for each user, plus gateway PC to
connect to Internet including firewall for security reasons.
2. How would you explain to a friend what they need to purchase to access the World
Wide Web using the Internet? Explain the hardware and software needed.
Software: web browser, operating system, TCP/IP stack. Hardware: PC plus modem.
3. Explain the term ‘electronic data interchange’. Is it still relevant to companies?
The exchange, using digital media, of structured business information, particularly for sales
transactions such as purchase orders and invoices between buyers and sellers.
It is still relevant since it can be used as a method of structured data transfer for purchasing
across the Internet and has evolved as Internet EDI to support new standards such as XML.
RSS – to provide updates to subscribers about changes to the company services such as
new product introductions or promotions.
4. Describe how the following tools would be used by a company hosting a website:
HTML, FTP, RSS.
• HTML – to publish static web pages.
• FTP – to upload web pages to a web server.
• RSS (Really Simple Syndication) – although this is no longer widely used by consumers
it is used to distribute content from websites, particularly sharing blog content with
social media.
5. The existence of standards such as HTML and HTTP has been vital to the success
and increased use of the World Wide Web. Explain why.
These act as common standards that are used on all computers accessing the web regardless
of vendor. HTML (Hypertext markup language) provides a common markup language which
44
displays content consistently on a range of computers. HTTP (Hypertext transfer protocol) gives a
standard method of requesting and returning information over the ‘web’.
6. What benefits to a business-to-business company does the XML standard offer

beyond those of HTML?
Provides structured transfer of information that can be used to specify items in a purchase order.
7. Explain why the digital business coordinator of a company might investigate the use
of applications service providers.
ASPs provide a means of outsourcing business applications. These can then be provided at a
lower cost and with higher service quality standards.
8. Explain the differences between intranet, extranet and the Internet from a digital
business perspective.
The Internet is used to communicate with all interested parties, while the intranet is to manage
internal digital business processes and the extranet for external communications with favoured
parties such as key suppliers.
Activity answers
Activity 3.1 Infrastructure risk assessment
Make a list of the potential technology problems faced by customers of an online retailer.
Consider problems faced by users of digital business applications which are either internal
or external to the organisation. Base your answer on problems you have experienced on a
website that can be related to network, hardware and software failures or problems with
data quality.
Some of the possible problems you may have identified are:
1. Website communications too slow.
2. Website not available.
3. Bugs on site through pages being unavailable or information typed in forms not
being executed.
4. Ordered products not delivered on time.
5. Emails not replied to.
6. Customers’ privacy or trust is broken through security problems such as credit cards
being stolen or addresses sold to other companies.
It will be apparent that although most of these problems are technical, they arise because
humans have not managed the infrastructure adequately. They have not invested enough to solve
these issues or have not tested solutions adequately to check for deficiencies. Additionally, in
45
the case of some problems such as emails not being responded to, this may be entirely a
problem in the process created (or not created) by managers to deal with inbound emails.
Activity 3.2 Opportunities for using web services by a B2B company
Develop a balanced case for the managing director explaining the web services approach
and summarising its advantages and disadvantages.
Advantages of web-service
• Readily accessible from remote locations.
• Cost savings through shared (multi-tenancy servers) access model.
• Reduced head-count within IT for managing applications and servers.
• Upgrades more frequent and less-costly for both client and server computers.
Disadvantages
• Performance slower due to network and shared access.
• Loss of access if problem with server(s) or connecting access.
• Dependent on service standards defined in SLA.
• Potentially less secure.
Activity 3.3 Overcoming limited use of intranets and extranets in a B2B

Company
1. A B2B company has found that after an initial surge of interest in its intranet and
extranet, usage has declined dramatically. Many of the warning signs mentioned in the
KM (2002) article listed above are evident. Suggest ways in which the digital business
manager could achieve the following aims:
1. Increase usage.
2. Produce more dynamic content.
3. Encourage more clients to order (extranet).
1. Increasing usage.
The solution is similar to marketing any product, or indeed a website. First, the digital
business manager needs to conduct research to identify the reasons why the intranet (product) is
under-utilised and also which content is useful. New applications that can help staff or
customers in their day-to-day work should also be identified. He then needs to sell the intranet
to staff (or customers for extranet) based on the benefits it will bring to them.
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2. Produce more dynamic content.
The manager must check that suitable processes are in place to update static information such as
phone numbers – if the intranet is not trusted it will not be used. An education programme
should be arranged that explains not only how to use the intranet, but also the benefits it will
bring. This can be on an individual or group basis. Practical steps to explain the benefits such as
tag line, list of features, site map or user guide may also be needed.
Encouraging staff to develop their own content to update the intranet can also help adoption.
This may need to be added as part of the job description. Personal stories and informal stories
may help interest. Offering incentives either to start usage (e.g. discount for first usage) or
continue usage (discount when a certain volume of orders are placed online) can be used for the
extranet. Finally, the role of email should not be neglected – this can help remind staff about
the intranet, and also alert them when news or new services become available.
3. Encourage more clients to order.
Encouraging use of an extranet or intranet is similar to encouraging usage of a public facing

open website, that is, its managers:
• Need to explain the value proposition (benefits)
• Need to incentivise first use and continued use
• Need to remind about usage
• Need to ensure updation.
Activity 3.4 Selecting open-source software
1. For the different alternatives facing a technical manager below, assess:
(a) Which is most popular (research figures).
(b) The benefits and disadvantages of the Microsoft solution against the alternatives.
(a) Popularity
These are examples of freely available statistics about operating systems.
A. Desktop OS: http://www.w3schools.com/browsers/browsers_os.asp
Web server OS: http://www.serverwatch.com/stats/ and

http://www.securityspace.com/s_survey/data/200908/index.html
B. Browser:
http://www.w3schools.com/browsers/browsers_stats.asp
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C. Language
http://www.google.com/trends?q=php%2Cruby%2Cpython%2C.net
(b) Benefits
Benefits could include paid support and a good quality knowledge base. However, many
bulletin boards are available for open-source software. Disadvantages of using the Microsoft
solution are the cost and the time it is likely to take to communicate the problem and have it
solved in a new release.
2. Make recommendations, with justifications, of which you would choose for a small–
medium or large organisation.
A. Operating system: Microsoft/Windows XP/Vista/Server or Linux (open-source) for

server and desktop clients.
B. Browser: Internet Explorer browser or rivals such as Mozilla Firefox or Google

Chrome which is part based on open source.
C. Programming language for dynamic e-commerce applications: Microsoft.Net or

independent languages/solutions such as the LAMP combination (Linux operating
system, Apache server software plus the MySQL open source database and scripting
languages such as PHP, Perl or Python).
A. Operating system.
Although Linux has many adherents and is used by major corporations including IBM, its
overall market share is small (2.7% as against Microsoft 94%).
B. Browser.
Internet Explorer is predominant, accounting for over 80 per cent of the browser market, but
Firefox at 20 per cent is increasing.
C. Programming language.
This is more difficult to establish. PHP is used on main free web servers such as Apache, so
possibly is more popular than ASP or ASP.Net.
For small organisations, using non-Microsoft products such as OpenOffice is appealing in terms
of price. For larger organisations, the lack of paid-for support and uncertainty of future support
mean that Microsoft is a safer option. Additionally, Microsoft products often have greater
functionality, for example, Support for Visual Basic for Applications in Excel, which mean that
it is more flexible and can be tailored to the organisations’ needs. Internet Explorer is currently
free and can be used in all types of organisations. For development, Microsoft development
tools are likely to be more expensive, so for the small to medium company, non-Microsoft tools
are probably best if there are sufficient trained staff available (this is likely to be the case with
PHP/MySQL).
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CHAPTER 4
E-environment
Table of contents
Case studies 51
Exercises 52
Activity answers 57
Learning outcomes
• Identify the different elements of an organisation macro-environment that impact on an

organisation’s digital business and digital marketing strategy
• Assess the impact of legal, privacy and ethical constraints or opportunities on a company
• Assess the role of macro-economic factors such as economics, governmental digital

business policies, taxation and legal constraints
Management issues
• What are the constraints such as legal issues which should be taken into account when
developing and implementing a digital business strategy?
• How can trust and privacy be assured for the customer while seeking to achieve marketing
objectives of customer acquisition and retention?
• Assessment of the business relevance of technological innovation.
49
Chapter at a glance
Main topics
• Social and legal factors
• Environmental and green issues related to Internet usage
• Taxation
• Economic and competitive factors
• Political factors
• E-government
• Technological innovation and technology assessment
Focus on
• E-commerce and globalisation
Case studies
4.1 The implications of globalisation for consumer attitudes
These are some of the key topics that can be covered with the aid of this chapter:
The importance of macro-environment factors in constraining strategy and implementation –

Activity 4.1 shows how these may directly impact students.
Ethical issues – privacy and trust. Table 4.2 is a useful summary/grouping of the main laws
affecting digital marketing which are covered later in this chapter.
Adoption of the Internet – Understanding the barriers and enablers to consumer adoption –
Activity 4.2 summarises useful information sources for summarising levels of adoption.
Alternative sources are the press sections on www.comscore.com and www.nielsen-online.com.
These are useful for building up a demand analysis. We have reduced examples of adoption in
this edition of the text since they date rapidly.
How consumers are influenced by using the online channel
It is useful to introduce Google’s ZMOT framework for how purchase is influenced online.
Figures 4.3 and 4.4 are relevant to this.
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Practical activities on cookies (Box 4.4) are helpful since they illustrate information collected on
individuals, which many students are concerned about, but perhaps do not know the detail.
Government control – Case study 4.1 illustrates what is possible through proactive government
of the Internet. Monitoring of employee access is also a good topic for debate. Managers have to
decide what measures should be taken to monitor emails and web access.
Assessing technology adoption – consider the diffusion of innovation curve (Figure 4.12) for
different devices, for example, smartphone, tablet or games consoles. This highlights how
companies need to react to introduction of new technologies.
Case studies
Case study 4.1 The implications of globalisation for consumer attitudes
Question
Based on this article and your experiences, debate the statement: ‘Site localisation is
essential for each country for an e-commerce offering to be successful in that country’.
A good example to illustrate this case is Durex (www.durex.com), which offers varying degree
of localisation according to the size of the market. A further example is Dell where localisation is
mainly based on language.
The answer can start by describing what needs to be localised:
• Local contact points (minimum)
• Language
• Style of content and images Legal constraints on promotions.
Arguments for localisation are as follows:
• Differing cultures require different copy and content to appeal to them
• Reduces negative impressions from dealing with a multi-national company
• Shows local support is available.
Arguments against localisation are as follows:
• Simple cost
It follows that localisation should be driven by the importance of the market and the perception of
foreign cultures in the market. Some markets such as Scandinavia may be more comfortable
with English compared to others such as France.
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Debate 4.1 How far should opt-in go?

‘Companies should always use an ‘opt-in’ private policy for:
(a) emailing prospects and customers;
(b) monitoring website visitors using site analysis software;
(c) identifying repeat visitors using cookies’.
• May be required by law in future, if not now
• Improves customer opinion of company
• Should ensure better response, since only those wanting future communications are
targeted.
• Reduce audience for future marketing campaigns
• Opt-in is not necessary so long as there is an opt-out
• Impractical for cookies and site monitoring – consumers have the choice of not using site
after they look at privacy policy – this should be sufficient
• Such stringent requirements are not laid down for other media.
Exercises
1. Why is environmental scanning necessary?
It is necessary at a macro-level to understand new constraints on conducting business such as

legal and technical constraints. These may also present opportunities. On a micro-level it is
important to be responsive to customers’ needs and competitors’ actions.
2. Give an example how each of the macro-environment factors may directly drive the
content and services provided by a website.
• Social – localised content for different cultures
• Legal – privacy statement
• Economic – funding and awards may be possible from governmental sources
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• Political – same as above
• Technological – the incorporation of personalisation.
3. Summarise the social factors that govern consumer access to the Internet. How can
companies overcome these influences once people venture online?
• Cost of access technology
• Cost of online access per minutes
• Peer pressure
• Security fears
• Perception of need for online access
Companies should clearly communicate the benefits of online trading and make reassurances
about the threats.
4. What actions can e-commerce managers take to safeguard consumer privacy and
security?
Privacy statements should explain the actions taken to the customers. Firewalls should be
maintained to minimise the risk of unauthorised access to customer data. The relevant data
protection act should be followed.
5. What are the general legal constraints that a company acts under in any country?
Table 4.2 includes:
• Consumer data protection and privacy laws
• Copy promoting goods
• Sales of goods/returns
• Trademark law
• Intellectual property law
• Disability and discrimination.
6. How do governments attempt to control the use of the Internet?
They control through policies to promote its use and through monitoring messages through
ISPs.
7. Summarise adoption patterns across the continents.
Refer to a source such as the International Telecommunications Union (www.itu.int) for the
latest statistics.
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8. How should innovation be managed?
It should be managed by frequent review of new opportunities, achieving balance between

adopting all new technologies and conservative non-adoption and careful selection of
technologies that will achieve competitive advantage.

1. You recently started a job as e-commerce manager for a bank. Produce a checklist of
all the different legal and ethical issues that you need to check for compliance on the
existing website of the bank.
Suggested approach:
Refer to a reference site such as http://privacy.org/ to ensure coverage of all data protection and
privacy (email, cookies) actions. Table 4.2, introduced in the 4th edition, will assist with this.
2. How should the e-commerce manager monitor and respond to technological

innovation?
Suggested approach:
• Best to base around the concept of diffusion of innovation.
• Contrast between the risks and benefits of the earlier adopter and late majority adopter.
• Give examples of technologies that have generated hype, but have not delivered, for
example, WAP.
3. Benchmark different approaches to achieving and reassuring customers about their

privacy and security using three or four examples for a retail sector such as travel,
books, toys or clothing.
Suggested approach:
• This is not a formal essay question. It is a web activity to visit the sites of different players to
review their privacy and security statements for differences and the emphasis attached to
them.
• Include reference to certification bodies.
4. ‘Internet access levels will never exceed 50% in most countries.’ Discuss.
Suggested approach:
Data in Figure 4.2, p. 187, shows that only in developed countries will the level of access be
high, for example. The International Telecommunications Union (ITU) (http://www.itu.int/ti/
industryoverview/index.htm). In most countries, for the foreseeable future, it appears that the
access levels will be less than 50 per cent in terms of PC access. Further into the future access
through digital TV via satellite may increase this figure.
However, the access figure is now approaching 50 per cent in some developed countries
although PC access saturation is approaching.
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5. Select a new Internet access technology that has been introduced in the last two
years and assess whether it will become a significant method of access.
Suggested approach:
• Determine current levels of access
• Evaluate how well it meets the criteria of a successful access technology (the web) in terms
of cost, speed and ease of use.
6. Assess how the eight principles of the UK Data Protection Act

(www.dataprotection.gov.uk) relate to actions that e-commerce managers need to
take to ensure legal compliance of their site.
The answer should review the eight data protection principles as follows. Reference to the
interpretation of the ASA guidelines in the text may be helpful. Note that a lot of the principles
refer to best business practice – marketers should want data to be accurate and secure, for
example.
The personal data must be:
1. Fairly and lawfully processed:
• It should not be sold or passed on to third parties without the data subject’s agreement.
2. Processed for limited purposes:
• It should be processed for the reasons set out within a privacy statement as explained to
individuals.
3. Adequate, relevant and not excessive:
• A minimum of relevant questions should be asked for online opt-in.
4. Accurate:
• Data should be validated for accuracy and consumers should be prompted for changed
details through time.
5. Not keeping longer than necessary:
• This is difficult to interpret – what does ‘necessary’ mean in this context? A company
may want to ‘reactivate’ or encourage new purchases from customers who have not
purchased recently.
6. Processed in accordance with the data subject’s rights:
• Rights set out in the Electronic Communications Act – for example – sensitive personal
data about religious and political interests should be protected.
7. Secure:
• Suitable security such as firewalls and log-ins should be used to prevent access to
personal data.
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8. Not transferred to countries without adequate protection:
• In some cases it may not be appropriate to share the data with overseas companies.
1. Explain the different layers of governance of the Internet.
Dyson (1998) describes different layers of jurisdiction or governance. These are as follows:
• Physical space comprising individual countries where their own laws such as those
governing taxation, privacy and trading and advertising standards hold.
• ISPs – the connection between the physical world and virtual world.
• Domains name control (www.icann.net) and communities.
• Agencies such as TRUSTe (www.truste.org) which promote good practice.
2. Summarise the macro-environment variables a company needs to monitor.
These are referred to as the Social, Legal, Economic, Political and Technological (SLEPT)
factors in this chapter:
• Social – social trends in levels of access and what is acceptable ethical use
• Legal – legal constraints
• Economic – changes to economy affecting viability of service
• Political – government incentives or restrictions
• Technological – new technologies to enhance service.
3. Explain the purpose of environmental scanning.
Environmental scanning and analysis
It is the process of continuously monitoring the environment and events and responding
accordingly.
4. Give three examples of how websites can use techniques to protect the user’s
privacy.
• Cookies linked to an individual machine
• Firewalls to prevent unauthorised access to databases
• Access control through usernames and passwords.
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5. What are the three key factors which affect consumer adoption of the Internet?
• Cost of access device
• Cost of online access
• Privacy perceptions
• Benefits perceptions.
6. The significance of the diffusion–adoption concept to the adoption of new

technologies to:
(a) Consumers purchasing technological innovations.
Managers should review the percentage of their user base who can use/access their site
using a particular technology, for example, the increase in use of a web browser such as
Google Chrome.
(b) Businesses deploying technological innovations.
Managers need to review the competitive advantage possible through early adoption of an
innovation. For example, a mobile app that supports incremental sales.
7. What action should e-commerce managers take to ensure compliance with ethical
and legal standards of their site?
Review data protection requirements in different countries.
Activity answers
Activity 4.1 Introduction to social, legal and ethical issues
List all the social, legal and ethical issues that the manager of a sell-side e-commerce
website needs to consider to avoid damaging relationships with users of his or her site or
which may leave the company facing prosecution. You can base your answer on current
issues which may concern you, your friends or your family when accessing a website.
The following answers are a small selection of what may be suggested. They are covered in
more detail later in the chapter:
• Cookies
• Are we limiting access to information from certain sections of society (social exclusion)?
• Privacy of personal information entered on a website
• Sending unsolicited email
• Replying promptly to email
• Copyright
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• Site content and promotional offers/adverts are in keeping with the different laws in
different countries
• Providing text, graphics and personality in keeping with social mores of different countries.
Activity 4.2 Understanding enablers and barriers to consumer adoption
Access a recent survey of attitudes to the Internet in your country. In particular, you
should concentrate on reasons why customers have used the Internet or have not used the
Internet at all.
1. Summarise and explain the reasons for the levels of usage of the medium for different
activities.
These are the main observations:
• Using email for communication remains the main online activity.
• The Internet is popular for finding product information with actual online purchases and
online banking less important, but increasing.
• General browsing has reduced.
• The government has not been successful in encouraging more users to access its
services online.
2. What are the main enablers and barriers to higher levels of adoption of these different
activities and which actions should organisations take to increase adoption?
The main driver for use is identification of need and benefit – marketing communications can be
used to sell the benefits, but this will not be successful in all cases – the government has
invested in advertising to encourage online use of its service without significant changes. The
main barriers are fear or lack of identification of need – again marketing communications to
explain benefits and reassuring customers can assist here.
Activity 4.3 Attitudes to behavioural ad targeting
Imagine you are a web user who has just found out about behavioural targeting. Use the
information sources provided by the industry to form an opinion. Discuss with others studying
your course whether you believe behavioural ad targeting should be banned (as has been
proposed in some countries) or whether it is acceptable. Suggested information sources:
• Internet Advertising Bureau guide to behavioural advertising and privacy

(www.youronlinechoices.co.uk).
• Web Analytics Association (www.webanalyticsassociation.org/?page=privacy). A trade

association of online tracking vendors.
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• Google ‘Interest-based advertising’: How it works (www.google.com/ads/preferences/

html/about.html), which explains the process and benefits as follows:
Many websites, such as news sites and blogs, use Google’s AdSense program (‘a
network of publishers using advertising through Google’) to show ads on their sites. It’s our
goal to make these ads as relevant as possible for you. While we often show you ads based on
the content of the page you are viewing, we also developed new technology that shows
some ads based on interest categories that you might find useful. The following
example explains this new technology step by step:
Mary’s favourite hobby is gardening. With Google’s interest-based advertising

technology, Mary will see more relevant gardening ads because she visits many gardening
websites. Here’s how that works: When Mary visits websites that display ads provided by
Google’s AdSense program, Google stores a number in her browser (using a ‘cookie’) to
remember her visits. That number could be like this: 114411. Because many of the
websites that Mary visits are related to gardening, Google puts her number (114411) in the
‘gardening enthusiast’ interest category.
As a result, Google will show more gardening ads to Mary (based on her browser) as she
browses websites that use AdSense.
Activity 4.4 Government and company monitoring of electronic

communications
Write down the arguments for and against each of these statements, debate individually or
as a group to come to a consensus.
1. ‘This house believes that organisations have no right to monitor employees’ use of
email or the web’. Use Moreover (www.moreover.com) to research recent cases where
employees have been dismissed for accessing or sending emails or web content that is
deemed unsuitable. Is this just used as an excuse for dismissing staff?
Arguments for:
• Protects companies from employee fraud.

• Protects companies from time wasting activities (see the Lois Franxhi constructive
dismissal case: http://news.zdnet.co.uk/internet/0,39020369,2072304,00.htm) (see cases
internet/ 0,39020369,2083185,00.htm).
• Protects companies from making unwarranted claims about other organisations (see
Norwich Union 1997 case: Example: http://www.mccann-fitzgerald.ie/legal_briefing/
litigation_arbitration/email_libel.html).
• May be written into employment contract.

• Can be conducted with government data protection guidelines. Guidelines related by
UK government in June 2003: http://www.informationcommissioner.gov.uk/dpr/
dpdoc.nsf/0/024aaa3a87d81c1f80256bf000526286/$FILE/3+moitoring.pdf.
59
Arguments against:
These are difficult to enumerate – but revolve around the concepts of trust and invading an
individual’s privacy.
2. ‘This house believes that governments have no right to monitor all Internet-based
communications passing through ISPs’. Use Moreover (www.moreover.com) to
research action taken by the government of your country to monitor and control
Internet communications.
What action do you think managers should take with regard to monitoring employee
access? Should laws be set at a national level or should action be taken by individual
companies?
Arguments for:
• Can alert them to terrorist activities.
• Not enshrined in law in all countries. In the UK, there is the ‘Regulation of Investigatory
Powers or RIP Act’ http://www.hmso.gov.uk/acts/acts2000 /20000023.htm
Argument against:
• Invasion of privacy.
Activity 4.5 Overcoming SME resistance to international e-commerce
For each of the four barriers to internationalisation given in Table 4.7, suggest the
management reasons why the barriers may exist and actions that governments can take to
overcome these barriers. Evaluate how well the government in your country
communicates the benefits of e-commerce through education and training.
Table 4.5 Issues in SME resistance to exporting
Barrier Management issues How can barrier be overcome?

1. Psychological Will the investment be recouped? Do we Success stories of companies who
have the human resources? have become exporters can show
the contribution to revenue
possible and the expenditure
necessary.
2. Operational Do we need to translate web content for Highlight availability and cost of
language and cultural differences? specialists for legal advice, export
How do we deal with country specific documentation and translation.
laws and taxation? Publicity about the range of low
How do we build e-services? How do cost, off-the-shelf solutions for
we make transactions secure? implementing e-commerce.
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3. Organisational Do we have the right structure and Provide training on best practice
responsibilities? for organisational structure and
Do we need to open new overseas employee development.
sales offices?
4. Product/market Which market do we target? Benchmarking from other
Do products or packaging require countries can help address these
modification for overseas markets? issues.
Source: Barriers from Hamill and Gregory (1997) and Poon and Jevons (1997).
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PART 2
Strategy and applications
62
CHAPTER 5
Digital business strategy
Table of contents
Case studies 65
Exercises 69
Activity answers 75
Learning outcomes
• Follow an appropriate strategy process model for digital business
• Apply tools to generate and select digital business strategies
• Outline alternative strategic approaches to achieve digital business
Management issues
Consideration of digital business strategy raises these issues for management:
• How does digital business strategy differ from traditional business strategy?
• How should we integrate digital business strategy with existing business and information
systems strategy?
• How should we evaluate our investment priorities and returns from digital business?
63
Chapter at a glance
Main topics
• What is digital business strategy?
• Strategic analysis
• Strategic objectives
• Strategy definition
• Strategy implementation
Focus on
• Aligning and impacting digital business strategies
Case studies
5.1 Debenhams creates value through mobile commerce
5.2 Setting the Internet revenue contribution at Sandvik Steel
5.3 Boo hoo – learning from the largest European dot-com failure
This chapter is structured around a clear process framework for strategy development. The
chapter starts by asking how digital business strategy differs from other forms of strategy.
Some of the similarities and differences between digital business strategy and other forms of
strategy are discussed. Note the well-known Michael Porter paper listed in the Further Reading
is useful for debating differences between Internet and traditional business strategy development
although it was written in the context of the dot-com failure. The definitions of digital business
strategy can be used to discuss approaches to digital business strategies. Activity 5.1 can also be
used in a seminar to discuss these differences. A structured investigation of the elements of
digital business strategy then follows. The chapter can be used for structuring a module or part-
module on digital business strategy. The sections in this chapter integrate with and should
be used in conjunction with other chapters, where strategy issues are described in more detail,
as follows:
• Digital business strategy. Process models discussed through Activity 5.1 and Table 5.1.
Once a digital business strategy has been developed, developing ‘strategic agility’ is
important. Table 5.2 can be used to discuss approaches to this.
• Strategic situation analysis
64
(See macro-environment analysis (Chapter 4), new marketplace, business and revenue
models (Chapter 2.)) The various stage models for defining current adoption of digital
business can be used for assessing current progression to digital business (e.g. Table 5.3 or
those introduced in Chapter 1). Postgraduates can assess organisations to which they
have belonged.
• Strategic objectives
(Also discussed for SCM (Chapter 6), E-procurement (Chapter 7) and E-marketing (Chapter
8.)) Discuss the need for vision or mission statements (Box 5.2). Develop examples of
SMART objectives (Box 5.3) and linking goals, strategies and KPIs (Table 5.6).
• Strategy definition
(Evaluation of revenue, business and distribution models, Chapter 2.) Review of different
strategic initiatives to support customer acquisition, conversion, retention and supplier,
distribution partner objectives.
• Strategy implementation (Chapters 10, 11 and 12).
Case studies
Case study 5.1 Debenhams creates value through mobile commerce
No questions asked.
Case study 5.2 Setting the Internet revenue contribution at Sandvik Steel
Questions
1. Summarise Sandvik Steel’s digital business strategy as described in the article.
The strategy is not simply to use the Internet as a sales tool, but also as a method of delivering a
better service to customers. From the article:
‘It’s extranet enables users to obtain worldwide stock information, catalogues and training aids,
as well as take part in online discussions’. ‘Customer value comes when our product is used, not
when it is purchased’. Personalisation is mentioned later in the article.
A further issue is the channel strategy – the Internet strategy has had to accommodate the
indirect sales.
Objectives are summarised by the sentence: ‘Shifting existing customers to the internet, winning
new ones and saving costs are also important’.
2. Suggest why the proportion of online purchases varies in the different countries in
which Sandvik trades.
Proportions vary due to:
• Penetration of Internet technology in the country
65
• Culture of using online trading
• Existing equivalent technologies such as EDI
• Service options offered in different countries
• Proportion offered in different countries.
Additional questions
1. Summarise how digital business has been used to transform Sandvik Steel.
Digital business has changed the way the company deals with both customers and suppliers.
But it is targeted at customers. For customers an extranet enables users to find stock
information, use catalogues and training aids. At Coromant customers can design products
(mass customisation) and can also receive advice on how to use them.
2. What are some of the risks of digital business that need to be managed that are
highlighted by the article?
a. Change management
‘The major challenges are not IT and systems, but “soft” things such as attitudes, insights and
getting people to understand and accept that this is part of their daily work’. This means
focusing hard on business needs and cutting through the internet hype’.
b. Channel management (conflict management)
‘The company’s approach was to work with the traditional sales channels. “So many companies
try to bypass traditional channels and lose sales and relationships,” Mr Fredriksson says’.
Notice also how the company has a good picture of its online contribution in different countries
and has objectives to improve it:
‘At present, only a small part of Coromant’s orders are transacted over the web. Nordic
countries are leading the way. Around 20 per cent of all orders from Denmark are online and
31 per cent of those from Sweden.
The proportion in the US, however, is only 3 per cent, since most business goes through
distributors and is conducted by EDI (electronic data interchange), the pre-internet means of
e-commerce.
Over the next 6 months, the company hopes to raise the US figure to 40 per cent. Mr
Fredriksson hopes that in 2 years, between 40 and 50 per cent of total orders will come via the
web’.
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Case study 5.3 Boo hoo – learning from the largest European dot-com
failure
Questions
1. Which strategic marketing assumptions and decisions arguably made Boo.com’s

failure inevitable? Contrast these with other dot-com-era survivors that are still in
business, for example, lastminute.com, Egg.com and Firebox.com.
These are assumptions that ultimately led to the downfall of Boo.com since in total they made it
unprofitable:
• Demand for online services would be higher, given the increase in adoption of the Internet.
Yet many users were not comfortable/familiar with purchasing online.
• Cost of customer acquisition would be lower.
• Conversion rates of visitors would be higher.
• Technology would not cause so many barriers to sale that is, slow download times and
usability problems. These issues are well known now, but were not at that time.
• Channel conflicts would be less – it was difficult for Boo to strike a deal with many brands to
sell direct online, so limiting its product range.
In retrospect and with the benefit of hindsight, many of these seem obvious, but the owners of
the business did not have experience of this marketplace although they did have online
experience through www.bokus.com for a simpler proposition in a single geographical market.
2. Using the framework of the marketing mix, appraise the marketing tactics of Boo.com
in the areas of Product, Pricing, Place, Promotion, Process, People and Physical
Evidence.
The marketing mix is covered in Chapter 5, so this part of the question should only be set if this
concept has been covered previously.
These are aspects of how Boo.com applied the mix that students may comment on:
• Product – Premium brands were used leading to premium prices. Unclear on mix between
sportswear and high street fashion. Scope relatively narrow, so limiting target audience.
• Price – As mentioned in the case, there were issues of pricing in different regions. No
mentions of discounting are made consistent with the brands’ premium positioning.
However, competitive selective promotions are today commonly used by many e-retail
brands.
• Place – Boo.com had a worldwide distribution that was good for achieving reach, but added
to the cost-base of the company so impacting on promotion. A global launch of a new brand
was ambitious and can be contrasted with the more conservative approach from the likes of
Amazon and eBay.
• Promotion – To build the Boo brand and drive visitors was reliant on online advertising that
gave rise to a high cost per customer acquisition that ultimately led to the brand’s failure.
The use of PR was more effective and is one of the successes of Boo. The magazine
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appears overambitious and did not pay for itself through sales generated. At the time their
promotion through online marketing techniques such as search engine advertising and
affiliate marketing techniques was limited in its possibilities. Today, these are more
effective for companies.
• Process, People and Physical evidence – It is well known that the technology was too
advanced for a time when the vast majority was accessing the web over dial-up modems.
This led to a ‘clunky’ experience that resulted in the low conversion rates referred to in the
article. It also seems likely that the cost of providing customer service was not factored into
the business model.
3. In many ways, the visions of Boo’s founders were ‘ideas before their time’. Give
examples of e-retail techniques used to create an engaging online customer
experience which Boo adopted that are now becoming commonplace.
These are some of the approaches used:
• Creation of a strong brand based on quality and service.
• Advanced product selection using 3D images. This approach is now used by Dell, for
example.
• Use of online customer service persona or avatar. This approach is now used by IKEA for
online sales support through their ‘Ask Anna’ facility.
• Integration of offline newsletter/catalogue with website to help build a brand. Today such
newsletters are more commonly delivered online.
Debate 5.1 Digital business responsibility

‘A single person with specific digital business responsibility is required for every
medium-to-large business. It is not sufficient for this to be the responsibility of a non-
specialist manager.’
• This needs a new approach to thinking and a new person to evangelise about the benefits.
• A distinct digital business manager can concentrate on strategic issues while IS manager
will also be involved in operational issues – additional resource is required.
• The IS manager may not be familiar with marketing and procurement/supply chain
management applications.
• Digital business is a wide-ranging remit from buy-side to sell-side and inside –

knowledge management.
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• Cost not warranted
• Danger of lack of clarity in direction
• IS manager will have required knowledge
• May be useful in short term, but in long term should become part of IS manager’s role.
Debate 5.2 The influence of IS managers

1. Board-level representation for IS managers is essential in the digital business era.
• IS is becoming increasingly important to influencing strategy and IS issues may affect

implementation of strategies.
• IS strategy needs to be aligned with business strategy – this is difficult to achieve if

importance of IS is not recognised.
• Other directors likely not to have specialist knowledge required.
• Many US companies find it useful to have CIO.
• IS not likely to influence business strategies – an enabler, but does not affect strategies
adopted.
• Not necessary if defined person has responsibility, for example, finance director, operations
director.
• Only warranted in companies with technical products.
• Very few UK companies do have IS directors on board.
Exercises
1. What are the key characteristics of a digital business strategy model?
All strategy models should:
• Be based on assessment of internal and external environment.
• Have clearly defined SMART objectives backed up by vision.
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• Have strategies, tactics and implementation that select the best techniques to achieve these
strategies.
• Have monitoring and control that assess whether the objectives are being achieved and a
feedback loop to ensure corrective action occurs.
For digital business in particular, the strategy objectives should define the balance of online
and offline trading with customers, suppliers and distributors. The tactics should look at
how investment in information systems and revising business processes should occur to hit
these targets.
2. Select a retailer or manufacturer of your choice and describe what the main elements
of its situation analysis should comprise.
Situation analysis is summarised in Figure 5.6, p. 193. It includes evaluation of the external
environment as described in Chapter 4 (SLEPT or PEST) and internal resources using
techniques such as SWOT, application portfolio analysis and also demand and competitor
analysis.
3. For the same retailer or manufacturer suggest different methods and metrics for
defining digital business objectives.
Objectives should be SMART. Examples of metrics are in Table 5.6, p. 209, for example:
• Revenue amount
• Revenue source (which geographical markets, segments and products)
• Acquisition and retention of particular segments
• New product development
• Cost and lead times that are part of the supply chain.
4. For the same retailer or manufacturer assess different strategic options to adopt for
digital business.
This refers to the types of decisions outlined in the strategy section of this chapter that is:
• Decision 1: Digital business channel priorities
• Decision 2: Market and product development
• Decision 3: Positioning and differentiation strategies
• Decision 4: Business and revenue models
• Decision 5: Marketplace restructuring
• Decision 6: Supply-chain management capabilities
• Decision 7: Internal knowledge management capabilities
• Decision 8: Organisational resourcing and capabilities
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1. Evaluate the range of restructuring options for an existing ‘bricks-and-mortar’
organisation to move to ‘bricks-and-clicks’ or ‘clicks-only’ contributing a higher
online revenue.
Students should discuss restructuring in terms of:
• Relationships with partners. This is described in this chapter in the decisions in the Strategy
definition section of this chapter. Refer students to Gulati, R. and Garino, J. (2000)
reference. Options for restructuring the supply chain and value chain are also discussed
in Chapter 6. The concepts of disintermediation and reintermediation should also be
referred to.
• Internal restructuring. This is included in the change management chapter (Chapter 10) –
discussion of options.
The options for restructuring should be evaluated against the extent to which revenues are
achieved online (the online revenue contribution).
2. Explain the main strategy definition options or decisions available to an organisation

intending to become a digital business.
This question is intended to enable students to study, in more depth, the types of decisions
outlined on p. 217, that is
• Decision 1: Digital business channel priorities
• Decision 2: Market and product development
• Decision 3: Positioning and differentiation strategies
• Decision 4: Business and revenue models
• Decision 5: Marketplace restructuring
• Decision 6: Supply-chain management capabilities
• Decision 7: Internal knowledge management capabilities
• Decision 8: Organisational resourcing and capabilities
3. Between 1994 and 1999 Amazon lost more than $500m, but at the end of this period
its valuation was still more than $20b. At the start of 2000 Amazon.com underwent its
first round of job cuts, sacking 150 staff or 2% of its worldwide workforce. Later in
2000 its valuation dropped to less than half.
Write an essay on the strategy of Amazon.com exploring its history, different criteria
for success and its future. See the Wired Magazine archive for profiles of Amazon
(www.wired.com).
Amazon is now available as a case study ‘Case study 12.1 Learning from Amazon’s culture of
metrics’ and further commentary is available via Techcrunch (www.techcrunch.com).
Amazon is the bellwether of the new economy and as such has been analysed in
depth. Students should be encouraged to update themselves on the latest fortunes of
Amazon from a source such as Findarticles (www.findarticles.com) or Google Scholar
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(http://scholar.google.com/). Issues that students can address in this question include the
following:
• The importance of brand recognition and loyalty (generally reckoned to give good on-site
and post-sales customer service).
• The promotion strategy (use of affiliates and offline advertising).
• The focus strategy – initially books/CDs and then diversification into a range of products
including white goods.
• The distribution/fulfilment strategy (Amazon has had to invest in large warehouses in the
United States).
• The growth strategy.
• The technology strategy to produce customer service, for example, One-click ordering,
recommendations, search facilities.
4. Analyse the reasons for the failure of the original boo.com. Research and assess the
sustainability of the new boo.com business model.
Similar sources should be used to assess Boo.com. Issues to discuss include:
• Positioning and targeting of segments
• Use of expensive offline advertising to build brand
• Use of technology to offer 3D viewing of clothes.
The criteria for dot-com success referred to in the section on Valuing Internet start-ups at the
end of the chapter can be used here to evaluate Boo, that is:
i. Concept
ii. Innovation
iii. Execution
• Promotion – online or offline techniques are insufficient to attract sufficient visitors to the site
• Performance, availability and security – some sites have been victims of their own success
and have not been able to deliver fast access to the sites or the technical problems have
meant that the service is unavailable or insecure. Some sites have been unavailable
despite large-scale advertising campaigns due to delays in creating the website and its
supporting infrastructure
• Fulfilment – the site itself may be effective, but customer service and consequently brand
image will be adversely affected if products are not dispatched correctly or promptly.
iv. Traffic
v. Financing
vi. Profile.
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5. What can existing businesses learn from the business approaches of the dot-com
organisations?
Reference to the six factors listed above (i to vi) could be used as a structure for this question
(pp. 67–68) that is:
i. Concept. The need to introduce new business concepts, assess potential business,
marketing, distribution and revenue models.
ii. Innovation. See (i). The flexibility and dynamism of dot-coms to rapidly respond to market
opportunities and threats.
iii. Execution.
• Promotion – innovative techniques, for example, affiliates, viral marketing
• Performance, availability and security – the need to get these right
• Fulfilment – same as above.
iv. Traffic. Combination of online and offline techniques
v. Financing. Possible new financing sources and the use of joint ventures/partnerships to
achieve growth.
The Q1 2001 McKinsey Quarterly article ‘Lessons from e-marketing failures’ – see
www.mckinseyquarterly.com may also help with this question.
6. What are the similarities and differences between the concepts of business process
re-engineering (BPR) and digital business? Will the digital business concept face the
same fate as BPR?
This question examines digital business as a faddish management concept. You can review
how similar concepts such as BPR and TQM are introduced to much acclaim and then fade.
Given that these are more than 10 years old, students can assess how these have been
adopted and are still used as part of management practice. Students should evaluate the
similarities and differences of BPR and digital business. Similarities include process focus,
radical transformation of processes and the role of technology in transformation. Differences
include internal and external focus of digital business – involving dynamic links to partners
through value networks. BPR is considered in Chapter 10, where it is noted that a more
conservative approach to innovation (BPI) has been adopted by many companies.
7. Discuss this statement by David Weymouth, Barclays Bank chief information officer
(Simons, 2000b):
There is no merit in becoming a dot-com business. Within five years successful

businesses will have embraced and deployed at real-scale across the whole
enterprise, the processes and technologies that we now know as dot-com.
This quotation is also relevant to Questions 5 and 6. It suggests that gradually all businesses will
move towards a digital business. One approach to this is to look at the elements of a successful
dot-com (Question 5). An alternative approach is to look at stage models discussed in p. 193.
You can also look at the data from the DTI International Benchmarking study. The historical
data suggests that companies are gradually moving towards digital business. Refer to the four
steps of Figure 5.4.
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8. Compare and contrast different approaches to developing digital business strategy.
This question calls for a wide literature review to assess overall approaches to digital
business strategy suggested by different authors. The sources on Table 5.1 such as
Hackbarth and Kettinger, Kalakota and Robinson, Venkatraman and Plant can all be used to
illustrate different approaches. Students should use tables and figures of alternative strategy
process models to discuss these differences as in Activity 5.1 on p. 189.
These are all long examination questions requiring at least 30 minutes to answer.
1. Define the main elements of a digital business strategy.
The answer should start with definition of digital business, distinguishing it from e-commerce
(see Chapter 1). You should then look at elements of strategy using traditional strategy
process models such as those of Johnson and Scholes and Lynch described on p. 241.
2. You are the incumbent digital business manager for a domestic airline. What process
would you use to create objectives for the organisation? Suggest three typical
objectives and how you would measure them.
Scenario style questions such as this can be used to assess students on a range of digital
business issues. The answer should start by emphasising the importance of objectives in
strategy process that is, to help guide strategy and tactics and measure its enactment.
Attributes of successful attributes can then be articulated (SMART). Three objectives should
be from:
• Online revenue contribution (direct)
• Online revenue contribution (indirect – reach of site in influencing sales)
• Role of site in supporting post-sale customer services (percentage of enquiries, clear-up

online)
• Role of intranet/extranet in managing operational aspects of airline such as staff rostering or

catering.
3. Explain the productivity paradox and its implications for managers.
This concept is described on pp. 240–241. ‘Research results indicating a poor correlation
between organisational investment in information systems and organisational performance
measured by return on equity’. Students should note arguments for and against its existence. Its
implications are for companies to carefully assess the cost/benefit for investment in all IS and
particularly major initiatives such as digital business. The assessment should be based on
business impacting and aligning techniques described in this chapter. A further implication is
the need for successful implementation in terms of analysis and design to meet business
requirements and change management through education and training.
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4. What choices do executives have for the scope and timeframe of implementing
digital business?
This question is similar to essay Question 1 – essentially mix of ‘bricks and clicks’. You can use
the online revenue contribution to discuss this or the adoption ladder of Figure 1.13, p. 33.
Introduction can occur using piloting approaches for a particular process, department, area or
country where new systems are used in parallel with older approaches perhaps then followed by
a big-bang transnational rollout.
Activity answers
Activity 5.1 Selecting a digital business strategy process model
Review three or four strategy process models that you have encountered. These could be
models such as those shown in Table 5.1. Note that columns in this table are independent – the
rows do not correspond across models.
1. What are the strengths and weaknesses of each model?

(a) 1: Strategy is based on thorough environment analysis, clear statement of vision and
objectives, emphasises the feedback loop necessary for control.
2: Implies protracted, non-responsive strategy development that is not sufficiently
dynamic. Strategy development process is not emphasised.
(b) 1: Highlights detailed elements of analysis and strategy development.
2: Does not highlight sequence in process. Importance of objective setting and control
not emphasised.
(c) 1: A dynamic responsive model that highlights the importance of continuous environment
scanning in digital business.
2: Does not emphasise the detailed strategy development elements of (a) and (b).
2. What common features do the models share? List the key elements of an appropriate
strategy process model.
Study of the four models suggests that the following elements are significant:
One: Continuous internal and external environment scanning or analysis is required.
Two: Clear statement of vision and objectives required.
Three: Strategy development can be broken down into formulation and selection.
Four: After strategy development, enactment of the strategy occurs as strategy implementation.
Five: Control is required to detect problems and adjust the strategy accordingly.
In addition, the models suggest that these elements, although generally sequential, are also
iterative and require reference back to previous stages.
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Activity 5.2 Assessing the significance of digital channels
For each of the following products and services, assess the suitability of the Internet for
delivery of the product or service and position it on the grid in Figure 5.16, with
justification, and make estimates in Table 5.7 for the direct and indirect online revenue
contribution in two, five and ten years’ time for different products in your country.
Choose specific products within each category.
Activity 5.3 Digital business strategies for a B2C company
1. Review the summaries of the approaches recommended by IDC Research below

(Picardi, 2000). Which elements of these strategies would you suggest are most
relevant to a B2C company?
In brief, it can be suggested that the first three strategies apply to most organisations, and in
particular to B2C organisations. The attack e-tailing and defend e-tailing approaches do not
have to be mutually exclusive and can be applied to most commodity products such as books,
holidays and records. However, it is arguable whether a purchaser of kitchenware in a B2C case
would be that price sensitive. In this case, the emphasis on trust leading to loyalty as suggested
by the defend e-tailing approach would be most relevant.
2. Alternatively, for a company with which you are familiar, review the eight strategy
decisions within this section.
Activity 5.4 Digital business investment types
1. Referring to the four investment categories of Robson (1997), discuss in groups which
category the following investments would fit into:
(a) E-procurement system.
(b) Transactional e-commerce website.
(c) Contract with ISP to host web server and provide Internet connectivity for staff.
(d) Workflow system to manage complex customer orders (e.g. processing orders).
(e) Upgrading a company network.
You will notice that the categories are not mutually exclusive.
(a) E-procurement system. This is an operational system, but as will be shown in Chapter 8, the
potential cost savings are such that this could also be considered to be a strategic value
investment.
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(b) Transactional e-commerce website (Chapter 9). This is a customer facing system which, if it
increases the customer base of a company, can be considered to be a strategic value
investment. Within the digital business era, it can be thought of as a threshold investment to
remain competitive.
(c) Contract with ISP is to provide Internet connectivity for staff. It is an infrastructure
investment, with elements of threshold investment and operational investment.
(d) Workflow system to manage complex customer orders (e.g. processing orders). This may
appear to be an operational investment, but since it is a customer facing system that should
improve customer service, it can be viewed as a strategic value investment.
(e) Upgrading a company network is an infrastructure investment. If you think it is unrealistic

to decide on just two investments, this is a genuine problem faced by many companies. An
information system manager at a regional airline described how they had an applications
backlog numbering more than 100 of which only 20 or so could be funded immediately. The
e-procurement system and transactional website are clearly the best strategic value
investments.
2. Assume you had sufficient funds to invest in only two of these options. Which two
would you choose?
Discuss the balance of cost-efficiencies and incremental revenue for these options.
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CHAPTER 6
Supply chain management
Table of contents
Case studies 80
Exercises 83
Activity answers 88
Learning outcomes
• Identify the main elements of supply chain management and their relationship to the value
chain and value networks
• Assess the potential of information systems to support supply chain management and the
value chain
Management issues
The issues for the manager:
• Which technologies should we deploy for supply chain management and how should they
be prioritised?
• Which elements of the supply chain should be managed within and beyond the organisation
and how can technology be used to facilitate this?
• What are the practical issues with online supply chain management?
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Chapter at a glance
Main topics
• What is supply chain management?
• Options for restructuring the supply chain
• Using digital business to restructure the supply chain
• Supply chain management implementation
Focus on
• The value chain
Case studies
6.1 Shell Chemicals redefines its customers’ supply chains
6.2 Argos uses e-supply chain management to improve customer convenience
6.3 RFID: keeping track starts its move to a faster track
Supply chain management (SCM) is a significant topic within operations management courses
and modules, but students may have limited exposure to this topic. Given this, the approach here
is to outline the key concepts of SCM for those who are unfamiliar, or as a refresher for those
who are familiar. Each of these concepts is then placed in a digital business context describing
how technology can support enhancement of the supply chain.
1. Benefits and challenges of digital technology supported supply chain management.
Introduce through Box 6.1, Figure 6.1 and Table 6.1.
2. What is the supply chain?
Figure 6.2 can be used to illustrate the elements of a simple supply chain, with Figure 6.3 and
Figure 6.5 introducing more complexity, but not showing the role of second and third tier
suppliers. Figure 6.8(a) relates the supply chain to the value chain and shows the role of
inbound and outbound logistics.
The related concept of the value chain is reviewed in the Focus On Value chain section. Figure
6.8(b) can be used to illustrate the limitations of this model to service organisations where
Figure 6.8(b) becomes more appropriate than Figure 6.8(a). The move from a single value
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chain to a dynamic value network is an important change facilitated through digital business.
This is illustrated by Figure 6.9.
3. Restructuring the supply chain.
IT-enabled options for restructuring the supply chain are summarised in Figure 6.10.
4. The role of IS in revising SCM.
This can be illustrated in a meaningful way to students by presenting Figure 6.12. These show
the adoption of digital business applications. In a seminar, students could be asked to relate
these to the ‘ladder of digital business adoption’ from Chapter 5.
Benefits that IS can bring to SCM are summarised in Adoption rates of digital business
applications illustrated on the buy-side by the Shell Case study 6.1 on pp. 259–322. The
supermarket-related case is chosen to help students relate to SCM issues.
Case studies
Case study 6.1 Shell Chemicals redefines its customers’ supply chains
Questions
1. The SIMON system supports both ‘upstream and downstream’ business

relationships. Explain how this relates to Figure 6.5 and whether you would consider
it an e-commerce system or a digital business system.
The upstream relationships with suppliers equate to the buy-side e-commerce on the left side of
Figure 1.2 and the downstream relationships with customers are equivalent to the sell-side e-
commerce on the right side of Figure 1.2. The SIMON system can be best considered as two
separate e-commerce systems, one set up for suppliers and the other for customers. The two
systems do not appear to be linked. Indeed, the case study refers to the need for the Shell
customer service representative to enter the customer order information into the Shell
production system (an SAP enterprise resource planning system). If this information was
seamlessly integrated with the SAP system for the Shell internal business processes, then this
could be considered a digital business system. It also appears that paper invoices are still
generated and payment is not made electronically as would be expected for a digital business
system.
2. Draw a table summarising the before and after implementation roles for Shell and
their customers (downstream side).
See table below
Before After
Customer manages danger stock levels Shell manages danger stock levels
Customer places order Shell enters order info into SAP
Shell dispatches order
Customer pays multiple invoices Shell dispatches single invoice
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3. This description of SIMON is explained from the Shell perspective. Using your
answer to Question 2, state whether you think the customer truly benefits, or is Shell
transferring some of its workload to the customer?
This is a recurring theme in e-commerce – the concept of customer self-service is an attractive

one for suppliers, but may result in more work for the customers increasing their costs. Here, the
benefits seem to favour both customer and supplier.
4. Visit the Shell Chemicals website (www.shellchemicals.com). How are the benefits of
these facilities explained?
At the time of writing, only limited online sales support via email was available from the
website. As the article explains, this facility is only available to a limited number of large
customer accounts. The benefits of such a system will be communicated via word-of-mouth by
sales representatives or account managers who will be in close contact with customers and
suppliers.
Case study 6.2 Argos uses e-supply chain management to improve

customer convenience
Questions
1. Explain how Argos uses supply chain management to improve the proposition for its
customers.
The elements of the proposition mentioned include:
• Check and collect which will increase conversion to sale
• Extended product ranges
• Catalogue integration.
2. What do you think are the factors that have made Argos successful within its
multichannel retail strategy?
It has a planned approach with clear responsibilities for managing the multichannel proposition.
The business case has been developed and management commitment is available to support
and prioritise the significant investment in these facilities. The technical integration challenges
have also been overcome.
Case study 6.3 RFID: keeping track starts its move to a faster track
Question
Select a manufacturing sector and then evaluate the benefits and risks of applying RFID
in this sector.
Benefits may include:
• Improved accuracy of inventory management enables lower inventory levels to be

managed.
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• Better track can reduce fraudulent loss.
• Cost reduction through less human intervention for tracking.
Risks:
• Length of time for return-on-investment.
• Privacy concerns where RFID is used for tracking in retail outlets.
• Fraud changing RFIDs.
Debate 6.1 New value chain models

The traditional value chain model of Michael Porter (Figure 6.8(a)) is no longer useful as a
framework for value chain management. Instead, Figure 6.8(b) is more appropriate.
Summary of arguments for:
• Customer focused – driven by market research
• More representative of key processes
• Representative of information flows in organisation.
Summary of arguments against:
• May be appropriate for service-oriented organisations, but Figure 6.8(b) still most important
for manufacturers
• Negates support roles such as HR and IS.
Debate 6.2 Virtual integration and outsourcing of core processes

The success of companies such as Dell in outsourcing core business processes and
virtual integration suggests that all companies need to adopt this model in order to be
competitive.
• Success in marketplace – Dell has outperformed rivals such as Lenovo, IBM and HP,
which originally had the largest market share
• Model works best in global marketplace
• Dell approach needed for cost advantage.
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• Still need to keep core processes in-house – for Dell this is design, marketing and support
functions
• Only appropriate for some businesses – less true for FMCG brands or services organisations
• Needs careful management of partners.
Exercises
1. Define supply chain management; how does it relate to:
• logistics;
• the value chain concept;
• value networks?
Supply chain management (SCM)
The coordination of all supply activities of an organisation from its suppliers and partners to its
customers.
Logistics – large overlap according to definition from Institute of Logistics and Transport: ‘Logistics
is the time-related positioning of resource, or the strategic management of the total supply
chain. The supply chain is a sequence of events intended to satisfy a customer. It can include
procurement, manufacture, distribution and waste disposal, together with associated transport,
storage and information technology’.
Value chain concept – has similar components such as inbound and outbound logistics,
production and sales and marketing, different orientation which is how to deliver customer
value, plus separate identification of secondary activities such as HR and IS.
Value networks – interactions between different value chains of a range of organisations.
2. What is the difference between a push orientation to the value chain and pull
orientation?
A change in supply chain thinking, and also in marketing communications thinking is the move
from push models of selling to pull models or combined push–pull approaches. The push model
is illustrated by a manufacturer who perhaps develops an innovative product and then identifies
a suitable target market. A distribution channel is then created to push the product to the market.
This situation is shown in Figure 6.8(a) where it can be characterised by the statement ‘This is a
great product, now who shall we sell it to?’ or the quip about the original model T Ford – ‘you
can have any colour, so long as it is black’. The typical motivation for a push approach is to
optimise the production process for cost and efficiency.
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3. How can information systems support the supply chain?
Information systems are used to increase the efficiency of information flow by:
• Delivering more information (e.g. sales data in Tesco TIE system).
• Analysing information (e.g. alerting a large order).
• Delivering it more rapidly (e.g. reduced lead times in e-procurement).
4. What are the key strategic options in supply chain management?
• How to restructure supply chain (vertical integration/disintegration/virtual integration).
• How to restructure (disintermediation, reintermediation, countermediation).
• How to restructure relationships in a value network.
• New procurement models, for example, auctions and B2B exchanges.

1. How does electronic communications enable restructuring of the value chain
network?
Structure:
• Review elements of old and new value chain models (Figure 6.8) for context
• Review value network characteristics that is, dynamic formation; move to outsourcing
• Assess options for restructuring: push vs. supply models; vertical integration vs. disintegration
vs. virtual integration and partnership management and value networks.
2. ‘The concept of a linear value chain is no longer tenable with the advent of electronic
commerce.’ Discuss.
A similar approach can be used to Question 1.
3. Select an industry of your choice and analyse how business-to-business exchanges

will change the supply chain.
Examples that could be chosen include:
• Covisint in motor industry (Ford, DaimlerChrysler and GM). Here, former exchanges
created by Ford (AutoXchange) and GM (Tradexchange) have merged. Tait (2000) reports
on research that suggests between $1,000 and $3,600 savings on a $26,000 car could
be achieved for a car where all purchasing from manufacturer and end-customer is
completed electronically. By the end of 2000, Covisint already had completed $200 million.
• WorldWide Retail Exchange (Kingfisher, Kmart, Marks and Spencer).
• T2 US airline trading exchange.
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• GlobalNetExchange (Retailers Sears and Carrefour). Note that Transora has been created
by 50 of the world’s major FMCG suppliers including Coca-Cola and Kelloggs in response
to retailers.
• PaperX. Paper industry designed for one-to-one deals.
An answer to this question should:
• Introduce the characteristic nature of procurement in this industry.
• List neutral and company-backed exchanges currently available and contrast to use of buy-
side and sell-side options. Include generic cross-industry exchanges and industry-specific
exchanges.
• Through cases illustrate the pluses and minuses of exchanges referred to in the previous
questions.
• Use industry-wide survey data and published exchange financial reports to assess actual use
of exchanges.
• Assess future prospects – what rationalisation is likely to occur – many articles suggest that
only one or two players are possible in each sector.
4. ‘In the end business all comes down to supply chain vs. supply chain’. Discuss.
This question prompts discussion of the significance of SCM in the context of other aspects of
management, in particular corporate strategy and marketing. Marketers argue that the marketing
concept and customer-led strategy as suggested by Figure 6.8(b) is the most appropriate choice
since this involves assessing demand through market research and then devising products and
communications to satisfy demand. For marketers, efficiency of the supply chain may help
financial performance of the business, but does not create new customers. Supply chain
managers argue that increasing the overall efficiency of the supply chain can be used to deliver
customer value by enabling faster, more personalised new product development and on-time
delivery of quality products to customers. These factors are all likely to increase customer
satisfaction and so loyalty. Perhaps a more valid statement is that it comes down to value chain
vs. value chain since this emphasises delivery of value to customers in different segments.
5. Select a retailer of your choice and analyse their strategy for management of the
upstream and downstream supply chain.
Concepts that should be included are as follows:
• Push vs. supply models.
• Vertical integration vs. disintegration vs. virtual integration.
• Partnership management and value networks.
• Procurement and fulfilment strategies.
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1. Explain how the concepts of disintermediation, reintermediation and countermediation
apply to the supply chain.
Definition of each of these:
Disintermediation
its customers.
Reintermediation
The creation of new intermediaries between customers and suppliers, providing services such as
Countermediation
Creation of a new intermediary by an established company.
Explain how they can occur in the upstream supply chain or downstream supply chain, for
example?
Disintermediation upstream, buying direct from supplier; downstream selling direct to customer.
Reintermediation upstream – using a B2B exchange, downstream representation on new
intermediary.
Countermediation upstream – creating/backing a supplier exchange, downstream

creating/backing a new portal for promotion/distribution to customers.
2. You have recently been appointed as supply chain manager for a pharmaceutical
company. Summarise the main Internet-based applications you would consider for
communicating with your suppliers.
• Direct through EDI.
• Direct through sell-side catalogue system.
• Direct through buy-side bid and tendering system.
• Direct through real time system (e.g. Tesco suppliers).
• Indirect through intermediary.
3. How has the increase in electronic communications contributed to the development

of value networks?
Definition of value network:
‘The links between an organisation and its strategic and non-strategic partners that form its
external value chain’.
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Electronic communications make it easier to form and reform links with partner, for example, to
create a virtual company to deliver a project or to select new suppliers or channel partners.
4. What are the characteristics of a virtual organisation? Using examples, explain how
e-commerce can support the virtual organisation.
Definition:
An organisation which uses information and communications technology to allow it to operate

without clearly defined physical boundaries between different functions. It provides customised
services by outsourcing production and other functions to third parties.
E-commerce can support the delivery of services since it allows the virtual organisation to form
rapidly and then conduct the transactions necessary for its function. An example is a team of
global companies forming to deliver an engineering contract. Communications can be used to
prepare the bid and then deliver the services through exchanging technical designs and project
management material.
5. Explain how information technologies can be employed for different elements of a

purchaser–supplier relationship.
This is covered in Chapter 7, see Figure 7.3:
a. Originator request and selection (integration with catalogue systems).
b. Manager authorisation.
c. Buyer places order.
d. On delivery warehouse reconciles order and delivery (integration with account and
warehouse systems).
e. Payment (integration with accounting applications).
6. Using industry examples, summarise three benefits of using e-commerce to

streamline the supply chain.
Main benefits:
1. Increased efficiency of individual processes. Here the cycle time to complete a process and
the resources needed to execute it are reduced. If the B2B company adopts e-procurement,
this will result in a lower cycle time and cost per order as described in Chapter 7.
Benefit: reduced cycle time and cost per order as described in Chapter 7.
2. Reduced complexity of the supply chain. This is the process of disintermediation referred to
in Chapter 2. Here the B2B company will offer the facility to sell direct from its e-
commerce site rather than through distributors or retailers.
Benefit: reduced cost of channel distribution and sale.
3. Improved data integration between elements of the supply chain. The B2B company can
share information with its suppliers on the demand for its products to optimise the supply
process.
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Benefit: reduced cost of paper processing.
4. Reduced cost through outsourcing. The company can outsource or use virtual integration to
transfer assets and costs such as inventory holding costs to third party companies.
Technology is also an enabler in forming value networks, and in making it faster to change
suppliers on the basis of cost and quality.
Benefits: lower costs through price competition and reduced spend on manufacturing
capacity and holding capacity. Better service quality through contractual arrangements.
7. How can electronic commerce be used to support restructuring of the supply chain?
Review options for restructuring, that is:
• Vertical integration vs. disintegration vs. virtual integration (information exchange).
• Disintermediation (selling or buying direct), reintermediation (using intermediaries in the

upstream or downstream value chains), countermediation (using company-supported
intermediaries upstream or downstream).
8. What are the differences and similarities of using information technology to support:
(a) the upstream supply chain;
(b) the downstream supply chain?
Can use new intermediaries in both (a) and (b) and can also achieve disintermediation in (a)
and (b).
Activity answers
Activity 6.1 A supply chain for a typical B2B company
1. Referring to Chapter 2 and the section on disintermediation and reintermediation,

discuss the opportunities for a B2B company to restructure its supply chain as part of
the move to digital business, and the benefits this may bring.
Upstream supply chain:
• Disintermediation offers the opportunity to buy direct from the supplier with reduced costs
and shorter cycle times.
• Reintermediation offers the chance to use business-to-business exchanges to source

products at lower costs.
Downstream supply chain:
• Disintermediation offers the opportunity to sell direct to the customer with lower cost of
sales and improved lead time for customers.
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• Reintermediation offers the opportunity to compete in new marketplaces through B2B

exchanges.
A more detailed discussion can review the different options for distintermediation and
reintermediation.
2. How can information systems be used to accomplish the changes you have identified in
Question 1?
Without any restructuring of the supply chain technologies, such as email, web-based ordering,
EDI and order-tracking can be used to reduce costs and cycle times. Disintermediation and
reintermediation options are also facilitated through email, websites, EDI and e-commerce.
Activity 6.2 Supply chain models in personal computer manufacture
1. Review the approaches of the two companies illustrated below. Which tends to vertical
integration and which tends to virtual integration?
Approach 1. IBM. Vertical integration. Approach 2. Dell. Virtual integration.
2. Produce a table summarising the benefits and disadvantages of each approach. Which
do you think is the better approach?
Some of the main advantages and disadvantages are shown in a table.
Advantages and disadvantages of vertical integration and virtual integration

Approach 1. IBM. Vertical integration Approach 2. Dell. Virtual integration
Advantages Disadvantages Advantages Disadvantages
Control of Less pressure on Excellent control of Less direct control on
manufacturing quality manufacturing costs through quality (although can
costs supplier competition swap to other suppliers)
Lower overhead in Costs of systems Fewer assets. Emphasis on

dealing with third all borne by Costs of inventory management of
parties (easier to manufacturer borne by suppliers. suppliers
integrate systems Costs of data
internally) integration shared
– More responsive More responsive to –
to short- and short- and medium-
medium term term market
market demand demand variations
variations
The market success of Dell suggests their approach is superior.
3. How can information systems facilitate each approach?
Information systems can help both situations through using enterprise resource planning
systems, EDI and groupware systems to integrate market research, product design, sourcing,
material requirements planning, production, warehousing and distribution. As pointed out in the
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table it may be easier to integrate systems with vertical integration, but more of the cost is borne
by the manufacturer.
Activity 6.3 An e-SCM performance management framework
In a large group, each pair of students should take one of the categories of measures and
then discuss:
1. How information systems can help improve performance.
2. The constraints that may limit performance improvements.
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CHAPTER 7
E-procurement
Table of contents
Case studies 93
Exercises 95
Activity answers 100
Learning outcomes
After reading this chapter the reader should be able to:
• Identify the benefits and risks of e-procurement
• Analyse procurement methods to evaluate cost savings
• Assess different options for integration of organisations’ information systems with e-

procurement suppliers
Management issues
Managers will be concerned with the following e-procurement issues:
• What benefits and risks are associated with e-procurement?
• Which method(s) of e-procurement should we adopt?
• What organisational and technical issues are involved in introducing e-procurement?
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Chapter at a glance
Main topics
• What is e-procurement?
• Drivers of e-procurement
• Barriers and risks of e-procurement adoption
• Implementing e-procurement
• The future of e-procurement?
Focus on
• Estimating e-procurement costs
• B2B marketplaces
Case studies
7.1 Cambridge Consultants reduce costs through e-procurement
7.2 Covisint – a typical history of a B2B marketplace?
Purchasing and procurement are topics that tend to be poorly represented in generic
undergraduate and some postgraduate business courses. Given this, this chapter takes the
approach of first explaining what procurement is and then reviewing what its benefits and risks
to business are. To help explain this, it lends itself to simple spreadsheet modelling, examples of
which are included.
Approach:
1. What is e-procurement?
Achieving the five rights of e-procurement. Illustrating the process by Figure 7.1.
2. Benefits
These, and the need for re-engineering, are illustrated well by Activity 7.1 which uses flow-
process analysis and is a good seminar activity.
Case study 7.1 on Cambridge Consultants case is excellent for highlighting benefits.
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Activity 7.2 is also useful for showing how the benefits are calculated.
3. Risks
Risks associated with marketplace are a major issue for e-procurement since they enable
competition between suppliers to drive prices down. Mini case study 7.3 gives the example of
Alibaba. The Focus On section discusses the likely significance of these.
Case studies
Case study 7.1 Cambridge Consultants reduces costs through e-

procurement
Questions
1. Given the scale of the purchasing operation at Cambridge Consultants, what benefits
do you think e-procurement has brought?
The large number of suppliers (4000) and range of items (needed for over 120 projects) mean
that many purchases are made annually. If it is possible to reduce the cost of each one, then
large potential for financial savings may be possible. Through using e-procurement it is also
possible to reduce the cycle time for ordering items for products that will help achieve on-time
completion of projects and satisfied customers.
2. Why are procurement costs currently as high as £60 to £100 per order?
Procurement costs are high since there are many stages involving identification of the need for
paperwork together with hand-offs between up to 8 and 10 staff in the process.
3. How are procurement costs reduced through e-procurement?
E-procurement enables distributed purchasing that requires less involvement from purchasing
staff and hence faster ordering. The use of paper has been eliminated. Combined reductions in
staff time and physical resources help to reduce purchase costs to an average of £10 per order.
4. What staff benefits accrue to Cambridge Consultants as a result of e-procurement?
The benefits to the internal customers at Cambridge Consultants include ordering whenever
required (out-of-hours) and more flexibility in the delivery of different items meaning that
urgent items can be delivered more rapidly since they are not awaiting other elements of a
combined order.
Case study 7.2 Covisint – a typical history of a B2B marketplace?
Questions
By reviewing the case study and examples of the different supplier portals available on
Covisint (www.covisint.com), explain why Covisint has prospered as a supplier of e-
procurement portals and business document data exchange rather than as a neutral
marketplace.
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The backing of several major manufacturers willing to try out a new approach initially provided
sufficient economy of scale for the exchange to be successful. Suppliers have no choice but to
participate because of the strength of the customers.
The companies did not see sufficient benefits of the neutral marketplace, instead requiring
technology to support their own supplier relationships. This is what Covisint provides today.
Debate 7.1 E-procurement cost savings

The cost-saving benefits of e-procurement are theoretical rather than actual since only
reduced headcount in procurement can result in savings.
• E-procurement often does not lead to reduction in headcount.
• Procurement staff can be redeployed to value-added functions such as finding better

sources.
• Savings in ordering process and consumables also achieve savings.
• Savings through reducing maverick purchasing may also be achieved.
Debate 7.2 The future for independent B2B marketplaces

There is no future for independent B2B marketplaces, exchanges or hubs; instead those
sponsored by buyers in the industry (for example, Covisint in the car industry) will be
dominant.
• Success of exchanges such as Covisint and other non-neutral exchanges.
• Failure rates of exchanges – see those quoted in articles in chapters. Start-ups are more
likely to fail, as for any business, because of the high risk growth phase where raising
awareness is necessary.
• Easier for existing exchanges to build on existing relationships.
• Many industries do have hubs created by new players.
• It is in both parties’ interests for exchanges to be neutral.
• Neutral exchanges may work best as global trading platform.
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Exercises
1. Outline the two main methods by which companies purchase supplies and the two
broad divisions of supplies needed.
There are two broad categories of procurement; those that relate to manufacturing of products
(production-related procurement) and operating or non-production-related procurement that
supports the operations of the whole business and includes office supplies, furniture,
information systems, MRO goods and a range of services from catering, buying travel or
professional services such as consulting and training. Raw materials for the production of goods
and MRO goods are particularly important since they are critical to the operation of a business.
2. Taking your answer from 1, give examples of B2B exchanges that have been created
to meet these purchasing needs.
Production-related procurement examples include Vertical Net (www.vertical.net), sites such as

www.oilandgas.com, Industry-to-Industry (www.itoi.com) which trades petrochemicals, and in
pharmaceuticals (www.chemdex.com).
MRO type sites include the Staples example from Schlumberger.
3. Draw a sketch that shows the main stages and people involved in traditional and e-
procurement.
This is Figure 7.1 on p. 299.
4. Outline the main reasons for e-procurement.
• Cost reduction
• Reduced lead time
• Better quality
See also the five rights of procurement on p. 300.
5. What is maverick purchasing? What safeguards need to be introduced into e-

procurement to avoid this?
This is where purchasing is poorly controlled and users within departments may order products
that are not from a favoured supplier, do not meet company standards (e.g. of software) or are
unnecessary. E-procurement enables checks such as limits on purchasing or from preferred
sources.
6. Explain the differences between the buy-side, sell-side and marketplace options for
e-procurement.
• Buy-side – Buyer invites bids through tender placed on its own site.
• Sell-side – Buyer goes to supplier website to purchase.
• Marketplace – Buyer goes to a neutral marketplace to purchase.
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7. Outline the benefits and disadvantages of each of the options in Question 6.
• Buy-side – Only suits really large buyers, but displaces work to suppliers. Key suppliers
may be missed if unaware of tender. Can specify integration with IT systems.
• Sell-side – Effort placed on buyer to find sources. Integration with IT systems potentially
more difficult.
• Marketplace – Theoretically gives widest range of suppliers and if integrated with a

standard exchange which gives a standard method of data exchange and flexibility to move
suppliers. Difficulty in choosing exchange with critical mass.
8. What are the organisational implications of introducing e-procurement?
• Less staff time involved with procurement requires making staff redundant or re-skilling.
• Education and training needed to sell system to the staff using it.
• Better control of purchasing (reduce maverick purchasing).

1. Chris Miller of Shell Chemical has been quoted as saying:
‘E-procurement is not about screwing suppliers. It’s about taking cost out for both
suppliers and buyers and reducing institutionalised inefficiencies. Plus it supports
smaller buyers and suppliers just as much as larger ones. It’s not a big boys’ club’.
Discuss this statement through reviewing the benefits and disadvantages of e-

procurement to both buyers and suppliers.
This statement highlights both the advantages (cost reduction and increasing process efficiency)
and the disadvantages (seen as reducing the margin for suppliers). A suitable answer for this
question is:
a. Define e-procurement.
b. Review advantages. Useful approach is: ‘E-procurement should be directed at improving

performance for each of the “five rights” of purchasing’ (Baily et al., 1994) which are
sourcing items:
1. At the right price
2. Delivered at the right time
3. Of the right quality
4. Of the right quantity
5. From the right source.
Should illustrate these advantages, particularly time and cost by case studies.
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c. Review disadvantages.
• Cause pressure on relationships with suppliers.
• Tier two and three suppliers are reluctant to sign up to portals because of the downward
pressure on price.
• Difficult to achieve component traceability through current generation of exchanges

(cost of integrating procurement systems with suppliers or exchanges).
d. Discuss current adoption of e-procurement using sources such as Conspectus

(www.conspectus.com) or DTI data from benchmarking study. Conclude by looking at how
the advantages and disadvantages will balance out for future adoption. What will need to
change for wider adoption?
2. For an industry sector of your choice review the current alternative options for, and
business adoption of B2B marketplaces available to, purchasing and IS professionals
and attempt to forecast the situation in five years.
Examples that could be chosen and referred to in the text:
• Covisint in motor industry (Ford, DaimlerChrysler and GM). Here former exchanges
created by Ford (AutoXchange) and GM (Tradexchange) have merged. Tait (2000) reports
on research that suggests between $1,000 and $3.600 savings on a $26,000 car could
be achieved for a car where all purchasing from manufacturer and end-customer is
completed electronically. By the end of 2000, Covisint already had completed $200 million.
• WorldWide Retail Exchange (Kingfisher, Kmart, Marks and Spencer).
• T2 US airline trading exchange.
• GlobalNetExchange (Retailers Sears and Carrefour). Note that Transora has been created
by 50 of the world’s major FMCG suppliers including Coca-Cola and Kelloggs in response
to retailers.
• PaperX. Paper industry, designed for one-to-one deals.
An answer to this question should:
• Introduce the characteristic nature of procurement in this industry.
• List neutral and company-backed exchanges currently available, and contrast with use of
buy-side and sell-side options. Include generic cross-industry exchanges and industry-
specific exchanges.
• Through cases, illustrate the pluses and minuses of exchanges referred to in the previous
questions.
• Use industry-wide survey data and published exchange financial reports to assess actual use
of exchanges.
• Assess future prospects – what rationalisation is likely to occur – many articles suggest that
only one or two players are possible in each sector.
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3. Critically assess the claims made for cost savings and increased profitability
available from e-procurement.
To answer this question, students could assess the assumptions of savings made through
analysis such as Activity 7.1 on p. 302 and Activity 7.2 on p. 309. How many of these are valid?
Criticisms are indicated in the section on ‘Barriers and risks of e-procurement adoption’.
Essentially savings are only made if headcount is reduced or staff are redeployed to a value-
added role.
4. Analyse the procurement process for an organisation with which you are familiar.
Explain the changes and possible problems involved with introducing e-
procurement.
Techniques such as flow-process analysis (Activity 7.1 on p. 302) or cost-saving calculations

such as those of Activity 7.2 on p. 309 should be used.
5. ‘Fully automated end-to-end procurement is not practical.’ Discuss.
This question addresses practical barriers to e-procurement. The section on ‘Implementation

e-procurement’ covers many of the issues. Cases and industry data from analysts can be used
to show that end-to-end procurement is rare. An answer to this question can start by illustrating
the procurement process using Figure 7.1 on p. 299 and the range of applications used
(Figure 7.3, p. 311). Difficulties that should be referred to are:
• Range of applications that need to be integrated often from different vendors (Figure 7.3)
• Order traceability issues between different systems
• Integration with different systems from partners such as suppliers needed for buy-side, sell-
side and intermediary-based purchasing.
1. Draw a diagram explaining four types of B2B exchanges that are dependent on the
type of purchasing and what is purchased. Give one example of a product that could
be purchased at each and the name of an exchange offering this service.
Should refer to Table 7.7, p. 319. Examples shown on table.
2. Describe the different elements of an e-procurement system.
See Figure 7.1, p. 299
a. Originator request and selection (integration with catalogue systems)
b. Manager authorisation
c. Buyer placing order
d. On delivery warehouse reconciling order and delivery (integration with account and
warehouse systems)
e. Payment (integration with accounting applications).
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3. Draw a diagram that summarises the main differences in processes within an
organisation for traditional procurement and e-procurement.
Should refer to flow-process analysis – Table 7.1 p. 301 against Table 7.2 p. 302. Main
differences are shorter cycle times and fewer steps arising through electronic messaging
and automatic authorisation and forwarding.
4. Outline the main benefits of e-procurement.
• Lower costs – flexibility of source
• Shorter cycle time
• Improved quality
• Fewer errors
• Better supplier arrangements.
Could also ask to explain reasoning.
5. Explain the differences between buy-side and sell-side e-procurement. Give an

advantage for each type for the purchasing company.
• Buy-side is tendering for bids from buyer’s own site. Advantage – effort is made by the
suppliers to tender.
• Sell-side is visiting supplier’s site for prices or integration with their e-commerce systems –
integration may be easier.
6. Current adoption levels of e-procurement are low. Identify the main reasons for this.
• There is conservatism within purchasing departments, perhaps to avoid redundancies or

redeployment.
• Suppliers may often not want to move to e-procurement since approaches such as auctions
lead to reduced prices.
• There are internal procurement systems from several different vendors, so may not be
compatible.
• There may be technical difficulties in integrating internal systems with several different
external systems.
7. Explain how cost savings may arise from e-procurement.
• More competition between suppliers, for example, at exchanges.
• Reduction in consumables such as paper.
• Reduction in inventory needed since e-procurement faster.
• Fewer staff resources required since process is made more efficient.
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8. Why do some commentators suggest real cost savings from e-procurement may be
nearer to 10% than higher figures suggested by e-procurement solutions providers?
The large-scale savings will only occur if staff are removed from the organisation, whereas
more typically they will be redeployed. The smaller-scale savings arise from reduction in
inventory and consumables.
Activity answers
Activity 7.1 Evaluating the benefits of the e-procurement process for a

typical B2B Company
1. Identify inefficiencies in the traditional procurement process (Table 7.1).
It is evident that the major delays are introduced through the transport of material (this may
have been through an internal post system with only one or two collections per day) and while
the item was waiting for processing in the buyer’s in-tray. Further inefficiencies occurred
through duplicating ordering of information – the order had to be specified separately on the
requisition and again on the order for the supplier. If a more senior manager is required to
authorise an expensive purchase then this would introduce further delay through a cycle of
transport, delay (in-tray), process (authorise), transport, delay (in-tray).
2. Identify process benefits to Table 7.1 that would be possible through the automation of
a system through an email-based workflow system.
Before the advent of digital business it was possible to improve the paper-based process
indicated in Table 7.1 through using a workflow system to automate the entry of purchasing
information and passing information on through email rather than internal post. This would
certainly reduce the delays due to transport, but delays still occur while the order is in the
email inbox of the authoriser and purchaser.
3. Summarise why the e-procurement process in Table 7.2 is more efficient.
The real benefits of applying technology accrue through changing the process. In Table 7.2 the
process has been changed such that involvement by the purchaser is not required at all. It is also
easier to find products using the web than traditional catalogues. Large savings in time and
expense are possible by removing this person from the process.
Note to lecturers:
A description of the old and new processes and a blank version of this chart are available on the
CWS to enable students to conduct the analysis themselves.
Activity 7.2 Modelling cost savings and profitability arising from e-

procurement
Imagine you are a procurement manager, IS manager or consultant who needs to demonstrate
the cost savings of e-procurement to a senior management team in order to obtain approval
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for investment in an e-procurement system. Develop a spreadsheet model for each of two
hypothetical companies to demonstrate the case.
1. Cost-saving calculations. Using the input parameters for the two companies in Table 7.4,
develop a spreadsheet model to calculate traditional overall purchasing cost, new overall
purchasing cost, percentage change in cost per order and percentage change in overall
purchasing cost.
Table below shows that much greater savings are possible where there is combination of a large
number of orders and low order value.
Answers for cost-saving calculations for two companies A and B.

Input parameters (Company A) Input parameters (Company B)
Number of orders 25,000 Number of orders 2,500
Traditional cost per order (average) £50 Traditional cost per order (average) £50
New cost per order (average) £10 New cost per order (average) £10
Average value of order £150 Average value of order £1,500
Traditional overall purchasing cost £5,000,000 Traditional overall purchasing cost £3,875,000
New overall purchasing cost £4,000,000 New overall purchasing cost £3,775,000
% change in cost per order −80% % change in cost per order −80%
% change in overall purchasing cost −20% % change in overall purchasing cost −3%
2. Profitability calculations. Using input parameters of turnover, traditional purchasing costs,

other costs and a 5% reduction in purchasing costs as shown in Table 7.5, develop a model
that calculates the profitability before and after introduction of e-procurement and also
shows the change in profitability as an absolute (£) and as a percentage.
Table below shows that change in profitability is much greater for a company such as
Company X where purchasing costs are a higher proportion of overall costs. Company X is more
typical of a manufacturing company, and company Y a services company. In both cases,
however, significant changes in profitability are achieved. A further exercise would be to
calculate the increase in the turnover necessary to achieve this through increased sales (it would
be potentially more difficult to achieve).
Input parameters for profitability calculations for two companies X and Y.

Input parameters (Company X) Input parameters (Company Y)
£10,000,000 Turnover £10,000,000
Traditional purchasing costs £5,000,000 Traditional purchasing costs £1,000,000
Other costs £4,000,000 Other costs £8,000,000
% Reduction in purchasing costs 20% % Reduction in purchasing costs 20%
Before After Before After

Turnover £10,000,000 £10,000,000 Turnover £10,000,000 £10,000,000
Purchasing costs £5,000,000 £4,000,000 Purchasing costs £1,000,000 £800,000
Other costs £4,000,000 £4,000,000 Other costs £8,000,000 £8,000,000
Profitability £1,000,000 £2,000,000 Profitability £1,000,000 £1,200,000
Profit change (£) – £1,000,000 Profit change (£) – £200,000

Profit change (%) – 100% Profit change (%) – 20%
3. Analyse the sensitivity of the models to differences in volume of orders and values of
purchases (Table 7.4) and the balance between traditional purchasing costs and other costs
such as salaries and capital by using the parameters (Table 7.5). Explain to the managers
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the typical characteristics of a company that will make significant changes to profitability
from introducing e-procurement.
Combining the answers from Question 1 and Question 2, the greatest benefits will be
achieved by a company with:
• Large volume of orders
• Typically low value purchases
• High current purchasing cost per order
• A high proportion of costs involved in purchasing.
These spreadsheet models can be downloaded from the web.
Activity 7.3 Avoiding maverick purchasing
To avoid maverick purchasing, businesses introducing e-procurement need to put safeguards

into the e-procurement system. Think about the type of rules that could be written into an e-
procurement system.
You may have identified the following:
• Overall limits on purchasing for each individual over a time period (e.g. spend limit/month)
• Limits on cost of individual items (spend limit/item)
• Limits on each order value (spend limit/order)
• Limited types of product that can be purchased by a certain individual; books, for example,
could be excluded.
If these limits are exceeded there is still an important role for the procurement department in
checking and controlling excesses.
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CHAPTER 8
Digital marketing
Table of contents

Case studies 105
Exercises 107
Learning outcomes
• Assess the need for separate digital business and digital marketing strategies
• Create an outline digital marketing plan intended to implement the digital marketing strategy
• Distinguish between marketing communication characteristics of traditional and new media
Management issues
• How do we integrate traditional marketing approaches with digital marketing?
• How can we use electronic communications to differentiate our products and services?
• How do we redefine our marketing and communications mixes to incorporate new media?
Chapter at a glance
Main topics
• What is digital marketing?
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• Digital marketing planning
• Situation analysis
• Objective setting
• Strategy
• Tactics
• Action
• Control
Focus on
• Characteristics of digital media communications
• Online branding
Case studies
8.1 The evolution of easyJet’s online revenue contribution
8.2 Dell gets closer to its customers online
The scope of activities that need to be managed as part of digital marketing are covered in
Figure 8.1. Since not all readers may have a grasp on marketing concepts, the first section
‘Marketing defined’ introduces the role of marketing within an organisation, and also
explains the context of e-marketing. Figure 8.2 can be used to explore the relationship
between E-marketing, E-commerce and digital business within a lecture. Figure 8.6 can be used
to introduce the importance of content marketing in online marketing today.
The chapter is structured according to the SOSTAC planning model (Figure 8.7). Hence, it has a
structure similar to Chapter 5, except that it focuses on sell-side or customer-centred e-
commerce. SOSTAC forms a natural structure for a mini-series of lectures as follows:
1. Situation analysis including reviewing the marketplace including demand analysis,

competitor analysis, Activity 8.2 and internal resources. Some of these issues are also
covered in Chapters 2 and 3.
2. Objective setting including the online revenue contribution. Table 8.3 shows how goals
should be integrated with strategy and tactics. Case study 8.1 is useful for exploring this
concept in a seminar and relating its relevance to different industries.
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3. Strategy (see also strategy definition section in Chapter 5). Market and product positioning,
target market strategies.
4. Tactics. A lecture can be structured around the 6Is covered in the Focus On section. The
diagrams work well since students can be prompted to explain the differences between
traditional and new media. This is valuable before describing tactics since this framework
introduces the key differences between new media and traditional media. Tactics should
acknowledge and account for these differences. The tactics section also looks at the
implications of new media for the 5Ps of the marketing mix and branding.
5. Actions. In this section the box (Box 8.5) shows a typical marketing plan. Assignments can
be set where students are asked to build up a more detailed plan using this framework for an
organisation with which they are familiar.
6. Control. The concept of control is introduced, but a more detailed assessment of this is in
Chapter 12, maintenance and measurement.
Case studies
Case study 8.1 The evolution of easyJet’s online revenue contribution
Questions
1. To what extent was the Internet revenue contribution of around 90% achieved ‘more
by luck than judgement’?
The case study shows that the owner of the company was not initially committed to the Internet.
It is instructive that it was not until the Internet contribution reached 20 per cent that he really
believed in its strategic importance. However, it is clear that the company did set targets for the
Internet contribution.
2. Explain the proposition of using the Internet for the customer and define the benefits
for the company.
The proposition for the customer is slightly lower cost (on tickets and phone calls) and perhaps
improved convenience. For the company the cost savings were such that it was unnecessary to
expand its call centre operations. Innovative communications techniques described in the
following answers enabled customer acquisition. And, a good quality of service through the site
can help achieve repeat business and build the brand.
3. Explain how easyJet uses the website to vary the different elements of the marketing
mix and as a marketing communications tool.
The case study shows how the site is used for PR (informing media and customers about its
offers and rivalry with competitors), and sales promotions based in offline media that drive
traffic to the site. The price of the offer is changed through the £1 discount for Internet
bookings. This is recouped through cost savings.
4. Use a news source such as www.ft.com or review its investors’ relations site to find
out how easyJet has extended its Internet applications.
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Case study 8.2 Dell gets closer to its customers online
Question
Describe approaches used by Dell within their site design and promotion to deliver
relevant offers for different types of online customers.
The answer should centre on different segmentation techniques. Different segments can then be
targeted by different media (e.g. paid search, display advertising, affiliates and offline
communications); on site through specific content for these audiences and through event-
triggered email communications.
Segmentation approaches include:
• Geographic – Dell has a separate site for each country.
• Demographic – Dell can target different audiences by advertising or affiliate marketing on

different types of sites.
• Business vs. consumer – Dell’s site offers products in each of these areas.
• Value – Higher value consumer audiences (gaming) and business audiences (larger
companies are offered separate content).
• Vertical business markets (e.g. government, education and healthcare – particularly in core
markets such as the United States).
• Life cycle – first purchase or repeat purchase?
• Accessories and add-ons. Have they been purchased?
Debate 8.1 Is a distinct digital marketing plan necessary?

A separate e-marketing plan is not necessary as part of the marketing planning process –
e-marketing can and should be integrated into existing marketing plans.
• There are already a large number of types of marketing plans (see Figures 8.1 and 8.2).
• E-marketing should be integrated into plans at other levels.
• Required for focus, to avoid missed opportunities.
• Required to achieve integration of different communications.
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• Specific objectives needed to achieve e-marketing contribution.
• Require specific responsibility for e-marketing and this can then be used to account for
person’s responsible activities.
Exercises
1. Explain the link between digital marketing and digital business and why they may be
considered separately.
E-marketing is a subset of digital business focusing on sell-side e-commerce and delivering

value to customers. Adding value does also need to consider the upstream supply chain
since this influences cycle time and product quality.
2. Outline the stages in a strategic e-marketing planning process, for each stage noting
two aspects that are of particular importance for digital marketing.
• Situation – Where are we now? 1. External (customers, competitors, PEST), 2. Internal

resources.
• Objectives – Where do we want to be? Online revenue contribution, complementary vs.

replacement.
• Strategy – How do we get there? Market and product positioning.
• Tactics – How exactly do we get there? 6Ps, in particular, promotion and place.
• Action – What is our plan? Project planning and resourcing.
• Control – Did we get there? Marketing research.
3. What is the Internet contribution and what is its relevance to digital marketing
strategy?
Can consider a direct and indirect form:
Direct – Online revenue contribution
An assessment of the direct contribution of the Internet or other digital media to sales, usually
expressed as a percentage of overall sales revenue.
Indirect – Online promotion contribution
An assessment of the proportion of customers (new or retained) who use the online information
sources and are influenced as a result.
This is useful for objective setting, highlighting the importance of the new channel.
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4. What factors will govern the Internet contribution that is set for a given organisation?
Deciding on the objective can use a form of Kumar or de Kare-Silver test that is, Kumar: high if:
1. customer access to the Internet is high;
2. the Internet can offer a better value proposition than other media (i.e. propensity to
purchase online is high);
3. the product can be delivered over the Internet (it can be argued that this is not essential
for replacement, so it is not shown in the figure);
4. the product can be standardised (user does not usually need to view to purchase).
De Kare-Silver: high if these attributes are positive:

1. Product characteristics
2. Familiarity and confidence
3. Consumer attributes.
5. Why and how should a company approach benchmarking of online competitors?
Why – rapidly evolving marketplace – new entrants and new services give competitive advantage.
Approaches – companies should review:
• well-known local competitors (e.g. UK/European competitors for British companies);
• well-known international competitors;
• new Internet companies local and worldwide (within sector and out of sector).
Can use three-criteria test:

1. Business effectiveness (online revenue, profitability)
2. Marketing effectiveness. Outcomes such as leads and sales
3. Internet effectiveness. Effectiveness of website as a communications tool.
6. Describe what is meant by a complementary and replacement Internet channel

strategy and give examples of products for which companies follow a particular
approach.
• Complementary – Internet is an additional channel, but less significant than others – high
value products and services with complex buying decision or strong channel.
• Replacement – Internet becomes main channel to market for sales and support – typically
lower value product, or straightforward buying decision (commodities).
7. Summarise new opportunities to vary the marketing mix that arise through deploying
the Internet.
Use 5Ps as framework.
• Product (new digital products and value-adds)
• Price (price reduction, new pricing models)
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• Place (new representation on intermediaries, direct-selling)
• Promotion (integration of online and offline techniques)
• People, Processes and Physical Evidence (new forms of service delivery).
8. How can online and offline techniques be used in the control stage of strategy?
This question is about marketing research aspect of control. Refer to Chapter 12. Online
techniques – server log file analysis, pop-up surveys, email audits. Offline techniques – traditional
surveys of customer service.

1. Select a particular market sector and assess the past, current and future customer
use of the Internet as a medium to select and buy products.
This is an online research exercise, it will also form part of Question 2. The key site to keyword
search on the chosen sector is:
Clickz Stats (www.clickz.com/stats)
This will highlight analyst reports including projections. For use, students should look at:
• Customers connected to Internet (%)
• Active users (within the last month or week)
• Influence online
• Buy online
• Support online.
Can use buying process described in Chapter 9 as a framework.
2. Develop an outline strategic digital marketing plan for an organisation with which you
are familiar.
This can follow the SOSTAC structure described at the start of this chapter and supported by the
relevant sections in the chapter.
3. ‘Traditional strategic planning has no relevance for the start-up company given the
dynamism of the marketplace.’ Discuss.
This question prompts students to consider the relevance of traditional situation analysis,
objective setting and strategy definition in a cyclical annual planning process. To help answer
this question, the student can be referred to the first part of Chapter 5, which considers
differences between the digital business strategy process and more traditional strategy
processes. Similarities and differences can be assessed.
4. Assess the value and importance of the Internet contribution in setting digital
marketing objectives in relation to other possible objectives.
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In this chapter the Internet contribution has a strong emphasis. This can be justified since:
• It can be applied to all companies (direct and/or indirect reach).
• It provides a tangible, forward-looking target for the development of sell-side e-commerce.

The easyJet case shows how it can be applied to give a clear target and how business
practices can be changed to achieve it.
• It is widely used and reported, enabling comparison.
Weaknesses are that it is tangible and does not address issues such as:
• Brand equity
• Acquisition, retention and loyalty measures (equally important)
• Customer satisfaction
• Channel profitability
• Risks of channel conflicts.
5. Explain how the digital business can make use of technology to monitor and control
its operations.
This question requires reference to the different tables showing frameworks for goal setting and
control for Internet marketing. Students should also be advised to read the focus on e-marketing
measurement section in Chapter 12. Technology includes:
• Server log file analysis (describe different aspects – traffic volume and online behaviour, for
example, conversion).
• Online market research using questionnaires and focus groups.
• Monitoring and routing of emails.
• Control of product manufacture and distribution.
1. Outline the stages involved in developing a strategic digital marketing plan.
The SOSTAC framework can be applied here:
• Situation – where are we now?
• Objectives – where do we want to be?
• Strategy – how do we get there?
• Tactics – how exactly do we get there?
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• Action – what is our plan?
• Control – did we get there?
2. Explain what is meant by the Internet contribution and outline how companies will
decide on a realistic objective.
Can consider a direct and indirect form.
Direct – Online revenue contribution
An assessment of the direct contribution of the Internet or other digital media to sales, usually
expressed as a percentage of overall sales revenue.
Indirect – Online promotion contribution
An assessment of the proportion of customers (new or retained) who use the online information
sources and are influenced as a result.
Deciding on the objective can use a form of Kumar or de Kare-Silver test, that is,
Kumar: high if:
1. customer access to the Internet is high;
2. the Internet can offer a better value proposition than other media (i.e. propensity to
purchase online is high);
3. the product can be delivered over the Internet (it can be argued that this is not essential
for replacement, so it is not shown in the figure);
4. the product can be standardised (user does not usually need to view to purchase).
De Kare-Silver: high if these attributes are positive:
1. Product characteristics
2. Familiarity and confidence
3. Consumer attributes.
3. What opportunities may there be to vary the Price and Place components of the
marketing mix when delivering services through the Internet?
Refer to sections on Price and Place.
Price – often requires reduction to offer incentive to purchase online (with lower selling costs for
company). New pricing models can be adopted for digital products, for example, pay per use or
subscription.
Place – refers to disintermediation and reintermediation. In particular, use of new intermediaries

to promote and sell products. Also buy-side, sell-side and intermediary-based purchases.
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4. What is a complementary Internet channel strategy and for which companies will
this be most appropriate?
This is where the product is not amenable to purchase online or the barriers to this route, such as
channel conflict, are too high. This situation will apply to companies who sell products, such as a
consultancy service or high value products that do not pass the tests outlined in Question 2.
The complementary strategy will involve using the Internet as another channel to market,
supporting sales and service, but not as the main channel which will remain through
distributors or sales representatives.
5. What different aspects of digital marketing should be monitored as part of controlling

digital marketing? Name three examples of how technology can be used to assist
monitoring.
The framework in Chapter 12 can be used here:
• Channel promotion
• Channel behaviour
• Channel satisfaction
• Channel outcomes
• Channel profitability.
Three examples of monitoring are:
• Site log file analysis (first two of the above)
• Integration with sales order processing systems (outcomes)
• Online surveys and focus groups (satisfaction).
6. Explain the strategic options available for a company currently selling the majority
of its products in a single country for product and marketplace positioning.
This question requires reference to the options of:
• Current product, current market
• New product, current market
• Current product, new market
• New product, new markets.
New markets can be a new segment or new geographic market. New products can be add-on or
digital services.
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7. What do the concepts of reintermediation and disintermediation imply for the
tactics a company employs for the Promotion and Place elements of the marketing
mix?
Reintermediation – The keyword is representation – assessing suitability of new intermediaries

for selling or promoting services.
Disintermediation – The keyword is channel conflict – assessing the risk of this against the
benefits of selling or supporting products direct.
8. Outline how the electronic medium requires different tactics for effective marketing
communications.
The 6Is is a suitable framework to answer this question:
• Interactivity (online communities, opt-in email promotions, profiling)
• Intelligence (analysis of customer buyer behaviour through log files, etc.)
• Individualisation (personalisation, mass-customisation, one-to-one marketing)
• Integration (integration of inbound and outbound communications)
• Industry restructuring (disintermediation, reintermediation, value networks)
• Independence of location (the role of place). Tactics are shown in brackets.
Activity answers
Activity 8.1 Using the Content Marketing Matrix to audit and improve
content effectiveness
Activity 8.2 Customer activity in the car market in your country
Activity 8.3 Customer activity in the car market in your country
You have been commissioned by a major company to evaluate the marketing effectiveness of
their online services in comparison with their competitors’. You have to present your
findings on their services and how they can be improved in a 10-minute PowerPoint
presentation.
Choose a B2C industry sector such as airlines, book retailers, book publishers, CDs or
clothing, or for B2B a sector such as oil companies, chemical companies or construction
industry companies.
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Work individually or in groups to identify the type of information that should be available from
the website (and which parts of the site you will access it from) that will be useful in terms of
competitor benchmarking. Once your criteria have been developed, you should then
benchmark companies and summarise which you feel is making the best use of the Internet
medium.
Table 5.10 may also prove useful.
You should have identified the need to distinguish between benchmarking criteria that define
the company’s marketing performance in the industry and those that are specific to web
marketing as follows:
• Financial performance (available from About Us, Investor relations and electronic copies of
company reports). This information is also available from intermediary sites such as finance
information or share dealing sites such as Interactive Trader International (www.iii.com) or
Bloomberg (www.bloomberg.com) for major quoted companies.
• Marketplace performance – market share and sales trends and significantly the proportion of
sales achieved through the Internet. This may not be available directly on the website, but
may need to use other online sources. For example, new entrant to European aviation
easyJet (www.easyjet.com) has achieved over two-thirds of its sales via the website and
competitors need to respond to this.
• Business and revenue models (see Chapter 2) – do these differ from other marketplace
players?
• Marketing communications techniques – is the customer value proposition of the site clear?
Does the site support all stages of the buying decision from customers who are unfamiliar
with the company, through to existing customers? Are special promotions used on a
monthly or periodic basic? Beyond the competitor’s site, how do they make use of
intermediary sites to promote and deliver their services?
• Services offered – what is offered beyond brochureware? Is online purchase possible, what
is the level of online customer support and how much technical information is available?
• Implementation of services – these are the practical features of site design that are described
in Chapter 12 such as aesthetics, ease-of-use, personalisation, navigation and speed.
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CH APTER 9
Customer relationship management
Table of contents

Case studies 117
Exercises 119
Learning outcomes
• Outline different methods of reaching and acquiring customers via digital media
• Evaluate different buyer behaviour amongst online customers
• Describe techniques for retaining customers and cross- and up-selling using digital media
Management issues
Customer relationship management involves these management issues:
• Which digital media should we invest in to reach new audiences?
• What are the practical success factors for using digital media need to make customer
acquisition more effective?
• What technologies can be used to build and maintain the online relationship?
• How do we deliver superior service quality to build and maintain relationships?
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Chapter at a glance
Main topics
• What is e-CRM?
• Conversion marketing
• The online buying process
• Customer acquisition management
• Customer retention management
• Customer extension
• Technology solutions for CRM
Focus on
• Marketing communications for customer acquisition including search engine marketing,

online PR, online partnerships, interactive advertising, email marketing and social media
marketing
• Social media and social CRM strategy
• Excelling in e-commerce service quality
Case studies
Case study 9.1 Tesco.com increases product range and uses triggered communications to
support CRM.
This chapter examines practical, tactical issues in e-marketing using a CRM framework.
Suggested lectures that are generally independent and after first do not need to follow this
sequence:
1. Introduction to e-CRM. Base on first section using framework of acquisition, retention,

extension (Figure 9.1) and also include key concepts of permission marketing (Figure 9.2)
and online buyer behaviour (Figure 9.3 and Figure 9.4).
2. E-marketing communications. Examine the different techniques based on the focus on

marketing communications for customer acquisition (Figure 9.6).
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3. Retention management – frameworks for maintaining customer relationships online through

web personalisation, email marketing and communities.
4. Delivering online service quality – Focus on excelling on service quality.
Case studies
Note that there are 10 mini case studies on managing e-CRM in this chapter which can also be
referenced.
Case study 9.1 Tesco.com increases product range and uses triggered
communications to support CRM
Question
Based on the case study and your own research on competitors, summarise the
strategic approaches which have helped Tesco.com achieve success online.
The strategic decisions covered in this chapter provide a useful framework for summarising the
strategic approaches adopted by Tesco.com:
• Decision 1: Market and product development strategies.
Tesco has used the Internet to extend its market into new product markets, such as financial
services, white goods and DVD rentals. While these are promoted through the store, the web
provides a wider choice of products, more detailed information about products and a method of
purchase. The internet can also support entry into new geographical markets.
• Decision 2: Business and revenue model strategies.
New revenue sources are available through extending the product range online as explained
above, and also with new digital revenue streams such as those for music downloads and e-
Diets. Tesco also supports advertising on its site, of related product such as financial
services.
• Decision 3: Target market strategy.
Tesco.com has a broad market of customer types, so it is less relevant for them to use online to
selectively target these with communications. However, the article explains how Tesco has
used the web and email to target more closely through targeting different life cycle groups –
these are customers who are grouped according to their level of adoption of online service.
Tesco also uses the web to target specific requirements such as Diets and Financial Services
through search engine marketing.
• Decision 4: Positioning and differentiation strategy (including the marketing mix).
Tesco offers some unique online promotions and lower online prices for select products such
as financial services which could attract a percentage discount when purchased online. It
appears not to use the service elements of the mix for positioning beyond the slogan ‘You Shop,
We Drop’. But attention has been paid to improving the customer experience through usability
activities and reduction of download times.
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The marketing mix which is covered in Chapter 8 is also suitable for assessing some of the
tactical elements of Tesco.com strategy.
• Product
• Price
• Place
• Promotion
• Process, People and Physical Evidence.
• Decision 5: Multi-channel distribution strategy.
This is straightforward. Tesco.com has taken the decision to distribute Internet orders via
stores, unlike some rivals such as Ocado (www.ocado.com) who have set up distribution
channels.
• Decision 6: Multi-channel communications strategy.
This is not referred to in the article – this describes the mix between online and offline
communications tools for driving visitors to the site. Offline communications in store and
through direct mail are clearly important for attracting visitors to the site.
• Decision 7: Online communications mix and budget.
Again, this is not mentioned, although the importance of email marketing for customer
communications is apparent.
• Decision 8: Organisational capabilities (7S).
Tesco has achieved focus online by creating a separate ‘Tesco.com’ brand and a separate
division headed by Wade Gery.
Debate 9.1 Is permission marketing the future?

In the future, all marketing communications, regardless of medium, will be
permission-based.
See also the debate in Chapter 4 which covers a similar topic. Summary of arguments for:
• Likely to be required by law in all countries – phone and email already have preference
services.
• Reduces marketing costs through targeting only receptive recipients.
• Reduces problem of message dilution when many messages are received.
118
• Direct mail is likely to remain opt-out since the direct marketing associations are strong
bodies against it.
• Some consumers and businesses find unsolicited messages a good way of learning about
services and products.
Debate 9.2 Will software replace ‘humanware’?

Some remote customer service contacts will always require personal, human interaction
rather than automated electronic responses.
• Research shows that over half of customers prefer it (e.g. see www.mori.com).
• Removing all choice would damage brands.
• For some problems a human is required to answer.
• Technology improvements, for example, Avatars on First Direct and Norwich Union.
• Can complement, for example, online chat and automated email response.
Exercises
1. What are the goals of acquisition and retention in an online context?
Customer acquisition
• Techniques used to gain new customers
• Obtain leads via email, qualify via profiling and convert to sales.
Customer retention
Maintain relationships with existing customers through maintaining a dialogue via email and
website.
2. Outline the differences between permission marketing and interruption marketing

including reference to the terms ‘opt-in’ and ‘opt-out’.
Permission marketing
Customers agree (opt-in) to be involved in an organisation’s marketing activities usually as a

result of an incentive.
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Interruption marketing
Marketing communications that disrupt customers’ activities, for example, telesales call, and is
not explicitly opt-in.
3. Summarise the main types of online marketing communications for traffic-building.
• Search engine registration
• Link building
• Banner advertising and sponsorship
• PR
• Email
• Affiliate marketing.
4. Explain why mixed-mode buying needs to be understood by those managing an e-

commerce site.
Many buying decisions are complex – they are not only made online, but using a combination of
online and offline. To influence the decision, companies need to be active both online and
offline in influencing a range of mixed-mode buying scenarios.
5. Explain a range of techniques for attracting repeat visits to a website.
• Direct email with incentive/offer
• Personalisation
• Community/news
• Competitions and promotions.
6. What is the difference between personalisation and mass customisation?
Personalisation is generally considered to be one-to-one marketing where the customer selects

their choices. Mass-customisation also involves tailoring, but from a limited number of options.
There is overlap between the two concepts.
7. How can an e-commerce site be used to achieve extension in CRM?
Customer extension
Techniques to encourage customers to increase their involvement with an organisation. See

Question 5.
8. What are the management issues in managing data and applications integration in
CRM?
• Cost of integration
• Disruption to service during integration
• Data transfer from legacy to new systems; Single vendor or multi-vendor sourcing.
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1. On what basis should marketing managers decide on the communications mix for
an e-commerce site?
This question also requires reference to the previous chapter (6Is) (Focus on section on
Characteristics of digital media communications) since a useful start is to summarise the
difference between new and traditional media. Deciding on the mix should then discuss
details of strengths and weaknesses of offline and online equivalents – recommending the
best techniques and then justifying their effectiveness. The balance in expenditure between
online and offline should be discussed. Finally, the sequence of communications –
continuous vs. campaign-based should be discussed. Discussion of the creative and execution
of campaigns is not required by this question.
2. Evaluate the current communications mix for an online e-tailer and make
recommendations for future communications to achieve customer acquisition and
retention.
This question requires assessment of online and offline communications. A period of at least a
month is required for students to subscribe to an online service and then evaluate it. The
following online techniques can be evaluated:
• Site design (see Chapter 11), how is brand proposition communicated, how is the site used
as a tool for acquisition and retention.
• Capability to generate loyalty through fulfilment notification, customer service, community

and email marketing.
• Assess PR using news source such as Moreover.
• Use of link building – assess search engine registration, links in and contra deals. Suitability
of targeting other sites.
Can also compare these to competitors in sector.
Recommendations can be structured around the areas of analysis above or acquisition, retention
and extension.
3. Show how an understanding of the online buying process can be used to revise
marketing communications.
This analysis can be based around simple models of the buying decision referencing their
accuracy. Students should refer to the following:
• Techniques that can be used to drive a prospect through the buying process
• The techniques in an acquisition, retention, extension context
• The importance of mixed-mode buying
• Data on B2B/B2C online participation in the buying process.
Recommendations can follow similar headings to Question 1.
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4. Explain, using examples, typical differences between a traffic-building campaign for a
B2B and a B2C company.
Questions should probably refer more specifically, for example, to a low value, simple buying
decision product. Differences should centre on:
• Different nature of the buying process for B2B
• Different nature of the decision-making unit for B2B
• Perception of risk and reward of online buying (this can be demonstrated through data about
levels of purchasing for B2B and B2C products).
5. Examine the relationship between customer satisfaction, loyalty and sales in relation
to a pureplay e-commerce site.
Issues which can be referenced include:
• Average cost of acquisition for pure-play is high often due to offline promotion such as TV. Is
this the best approach or can a more organic approach be used with a smaller growth rate.
• How can retention be enhanced to achieve profitability? Combination of service quality and
effective promotion.
• How are different elements of the mix varied in order to achieve profitable loyalty?
6. Examine the benefits and disadvantages of personalisation, community-building and

direct email. For an organisation of your choice recommend a suitable balance
between these e-marketing tools.
Students should devise a table to summarise the advantages before tackling this question, the
table can then act as a summary. Benefits and disadvantages should be considered from both
customer and company perspectives.
The balance recommended will be constrained by the cost and effectiveness of each technique.
In general, the effectiveness/cost ratio will be highest for email, then community, then
personalisation.
7. Assess whether a multi-vendor or single (limited number) vendor strategy is best

for the implementation of e-CRM systems.
Referring to the previous Boots case study can help in answering this question. Issues to
consider are:
• Importance of seamless data integration (single vendor) against best of breed features
(multi-vendor)
• Cost
• Support
• Implementation
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• Integration with existing systems
• Fitness for s purpose and function, for example, SFA, managing inbound and outbound
communications.
8. Recommend a social CRM data and application architecture for a B2C company
that provides integration with related legacy systems.
To answer this question students should refer to Figure 9.22 and to Chapter 3. To start this
question the constraints listed in Question 7 should be listed.
1. Explain the concept of mixed-mode buying with reference to a pureplay e-
commerce bookseller.
Mixed-mode buying
The process by which the customer changes between online and offline channels during the
buying process.
One scenario is customer sees a company advertised on TV, visits website to decide required
title(s) and then purchases over the phone using a credit card.
2. You are the e-commerce manager for a B2C site. Write an explanation to be included
in a report to the managing director of why a permission marketing approach is
required.
Permission marketing
Customers agree (opt-in) to be involved in an organisation’s marketing activities, usually as a

result of an incentive.
Required since:
• it is consistent with the culture of the media (anti-SPAM);
• it captures information about the customer to profile them and then contact them to continue
a dialogue;
• it is required by law in some countries.
3. What different types of searching behaviour are exhibited by online users and what
are the implications for someone responsible for traffic building on a site?
Two main types are:
• Directed searching – structured searching using search engines – so registration on most-

popular search engines and techniques to boost position in listing is important;
• Undirected searching – typically based on links; so link-building campaign is important.
4. With reference to customer acquisition and retention, explain two goals for each
required by an e-commerce site manager.
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• Acquisition – must target correct segment(s); must be able to profile leads to help
conversion of lead to customer. Overall numbers in segment is one goal, achieving
conversion rate is another goal.
• Retention – rate of customers selected for retention.
5. Outline four different methods of building website traffic.
• Online – search engine registration
• Online – link building/reciprocal links
• Offline – ads placed on TV or print
• Online/offline – PR media mentions.
6. Explain three factors that will influence the balance of online and offline website
promotion for an organisation.
• Cost of acquisition for online vs. offline
• Effectiveness of acquisition
• Targeting possible
• Combined efficiency (number targeted prospects acquired/cost).
7. How can an e-commerce site be used to inform new product development?
• Feedback from online surveys
• Interest in particular content from log files
• Online focus groups discussing new product options
• Post-sales emails concerning product faults.
8. What is a legacy system and what is its relevance to CRM?
A legacy system is an existing system which is not compatible with current CRM systems. It
does not offer the functionality or data content required today. It may have some data, perhaps
from a transaction processing system, that needs to be integrated with CRM systems.
Activity answers
Activity 9.1 Understanding the range of social media marketing platforms
Visit the Conversation Prism (www.conversationprism.com) or the Smart Insights Digital

Marketing Radar (http://bit.ly/smartradar) and identify the types of social media sites
you and your colleagues use. How do you think the popularity of tools would differ for
different types of B2B and B2C sites? Discuss how businesses should decide on the most
important to invest in to achieve their goals.
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PART 3
Implementation
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CHAPTER 10
Change management
Table of contents

Case studies 128
Exercises 132
Learning outcomes
• Identify the different types of change that need to be managed for e-commerce
• Develop an outline plan for implementing e-commerce change
• Describe alternative approaches to organisational structure resulting from

organisational change
Management issues
• What are the success factors in managing change?
• Should we change organisational structure in response to digital business? If so, what

are the options?
• How do we manage the human aspects of the implementation of organisational change?
• How do we share knowledge between staff in the light of high staff turnover and
rapid changes in market conditions?
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Chapter at a glance
Main topics
• The challenges of digital business transformation
• Different types of change in business
• Planning change
• Human resource requirements
• Revising organisational structures
• Approaches to managing change
• Risk management
• Towards the social business
• Risk management
Focus on
• Knowledge management
Case studies
10.1 Process management: making complex business simpler
10.2 Using Enterprise 2.0 tools to support knowledge management at Janssen-Cilag

Australia
Note that in 2014 after this edition of the book was written, different reports describing
change management for digital business were published under the label ‘digital
transformation’. To see data and discussion of these see http://www.smartinsights.com/
manage-digital-transformation/.
Managing the change associated with the introduction of any information system is one of
the keys to successful implementation. The adoption of digital business is a significant
change to any organisation, so managing the associated change is even more important to
success. For this reason, an entire chapter is devoted to this topic. The aim of this chapter is
to look at a range of issues involved in managing change from technical through
organisational to human. The technical issues of change are covered in more detail in
Chapters 11 and 12.
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Suggested approach:
• The topic of change and its scope can be introduced using Figure 10.1 and Figure 10.2.
Success factors are illustrated at the base of Figure 10.1: communication, education and
training could be added to these boxes. Students can be prompted for different aspects
of change. Students can be asked about some of the main challenges and then these can
be compared to Figure 10.3.
• Different scales of change from BPR to BPI and BPA are introduced in the slide deck.
Tables 10.1/10.2 are a good device to introduce these. Ask for examples of each.
• Change is put in the context of the systems development lifecycle and prototyping in
Figure 10.6. Common challenges in managing development are highlighted in the
preceding Figures 10.4 and 10.5.
Human resource requirements are introduced by the complex structure required for a large
company in Figure 10.8. The key resources required in a smaller organisation can be
discussed with students (i.e. managing Reach/Promotion, site content and analytics and
customer relationship management through email marketing).
• Organisational structure change is illustrated well by the diagrams of Figures 10.9

and 10.10.
• The human dimension of change is introduced well by Table 10.5. Suitability of

different types of cultural orientation to change is indicated by the framework on p. 500.
• Knowledge management is a separate topic, although receiving significant investment

in large organisations is less important than in smaller organisations and is not widely
understood by students. The Focus On section gives a basic introduction of the
differences between information management and some of the tools that can be used to
manage it. This is a suitable topic for more detailed investigation in an assignment that
identifies differences between traditional information management and approaches
adopted.
• Risk management is the final topic. It is useful to get students to think about the
potential problems with implementing digital business.
Case studies
Case study 10.1 Process management: making complex business simpler
Questions
1. How does the article suggest that business thinking and practice has evolved
since the exhortations for business process re-engineering in the 1990s?
Many of the toolsets are similar as indicated by this quote:
‘…tools for business process modelling, workflow management, process monitoring,

enterprise application integration and managing organisational change, all of which
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greatly help information to flow through organisations by coordinating and sometimes
supplementing companies’ key enterprise software packages, such as application suites
supplied by SAP, Oracle and Siebel’.
However, these tools are now available in standard packages such as those mentioned,
which was not the case in the early 1990s.
2. Summarise the benefits for BPM discussed in the article.
An example from the article:
‘BPM has obvious advantages. Remodelled processes are usually more effective than
their predecessors, generating immediate cost savings and competitive advantages. MSB
International, an agency supplying workers on temporary contracts to companies, used
BPM tools from Metastorm to revamp its contract processing. Previously, each new contract
took an hour of a salesperson’s time to process after it was agreed. Now the work takes 5
minutes and is far less prone to error’.
‘Just as importantly, BPM can help businesses change processes more quickly, perhaps
with only minor changes to workflow rules, which minimises maintenance costs. “Hardly a
week goes by when we don’t change our business processes”, says Mr Marston. The
board recently changed some authorisation procedures, and that took about 10 minutes to
implement. It sounds small, but in the old days, that would have taken a week’.
Alignment of technology with process is another example of BPM.
3. Discuss the need for a concept such as BPM when all new information
systems and digital business initiatives are ultimately driven by process
improvement.
It is a useful label for the skills and tools required for change management associated
with deploying new working practices and technologies. However, it could be argued that
these are simply a part of IS strategy and implementation. The label is perhaps useful in
distinguishing between the change to business processes and the technologies.
Supplementary question
The problems with BPM are indicated by the quotes at the end of the article.
Nevertheless, BPM is no walkover. As a complex set of technologies that do not always

work together easily, it requires great effort and discipline to implement. ‘The hardest part is
understanding the business processes’, warns Mr Marston. ‘Initially, we tried to analyse
everything about each process, but either the analysis was wrong, or the business had
changed by the time it was implemented. So now we evolve our processes continually’.
A big danger is that over-enthusiastic companies may use BPM to create too many new
business processes, says David Stephenson, European managing director of supply
chain specialist Yantra. ‘You can create a proliferation of business processes, and the
simplification of your business processes gets lost as a result. You have to keep a
tight control over the design process’, Mr Stephenson warns.
BPM technologies are also not as sophisticated as some vendors claim. ‘Many people are
going to be sucked into an idea that sounds very seductive until they get into the detail’,
warns Rakesh Kumar, a vice president of technology research at analyst Meta Group.
‘Integration between technologies is a critical problem. Even if you have the technology
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problems solved, mapping internal business processes to core IT processes is another
problem’.
Gartner, the IT consultancy, said in a research note in December 2002 that corporate
satisfaction with BPM is already high and is continuing to rise – making it a rarity in the IT
world. Gartner urged clients to adopt BPM, predicting that it would deliver them a 10–15
per cent return on their investment over the next 2 years. BPM ‘will hold the key to
creating new revenue opportunities and shortening product creation processes’, it added.
Nevertheless, BPM is no panacea. Businesses must educate their staff and trading
partners carefully about the changes it will bring to the business, or resistance to
change – whether conscious or not – will emerge.
Case study 10.2 Using collaborative tools to support knowledge management

at Janssen-Cilag Australia
Questions
1. What does this case study suggest, are the main challenges for different stages
of introducing a wiki or other Enterprise 2.0 approaches in a large organisation?
The stages are summarised by the subheadings in the article, that is:
• Requirements gathering – need to consult widely, given the culture of this organisation
• Pitching to business – the selling of the solution focused on simplicity and not being
too restrictive
• Selection of tool – requirements were ease of editing, hierarchy of pages and search
• Implementation – sign-on and location of other users in an e-directory
• Launch and user training – just 5 minutes training
• Adoption, statistics and business impact – this shows the value of having tracking of
activity levels
• Content ownership model
• Keeping momentum and next steps – the challenged is adoption across all parts of
the business.
2. Which solutions does Nathan Wallace describe as being effective for

overcoming these problems?
The solutions are also indicated through the section headings for the case study.
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Debate 10.1 Organising for digital business

The introduction of a separate digital business function is necessary in large
organisations to implement digital business effectively.
This is similar to the discussions in Chapter 5 about the need for a distinct digital business
manager. Summary of arguments for:
• Having a unit will ensure that digital business is planned with clear objectives and
strategies – this is less likely if it is subsumed in another department
• Suitable skills can be recruited into the department
• Emphasises the importance of digital business for change – acts as a catalyst
• Can achieve a balanced view of where digital business investment is made
• Can help disseminate best practice.
• May be best incorporated into IS department – lower costs
• May only be a short-term need – does it warrant the overhead of setting up the department?
Debate 10.2 Creating a social business

‘Creating a social business is impractical for most organisations since the types of
changes needed are likely to be opposed by managers of different functional areas of the
organisation.’
• For knowledge management (KM) to be successful it does require changes to processes

(and the people involved in operating them)
• KM also involves disseminating information
• KM tends to be about capturing existing knowledge rather than creating new knowledge –
this is a less important goal.
• An opportunity is missed if KM is not used as a way of gaining additional information
• KM will fail if it is seen by staff as a way of managing and controlling them rather than
facilitating the exchange of information.
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Exercises
1. Summarise the main types of change that need to be managed during
introduction of digital business.
• Business level change – new business processes
• Technological change – new systems
• Organisational structure change
• Organisational culture change
• Organisational strategy change
• People change – new roles and working practices.
2. What approaches must managers take to achieve change management

successfully?
• Support from senior management
• Education – explain why the system is required by the business and its impact on staff
• Involvement – involve employees in specification and testing
• Training – explain new procedures and operation of software
• Risk management – assessing problems and putting solutions in place.
3. Outline the main stages of a sell-side e-commerce implementation.
• Initiation
• Analysis/market research
• Specification of business objectives and application requirements
• Design of solution including selecting implementation platform
• Integrate different applications and build interface
• Migrate data about customers and products to the system
• Test
• System live
• Maintenance.
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4. Explain the role of prototyping in developing a sell-side e-commerce solution.
Prototyping
Prototyping is an iterative process where website users suggest modifications before

further prototypes and the live version of the site is developed.
The main benefits are as follows:
• It prevents major design or functional errors being made during the construction of the
‘website’ that may be costly and time consuming to fix once the site becomes live and may
also damage the brand. Such errors will hopefully be identified early on and then corrected.
• It involves the team responsible for the website and ideally, the potential audience of the
website, in proactively shaping the ‘website’. This should result in a site that more closely
meets the needs of the users.
• The iterative approach is intended to be rapid and a site can be produced in a period of
months or weeks.
5. Describe four different approaches to retaining staff.
Various elements of a benefits package
• Increase remuneration
• Training and reskilling
• Share options
• Pensions, etc.
6. What alternative approaches are there to structuring e-commerce within an

organisation?
1. A separate operating company. Example: Prudential and Egg (www.egg.com).
2. A separate business unit with independent budgets. Example: RS Components

Internet Trading Company (www.rswww.com).
3. A separate committee or department manages and coordinates e-commerce.

Example, Derbyshire Building Society (www.derbyshire.co.uk).
4. No formal structure for e-commerce. Examples: Many small businesses and the
Retail and Engineering Company.
7. Which type of organisational culture is most amenable to digital business-related

change?
The four types of culture described in the text are as follows:
1. Survival (outward-looking, flexible) – the external environment plays a significant

role (an open system) in governing company strategy. The company will likely be
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driven by customer demands and will be an innovator. It may have a relatively flat
structure.
2. Productivity (outward-looking, ordered) – interfaces with the external environment

are well structured and the company is typically sales-driven and is likely to
have a hierarchical structure.
3. Human relations (inward-looking, flexible) – this is the organisation as family,

with interpersonal relations more important than reporting channels, a flatter
structure and staff development and empowerment are thought of important by
managers.
4. Stability (inward-looking, ordered) – the environment is essentially ignored with

managers concentrating on internal efficiency and again managed through a
hierarchical structure.
Of these, 1 and 3 are the preferred approaches.
8. What are some of the risks of digital business change, and how can they be
managed?
See table (below in Activity 10.5 answer) for a suggested solution.

1. Write an essay on approaches to managing digital business change.
Suggested approach:
• Introduction to scale of change – is it on a project basis for a single process, or across

the whole organisation as in the case of Guinness?
• Identify the change levers and drivers
• Options for organisational structure change
• Role of IS architecture to support change (Chapter 3)
• External perspective – managing changes in links with partners – value networks

(Chapters 5 and 6).
2. ‘Total outsourcing of digital business operations is the best method to

overcome the skills shortage’. Discuss.
One approach to this question is:
• Define outsourcing.
• Briefly review history of outsourcing across last 10 years – its benefits and
disadvantages.
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• List the different aspects of digital business operations that can be outsourced and
discuss whether it is appropriate to outsource each one (similar to Table 10.3, but this
focuses on sell-side e-commerce).
• Use cases to illustrate outsourcing of all options.
• Draw conclusions (typically outsourcing of strategy and fulfilment/customer contact

causes lack of focus, so selective outsourcing is the best approach).
3. Contrast the project management stages involved with sell-side and buy-side e-
commerce implementations (referring to Chapters 11 and 12 will help with this
question).
Issues to be discussed:
• This is a question about the systems development cycle – brief review of purpose and
main stages as introduction.
• Encourages students to think about common stages and their relevance to buy-side and
sell-side e-commerce.
• Differences on sell-side is role of marketing in researching best solution and

communicating benefits of solution.
• Difference on buy-side is the need to integrate across supply chain, so potentially

larger project impacting more departments.
4. ‘High turnover of technical staff is a fact of life in a buoyant job market and there
is little that can be done to reduce turnover.’ Discuss.
Original Case study 10.2 (Netdecisions) provides useful background. Note how this case
has become dated with the decline in the e-commerce sector meaning that employee
retention is not now such a major issue. The question prompts students to discuss
methods of employee retention mentioned in the case.
5. Develop a change management plan for a company you are familiar with.
This is dependent on the situation chosen, which could be a large-scale digital business
change or smaller-scale change introduced in one part of the business. For the
question, it should be assumed that the objectives and strategy have already been
identified. The plan should include:
• Project objectives
• Project plan (Gantt)
• Changes options: structure, process, individual roles
• Risk assessment and solutions
• Communications plan (education, training).
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6. You are the HR manager at a new-media design agency and are evaluating the
use of overseas contract workers to help on projects. Write a report summarising
the feasibility of this approach.
The following issues can be considered:
• Cost (research using articles on this topic)
• Control (how is quality control maintained at a distance?)
• Liaison (can meetings occur remotely via video-conferencing or will meetings be

required to define requirements and prototype developments?).
7. Write a report on how the knowledge within a company can be better managed.
Refer to particular technologies and procedures for managing explicit and tacit
knowledge.
Approaches should include assessment of the following for the current situation, and
then a discussion of how they can be transformed:
• How is operational, tactical and strategic information transferred vertically within

the organisation, and how is it transformed into knowledge?
• How is information transferred horizontally within an organisation (between

departments)?
• Use of information systems to manage and share information, for example, business
intelligence systems, EIS, portals.
• Procedures for encapsulating and disseminating knowledge.
8. Assess the merits of virtualisation in an organisation of your choice.
In this context virtualisation refers to outsourcing or forming teams for a one-off project
basis. Suggested structure:
• Definition, benefits, disadvantages
• Assessment of organisational functions or processes suitable for virtualisation
• Risk/reward for each of these
• Recommendation and justification.
1. Explain what prototyping is and why it may be used on an e-commerce
implementation.
Prototyping
Prototyping is an iterative process where website users suggest modifications before

further prototypes and the live version of the site is developed.
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The main benefits are as follows:
• It prevents major design or functional errors being made during the construction of
the ‘website’ that may be costly and time consuming to fix once the site becomes live
and may also damage the brand. Such errors will hopefully be identified early on and
then corrected.
• It involves the team responsible for the web site and ideally the potential audience of
the website in proactively shaping the ‘website’. This should result in a site that more
closely meets the needs of the users.
• The iterative approach is intended to be rapid and a site can be produced in a

period of months or weeks.
2. Summarise the main human resource requirements for an e-commerce

implementation.
• Project manager
• Marketing or brand manager
• Business analysts (for requirements)
• Systems architect (designer)
• Graphic designer
• Database administrator
• Tester
• Content developer.
3. A company has implemented a brochureware site without any changes to

managerial or organisational structure. They are now seeking to achieve one-
third of their revenues via the website. What changes to managerial and
organisational structure would you suggest?
Options are required to give focus to achieve this dramatic change:
• Separate e-commerce department with separate budget
• Partner with, or acquire existing dot-com company
• Create new standalone company with separate financing.
For all options, staff from existing business units will need to be co-opted to ensure
integration with the main line of business.
4. Explain how knowledge management differs from information management.
Data is transformed into information to add value, but it still requires experience or
intelligence to perform the analysis and interpretation to be of value. Knowledge
management involves disseminating this experience throughout or between organisations.
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5. Explain the concept of the virtual organisation. What are the advantages over a
traditional organisation?
A virtual organisation has no clear physical boundaries. It operates through control of

resources from a number of organisations, using information systems to coordinate and
share information. Possible advantages are:
• Lower start-up costs
• Selects best of breed providers, for example, in cost or quality
• More responsive – can be created for a short-term goal, for example, market opportunity.
6. Name four approaches a company can take to increase retention of technical staff.
Various elements of a benefits package:
• Remuneration
• Training and reskilling
• Share options
• Pensions, etc.
7. Prioritise, with justification, your recommendations for outsourcing these

functions: e-commerce strategy, e-commerce hosting, e-commerce content
updating.
• Hosting – this is low risk outsourcing since customer service quality can be
maintained through service level agreements. Knowledge of business is not required by
contractor.
• Content updating – knowledge of business area is required by contractor.
• Strategy – intimate knowledge of business area is required by contractor.
8. You are project manager of an e-procurement implementation. How would you

maximise acceptance of the new system among staff?
• Support from senior management.
• Education – explain why the system is required by the business and its impact on staff.
• Involvement –involve employees in specification and testing.
• Training – explain new procedures and operation of software.
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Activity answers
Activity 10.1 Managing change at a B2C company
Speculate how the introduction of changes by a CEO or managing director such as

those illustrated by the top four boxes of Figure 10.1 would affect different employees
at a B2C company. Imagine you are each of the following people. What would your
reaction be on a professional and a personal level? What would be your role in affecting
change?
• Marketing manager
• Warehouse manager
• HR manager
• IS manager
• Employee in call centre
• Marketing Manager – the marketing managers are likely to welcome digital business-led
change in a professional capacity since it potentially gives them the opportunity to
develop a new channel to market, which could help increase turnover. On a personal
level, they may be worried about whether they have time to manage change and
whether they or their staff have the appropriate skills. They may also be concerned as
to whether the senior managers are prepared to ‘walk the talk’ as well as ‘talking the
talk’. They are also uncertain where the responsibility for digital business lies – is it
with the CEO, the IS manager or themselves?
• Warehouse Manager – the warehouse managers may imagine that this change will not
affect them much, and that it is ‘business as usual’.
• HR Manager – the HR managers will be worried about recruiting staff and educating
staff about the change. It is going to mean a lot more work for them.
• IS Manager – the IS managers may see digital business as increasing power and budget,
but like the marketing manager, they may be concerned as to whether the CEO will ‘put
the money where their mouth is’. They will also be concerned with re-skilling, but this
may be a way of helping to retain staff, some of whom have recently left for dot-com
companies.
• Employee in call centre – the employees in the call centre may feel they are unaffected
by this change, but in fact their role could change since they may have to field email
and phone queries related to the website about which they may have limited knowledge.
Activity 10.2 Options for outsourcing different digital business activities
A B2C company is trying to decide which of its sell-side digital business activities
it should outsource. Select a single supplier (single tick for each function) that you
think can best deliver each of these services indicated in Table 10.3. Justify your
decision.
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1. Strategy – management consultant. These organisations have an established reputation

in strategic consultancy and many are thought leaders in implementing digital business.
2. Design – new media agency. These are start-up companies who specialise in e-
commerce and digital business design. They tend to offer all the skills in Table 10.1
other than infrastructure.
3. Content development – new media agency. This is the ‘bread and butter’ of the media
agency.
4. Online promotion – new media agency. Also the ‘bread and butter’ of the media
agency.
5. Offline promotion – traditional marketing agency. New media agencies tend to have
less experience in traditional communications channels, so an established company may
be best here.
6. Infrastructure – ISP or traditional IT supplier. This is the clear choice for this activity,
although larger companies may want to retain this facility in-house.
Activity 10.3 Which is the best organisation structure for e-commerce?
1. Match the four types of companies and situations to the structures (a) to (d) in
Figure 10.9.
Figure 10.9 Summary of alternative organisational structures for e-commerce suggested

in Parsons et al. (1996).
(a) A separate operating company. Example: Prudential and Egg (www.egg.com).
(b) A separate business unit with independent budgets. Example: RS Components

Internet Trading Company (www.rswww.com).
(c) A separate committee or department manages and coordinates e-commerce.

Example: Derbyshire Building Society (www.derbyshire.co.uk).
(d) No formal structure for e-commerce. Examples: many small businesses and the Retail
and Engineering Company.
The organisation structures match as follows:
(a) No formal structure for e-commerce.
(b) A separate committee or department manages and coordinates e-commerce.
(c) A separate business unit with independent budgets.
(d) A separate operating company.
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2. Under which circumstances would each structure be appropriate?
3. Summarise the advantages and disadvantages of each approach.
Answers 2 and 3. Some of the main advantages and disadvantages are summarised in
Table 10.4. You will identify many more!
Activity 10.4 Changing the culture for digital business
Review the four general categories of organisational cultural orientation summarised by

Boddy et al. (2001) and take each as characterising four different companies and then
suggest which is most appropriate for digital business. State whether you think they are
most likely to occur in a small or a larger organisation.
• Survival (outward-looking, flexible) – this organisation is likely to be responsive and

will have a ‘thriving on chaos’ mentality that will fit in well with the dynamic
digital business environment. There could be problems in efficient updating of web
content and services and there could also be problems with the efficiency of
customer service such as through responding to email enquiries. Small–medium start-
up. Staff responsive to change.
• Productivity (outward-looking, ordered) – this company is arguably best placed to

meet digital business. Existing interfaces with the environment such as links with
suppliers and customers can perhaps be most readily transferred into electronic links.
The only problem may be that a hierarchical structure makes decision-making and
implementation slow with lack of creativity in response to customer needs. The
company may not be as responsive as some of its competitors. For example, established
medium-to-large company. Staff is less responsive to change.
• Human relations (inward-looking, flexible) – this company is well placed to

communicate well with customers and understand their needs from digital business.
The lack of well-defined control structures may cause problems for implementation as
for the survival orientation. For example, small-to-medium company. Staff is responsive
to change.
• Stability (inward-looking, ordered) – it is difficult to imagine how this company

has survived pre-digital business. It will be slow to respond to the digital business
challenge, perhaps waiting for others in its sector to ‘test the water’. Once it does
decide to react it should be able to implement digital business quite well, in a similar
manner to the productivity orientation. For example, medium-to-large company. Staff is
very unresponsive to change.
Activity 10.5 Digital business risk management
Review this chapter with reference to Chapters 4 and 5 and produce a grid with four
columns describing the risk for a company with which you are familiar, or for a typical
B2C company, assessing its probability on a scale of 0 (no risk) to 10 (very high risk), its
impact from a scale of 0 (no impact) to 10 (catastrophic), and possible solutions.
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Table below provides a model answer for risk assessment.
Risk assessment for a digital business implementation project
Risk Probability Impact Solution

Insufficient senior 5 7 Education/training/lobbying
management by digital business
commitment manager to achieve buy-in
High staff turnover/key 6 5 Use monetary incentives
staff leave and improve working
environment
Project milestones not 8 6 Appoint experienced
met, overrun budget project manager and
provide support and
resources needed.
Manager will perform risk
management such as this
Problems with new 8 8 Allow sufficient time for
technology delaying volume, performance
implementation (bugs, testing
speed, compatibility)
Staff resistance to 4 4 Education, training,
change identification of change
facilitators amongst staff
Problem with 6 8 Tackle these issues early
integrating with on, identify one contact
partner’s systems (e.g. point/manager for each of
customers or partnerships
suppliers)
New system fails after 2 9 See solution to delayed
changeover (too slow implementation
or too many crashes)
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CHAPTER 11
Analysis and design
Table of contents

Case studies 145
Additional activity 146
Exercises 150
Learning outcomes
• Summarise approaches for analysing requirements for digital business systems
• Identify key elements of approaches to improve the interface design and security
design of e-commerce systems
Management issues
Analysis and design of digital business systems raises these issues for management:
• What are the critical success factors for analysis and design of digital business systems?
• What is the balance between requirements for usable and secure systems and the costs
of designing them in this manner?
Chapter at a glance
Main topics
• Analysis for digital technology projects
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• Process modelling
• Data modelling
• Design for digital business
Focus on
• User-centred site design
• Security design for digital business
Case studies
11.1 Providing an effective online experience for local markets
This chapter is structured according to different aspects of digital business analysis and
design, each of which can be covered as a single lecture. The analysis sections are as
follows:
• Analysis for digital business – this introduces different types of analysis emphasising
the importance of analysing information flows (use the quote off slide 4) and the
workflows that make up business processes (slide 5).
• Process modelling – Table 11.1 illustrates the way in which a business process can
be broken down into a series of activities and work items. The different forms of flow
process charts described on can both be constructed in seminars/tutorials by students to
illustrate how process analysis occurs.
• Data modelling – this briefly reviews entity relationship modelling which is a well-
known technique. The example of Figure 11.6 can be used as part of a tutorial
(see additional tutorial below).
The design sections:
• Architectural design – this should be used in conjunction with Chapter 3, for

example, Figure 3.1. The diagrams and Case study 11.1 stress the importance of
integrating different applications from different vendors and different data sources.
• User-centred design – this topic is popular with students on practical e-commerce

courses – essentially interface design. Everyone has their own opinions on this but
here, a structured approach based on academic theory is suggested. The use-case
analysis method that arose out of object-oriented techniques works well in case studies.
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• Activity 11.3 and 11.4 and Case study 11.1 can be used for tutorials or as an assignment
to reinforce these points.
• Security design – this is clearly important and involves terms relevant to managers, but
could be set as a reading assignment rather than covered in face-to-face teaching.
Case studies
Case study Providing an effective online experience to local markets
Questions
1. Select one country that i-to-i operates in closest to the area where you live. Define a
persona based on their age and product needs and then identify the main customer
journeys that form the customer for this persona. Which routes through the site
would this user follow?
For example, a 17-year-old gap year student in Australia who is looking to teach in China.
Which browse and search navigation options would this site user follow to find relevant
products?
2. Review the range of engagement devices on the i-to-i website to engage the audience
to generate leads.
Engagement devices which are examples of content marketing to encourage signup include:
• TEFL taster – questions and answers to gain an idea of the experience
• eBooks – advice on teaching TEFL
• Brochure
• Example courses.
3. Identify key areas for improvement for i-to-i based on your use of the site.
Use a suitable framework such as WEBQUAL or RACE (Chapter 1) to review and make
recommendations.
In keeping with the theme of this chapter, this question is about managing the online customer
experience and prompts students to think about how often this needs to be addressed.
Examples include:
• Changes in product offerings and partnerships
• Changes in branding
• Changes in design styles
• Changes in access device, for example, mobile and web PDAs
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• Changes in legislation, for example, accessibility laws such as the Disability and
Discrimination Act
• Need to increase conversion rates to sale indicated by web analytics and usability studies.
Arguments against:
• Consumer behaviour remains similar (actually as design styles change, consumer

behaviour differs also).
• Cost! So the argument concerns the frequency of major upgrade, although the above
arguments suggest the need for a flexible architecture and content management system to
enable changes between upgrades.
Additional activity
This is a practical activity for undergraduates, relating ERD design to creation of a

database. It is based on Figure 11.6.
Scenario
The business-to-consumer company (B2C), a kitchenware retailer, wants to set up an e-

commerce site, but first wants to produce a prototype in Microsoft Access.
The data analysis has been performed and is shown in the expanded entity relationship
diagram below.
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Instructions
1. Start Microsoft Access.
2. A dialog box will pop up; choose ‘create a New Database/blank access database’.
3. Choose a filename, for example, B2C (.mdb will be added automatically) and press
Save/OK.
4. The next box you see with the name of your database at the top, is the heart of creating
and managing the database. First we will create a database table.
NB. You should create the four tables above. Here we will just describe the process for
the first one, customer.
Check the Tables Tab is selected at the top of the box and then choose New.
5. You will be presented with a list of different ways of designing/creating the table.
NB. Choose ‘Design View’.
6. You will now see the Design View for the table. Complete as shown in the diagram
below:
You do not need to type in anything for the General/Lookup part at the bottom – this
is for validation.
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7. Before you save the table design you need to set the primary key so it is set next to
customer id as shown above.
To do this:
NB. Click on the Customer id row then press the key icon on the toolbar or
choose Edit, primary key.
8. Now save the table by choosing File Close. You will be prompted ‘do you want to save
the design of Table 1?’, choose Yes and…
NB. Choose the name of the entity for the table name. In this case, Customer.
9. Now we can populate the database with example data. Make up three rows of sample
data for each table (and around two products per order for order line). To add data,
select the table and choose Open and then add the data. You should see something like
this:
10. Now repeat the process for the other three tables as shown in the table designs below.
NB 1. Remember to create/mark a primary key for each table.
NB 2. Ensure all primary and secondary keys have the same data type – Number.
NB 3. When creating sample data ensure that the data in Primary and secondary keys
matches. For example, a customer id in the order header table (e.g. 3) must have a
corresponding identical number in the customer table customer id field (e.g. 3).
Order header
Order line
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Product
Source: Microsoft product screenshots reprinted with permission from Microsoft

Corporation.
Debate 11.1 Digital business vs. ERP architectures

Designing an appropriate architecture for digital business is effectively the same as the
architecture for enterprise resource planning systems.
• ERP is a subset of digital business – so many core elements are the same
• Large-scale systems involving all parts of a business.
• ERP is a subset of digital business – so some elements not covered, for example,
administrative workflow, knowledge management.
• ERP systems were not traditionally based on web and Internet standards (but have moved
towards them).
• ERP systems have tended to focus on internal processes rather than partner-facing
processes.
Debate 11.2 Whither website design?

Website design is too complex, and too important, to be left to marketers and IT staff
untrained in its principles. Specialist usability professionals and psychologists should
be present in every large e-commerce team.
• Graphic design is usually undertaken by specialists, why should website design be different?
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• While some elements of usability are straightforward to understand, specialist training can
give better results as for any profession.
• It could be dangerous to give the usability experts and psychologists too much control –
input from IT on technical issues and marketers on business goals is essential.
• However, specialists do probably have a role to play in the team of a large organisation.
Exercises
1. What are the risks if analysis and design are not completed adequately?
For an e-commerce service:
• poor user interface;
• wrong type of customer services (content and data);
• slow performance;
• business processes inefficient;
• poor security.
2. Distinguish between process analysis and data analysis.
Process analysis reviews the sequence and speed of events in a business transaction,
such as ordering or customer service. Data analysis reviews the data requirements and
structure needed to support this process.
3. What are workflow analysis and workflow management systems?
Workflow Management
Workflow management (WFM) is the automation of information flows and provides tools
for processing the information according to a set of procedural rules.
4. What are legacy data and what are the options for their incorporation into an e-
commerce system?
Legacy data is typically from ageing financial, order entry and accounting systems. This
old data is often not integrated and it is difficult to get a single view of customer or financial
data. It is incorporated into e-commerce systems using middleware or enterprise application
integration.
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5. What are the four requirements of a secure e-commerce site?
1. Authentication (customer needs to avoid fraud from customer, alternatively

customer needs to check reputable company).
2. Privacy and confidentiality (main aspect is to protect customer privacy).
3. Integrity (applies equally to both).
4. Non-repudiability (required by company).
6. Explain the concepts of digital keys and digital signatures and how they relate.
Digital certificates (keys) consist of keys made up of large numbers that are used to
uniquely identify individuals.
Digital signatures is a method of identifying individuals or companies using public key

encryption.
Digital certificates are used to encrypt digital signatures to achieve identification of

individuals.
7. Explain the notation used for use-case analysis.
Figure 11.8 shows the notation for actors (people) and use cases (activities in a sequence).
8. Summarise the characteristics of a usable website according to Jakob Nielsen

(www.useit.com).
• Customer orientation
• Site navigation and structure
• Page design
• Content design.

1. Write a plan for the analysis and design of an e-commerce site,
recommending which aspects of process and data analysis should be conducted
and explaining how they should be integrated.
The plan should contain the main elements of this chapter. Students can also refer to Figures
10.2 and 10.3 to assist with this. The main stages are:
• Process analysis (e.g. task breakdown, flow process chart)
• Data analysis (e.g. ERD modelling and data mapping)
• Application architecture and data integration
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• Interface design (use-case and storyboarding, requirements analysis occurs here)
• Security design.
The question about integration prompts students to discuss the sequence of activities and
how they relate to each other.
2. Write an essay on the significance of workflow systems to digital business,

illustrating your answer with examples of organisations of your choice.
Suggested approach:
• Definition of digital business, workflow systems
• Review of how workflow supports different sell-side and buy-side processes
• Review of where workflow is not involved.
3. Write a report summarising the characteristics of a website with good usability.
This should be based on the section on user-centred design (p. 538). Concepts to include
are as follows:
• User-centred design
• Use-case analysis
• Customer orientation (Seybold guidelines and ‘four familiarities’)
• Elements of site design (site design and structure, navigation, page design and
content design).
4. How can the concept of customer orientation be translated into e-commerce site
design?
This uses sources and concepts similar to the previous question, but prompts the student to
make the link with customer orientation and design.
5. Assess the success of e-tailers in designing secure e-commerce systems.
Students could take a particular sector, for example, banks, grocery or books and then
evaluate their systems against the criteria on p. 588:
• Authentication
• Privacy and confidentiality
• Integrity
• Non-repudiability
• Availability.
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How well they implement (or the relevance of) different aspects of security could then
be reviewed:
For example:
• Encryption
• Digital certificates
• SSL
• SET
• Payment systems.
1. Summarise the purpose of process analysis.
Process
• Part of a system that has a clearly defined purpose or objective and clearly defined
inputs and outputs.
• Workflows help manage business processes by ensuring that tasks are prioritised to
be performed:
• as soon as possible;
• by the right people;
• in the right order.
Analysis is intended to identify the main processes and their components and then
inefficiencies in workflow that give rise to higher costs or longer cycle times. Example – an
ordering process which requires rekeying of data.
2. What is meant by ‘user-centred design’?
User-centred design
Design based on optimising the user experience according to all factors, including the
user interface which affect this.
It requires design services and content based on careful analysis of user needs from the
full range of different types of audience of a site.
3. Explain the concept of task analysis with reference to a customer placing an order
online.
Task analysis
Identification of different tasks, their sequence and how they are broken down.
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The overall task is ‘place order’, but this is broken down into stages such as browse
catalogue, select products and make payment. These can be broken down further, for
example, make payment can be broken down into: calculate tax, enter credit details and
confirm payment. Task analysis can be used (in conjunction with use-case analysis) to
identify and then the interface requirements of a system.
4. Explain the stages involved in use-case analysis with reference to a customer

placing an order online.
Use-case
It is the sequence of transactions between an actor and a system that support the activities
of the actor.
Refer to Figure 11.10 for the specific example.
5. Describe the stages of data modelling with reference to a database for an e-

procurement system.
1. Identify entities (product, supplier, purchase order, invoice, payment)
2. Identify attributes of entities (fields)
3. Normalise to tables which minimise redundancy of information.
6. Outline the different types of services that need to be provided by different

servers on an e-commerce site based on the three-tier client–server system.
• Web server. Manages http requests from client and acts as a passive broker to other
servers. Returns or serves web pages.
• Merchant server. This is the main location of the application logic and integrates the
entire application by making requests to the other server components.
• Personalisation server. Provides tailored content – may be part of commerce server

functionality.
• Payment commerce server. Manages payment systems and secure transactions.
• Catalogue server. A document management server used to display detailed product

information and technical specifications.
• CRM server. Stores information on all customer contacts.
• ERP server. Required for information on stock availability and pricing from the
customer. Will also need to be accessed for sales order processing and histories.
Logistics for distribution will also be arranged through the ERP server.
7. How do the attributes of a secure e-commerce site differ from customer and
company viewpoints?
This requires reviewing the following:
• Authentication (customer needs to avoid fraud from customer, alternatively customer

needs to check reputable company)
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• Privacy and confidentiality (main aspect is to protect customer privacy)
• Integrity (applies equally to both)
• Non-repudiability (required by company)
• Availability (required for good customer service).
8. Explain the relationship between analysis, design and implementation for an e-

commerce site.
These are high-level activities that need to occur in the creation of a site, in this sequence:
• Analysis – identify requirements, for example, user interface, process, data

requirements.
• Design – architecture, data structures, interface, security.
• Implementation – interface creation, application integration, data migration and testing.
Although the three occur in this, general sequence prototyping (Chapter 10) requires that
they are repeated iteratively through the project.
Activity answers
Activity 11.1 The consequences of poor analysis and design
Form a focus group and discuss your own experiences of online purchasing. What have
been your problems and frustrations? Refer to a particular example such as purchasing a
book – what are your expectations? Alternatively, visit GetSatisfaction.com to see the
types of complaints about different brands.
Let us take the approach of looking at expectations for buying a book online. Those,
where Analysis and Design are important are marked with (A&D). It can be seen that
analysis and design are important for most of these requirements:
1. Easy to find what you are looking for by searching or browsing. (A&D)
2. Site easy to use, pages fast to download with no bugs. (A&D)
3. Price, product specification and availability information on site to be correct. (A&D)
4. Specification of date, time and delivery to be possible. (A&D)
5. Email notification when order placed and then dispatched. (A&D)
6. Personal data remains personal and private and security is not compromised. (A&D)
7. Verification of address for high-value orders.
8. Delivery on time.
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9. Returns policy enabling straightforward return or replacement.
10. Effective email or phone-based customer support for when any of the expectations
above are not met! This means traceability through databases, someone who knows
your order status and can solve your problems (A&D).
Activity 11.2 Transforming invoice processing at a B2B company
As a business analyst you have to produce a more efficient way of working. You should
restructure the workflow by filling in a blank table. You should also write down
assumptions about changed roles and give details of new software needed to support the
new workflow. You can assume each member of staff has access to a networked PC and
the MD has access to a notebook with fax/modem that they use twice daily.
It is apparent from Table 11.2 that there are many inefficiencies in the company. These
include separate people performing tasks that could be performed by one individual and
unnecessary steps. Another problem is that the Managing Director is often out of the office,
so authorisation by him takes as long as 2 days on an average. It can be seen that each
time a new person is involved, there is a delay while the item is transported via the
manual mail system and then waits in their in-tray; the process chart symbols for
processing, transportation and delay repeat again and again. Such is the extent of this
problem that the total time for the whole process is nearly 90 hours, but with staff
working 9 through 5 this would stretch to over 10 working days.
A suggestion for improving the workflow is shown in Table 11.3. An important change is in
the role of the clerks, they have been empowered by giving them the responsibility to
perform tasks such as assigning an invoice to an account number – this was originally
the job of the cost accountant. Steps such as returning the invoice to the first payable clerk
and that of the file clerk are then removed.
Software needed
For such an application a full functioned workflow system is probably unnecessary,

rather, a forms-enabled email system can be used to route information from one person to
the next. So, the first payable clerk will pass a scanned copy of the invoice to the Managing
Director (MD) as an email attachment, which can be accessed remotely via modem when
the MD is mobile. Using forms-enabled workflow has two key benefits, first it will
drastically reduce the time for the transportation stages and secondly it will reduce the time
while the item is waiting in the in- tray – an item that needs prompt action can be
immediately notified as urgent. Through making all these changes the total time has been
reduced from nearly 90 hours to just over 20 hours although the efficiency is still low
due to time awaiting processing when an item is in the worklist.
Activity 11.3 ER modelling for a B2C company
Create a normalised ER diagram for the B2C company, or a B2C consumer transactional
site.
For answers see Figure 11.6.
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Comments
• Customer. May also have a separate delivery address.
• Order. Many items may be required on each order, so each order header can have many
line items.
• Product. Includes catalogue information, such as description and a picture.
• Product. Informs the customer the number in stock and when they will be available.
• There will be a separate manufacturer table not shown here.
Activity 11.4 Allowing for the range in access devices
1. Update the compilation in Table 11.7 to the latest values using Onestat.com or other
data from web analytics providers.
2. Explain the variations. Which browsers and screen resolutions do you think should be
supported?
Three good sources for this information are:
• Adobe Digital Index
• Pew Internet Research
• Smart Insights.
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CHAPTER 12
Digital business service implementation

and optimisation
Table of contents

Case studies 160
Exercises 162
Learning outcomes
• Produce a plan to minimise the risks involved with the launch phase of a digital
business application
• Define a process for the effective optimisation of a digital business system
• Create a plan to measure and improve the effectiveness of sell-side digital business
applications using web analytics tools
Management issues
Implementation and optimisation of digital business systems raises these issues for
management:
• What actions can we take to minimise the risks of implementation?
• How do we select the most appropriate systems?
• How do we achieve transition from previous systems to a new digital business system?
• What techniques are available to measure and optimise our services?
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Chapter at a glance
Main topics
• Alternatives for acquiring digital business systems
• Development of web-based content and services
• Testing
• Changeover
• Content management and maintenance
Focus on
• Web analytics: measuring and improving performance of digital business services
• Measuring social media marketing
Case studies
12.1 Learning from Amazon’s culture of metrics
This chapter is intended to highlight some of the practical issues in implementing digital
business solutions. For this reason, a basic introduction to HTML coding is given. A basic
knowledge of HTML coding can be used by students to assist them in building simple
websites that give a practical expression to an assignment based on applying the principles
of user interface design outlined in the previous chapter (Focus on User-centred site design
and customer experience management). Topics:
• Context – Figure 12.1 places implementation in the context of the systems

development life cycle. Implementation (labelled as development and testing) occurs
in parallel with analysis and design as part of prototyping.
• Acquiring digital business systems – this briefly reviews the alternatives for systems and
stresses that integration or tailoring of off-the-shelf components is the most common
approach.
• Development of web-based content. The Focus On HTML section has been reduced
due to requests from lecturers. A new section on SEO ranking factors has been
introduced (details in slides 7 and 8).
• Testing – this is a relatively short section since testing e-commerce systems uses a
similar approach to traditional BIS. Table 12.1 can be used to illustrate some of the
tests. Students can be prompted for these different aspects that require testing.
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• Changeover – again similar issues to traditional BIS, although the results of system
failure are more damaging to business.
• Content management – this is a new issue, so is covered in more detail. A full lecture
should be spent on this topic. It is a rich source of discussion amongst mature students
who have experience of this. Figures 12.3–12.5 can be used to compare procedures with
student’s own organisations.
• Measurement – this is becoming increasingly important as companies want to assess

their return on investment in digital business. For companies such as easyJet, for
whom a high proportion of revenue and customer service occurs online, it is important.
Figures 12.6 and 12.8 can help in discussing the types of issues that need to be measured.
Case studies
Case study 12.1 Learning from Amazon’s culture of metrics

Questions
1. By referring to the case study, Amazon’s website for your country and your
experience of Amazon offline communications, evaluate how well Amazon
communicates its core proposition and promotional offers.
Worldwide, the proposition is summarised by the well-known brand-identity, which

features ‘from A to Z’ suggesting the range of products and breadth within categories.
Amazon used to refer to itself as the ‘World’s largest bookstore’.
In the article, this sentence gives an idea of the different aspects of the custom value
proposition to watch out for:
‘It believes the main competitive factors in its market segments include “selection,
price, availability, convenience, information, discovery, brand recognition, personalised
services, accessibility, customer service, reliability, speed of fulfilment, ease of use and
ability to adapt to changing conditions, as well as our customers’ overall experience and trust
in transactions with us and facilitated by us on behalf of third-party sellers”.’
Browsing Amazon will show the different proposition explained in your region. For Amazon
US, the proposition is clearest – the listing in Google states: Amazon.com Books: New and
used textbooks, biographies, children’s, etc.
‘Online shopping from the earth’s biggest selection of books, magazines, music, DVDs,
videos, electronics, computers, software, apparel and accessories, shoes’ and for books:
Amazon.com: Online Shopping for Electronics, Apparel, Computers, etc.
Online shopping for millions of new and used books on thousands of topics at everyday
low prices.
The fulfillment proposition in different countries will revolve around the minimum order for
free delivery. Discounting for different books will also vary according to their popularity.
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2. Using the case study, characterise Amazon’s approach to marketing
communications.
With reference to the six e-communications tools described in Figure 9.6 (p. 403), probably
the key techniques are search engine marketing, affiliate marketing and partnerships
with non-competitive transactional websites.
From this respect Amazon’s approach is selective, using the techniques that are most
cost-effective. The other facet is the use of automation to enable specific advertising
through the natural and paid listings of the search engines. Testing of the best approach is
important to make these ads work.
The communications approach is described in the extract towards the end of the case
starting: ‘Online advertising techniques include paid search marketing, interactive ads on
portals, email campaigns and search engine optimisation’.
The affiliate and search engine marketing approach are described earlier in the article.
3. Explain what distinguishes Amazon in its uses of technology for competitive

advantage.
The following are characteristic of Amazon’s use of technology:
• Use of in-house technologies for personalisation
• Early adopter – rapid adoption of new techniques, for example, Jeff Bezos has talked
about the merits of Web 2.0
• Extensive testing and optimisation to find the best approach
• Avoidance of monolithic projects, with focused teams tackling specific issues
• Infrastructure scalable to deal with rapidly increasing demand
• Approaches developed for one product must be extensible to others.
4. How does the Amazon ‘culture of metrics’ differ from that in other organisations
from your experience?
This question asks students to reflect on their own experiences. From the case, the following
are characteristic of Amazon’s approach:
• Passionately driven from the top by Jeff Bezos
• Importance of metrics in governing all marketing and technology activities
• Arguments about the best marketing approach are often based on tests rather than
those who shout the loudest: ‘Data trumps intuition’
• Accepted wisdom is not accepted – tests are re-run since the approach may vary
through time.
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Debate 12.1 Control of web content

‘Website content organisation and standards for page design and copy must be centrally
controlled to achieve consistency across any organisation, regardless of size.’
• Can damage brand if there are errors and inconsistencies
• Less easy for customers to navigate between different product areas if uncontrolled
• More cost-effective if same design templates are used across site.
• Can destroy creativity and initiative if these appear too tightly controlled
• Content may not accommodate different audiences so well if control is inflexible.
Exercises
1. Summarise how the activities involved with implementation and maintenance
relate to analysis and design activities in previous chapters.
Figure 12.1 on p. 598 explains this. For a prototyping approach, analysis precedes design
which precedes implementation and maintenance. However, these are repeated
consecutively in the iterative approach of prototyping.
2. What are the risks of launching a new e-commerce site if implementation is not
conducted effectively?
• Low conversion rate to outcomes, high attrition rate (due to inadequate testing of design)
• Low repeat visits (due to inadequate testing of design)
• Data errors
• Errors and site downtime
• Security breaches.
3. Distinguish between static and dynamic content and methods of achieving them.
Static web content
It is a web page view that is identical every time it is loaded. This is typically achieved
through static HTML.
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Dynamic web content
It is a web page view that varies according to user preferences or environment constraints.
This is typically achieved through dynamic access of databases according to user
requirements.
4. What are the objectives of testing? How do these relate to an e-commerce site?
• Identify errors in requirements analysis, for example, poor interface design, wrong
information or services available.
• Identify technical errors (bugs), for example, financial transactions.
5. Summarise the advantages and disadvantages of the different changeover

methods.
Advantages and disadvantages of the different methods of implementation
Method Main advantages Main disadvantages

1. Immediate cutover Rapid, lowest cost High risk. Major disruption if
Straight from old system to serious errors with system
new system on a single date
2. Parallel running Lower risk than immediate Slower and higher cost than
Old system and new system cutover immediate cutover
run side-by-side for a period
3. Phased implementation Good compromise between Difficult to achieve

Different modules of the methods 1 and 2 technically due to
system are introduced interdependencies between
sequentially modules
4. Pilot system Essential for multinational or Has to be used in

Trial implementation occurs national rollouts combination with the other
before widespread methods
deployment
6. What are the issues for managers of content management?
• Frequency of update or event that prompts update
• Checking quality of update (review process)
• Tools used for update.
7. What are the main elements of an e-commerce site measurement plan?
The framework described in the text is as follows:
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8. What are the elements of a budget for an e-commerce site enhancement?
Tangible business benefits:
1. Reduced costs
2. Increased revenue.
Intangible business benefits:
1. Faster time to market
2. Improved customer satisfaction/brand equity.
Tangible costs:
1. Physical costs
2. Planning costs
3. Implementation costs including staff, hardware and software
4. Operational costs including staff, hardware and software.

1. Write a report to a manager recommending particular techniques that should or
should not be implemented on an e-commerce site. Examples may include
frames, Flash or Shockwave plug-ins, JavaScript, Java and active server pages.
This is a straightforward question that requires more research on relevant sites such as
www.internet.com and www.webdeveloper.com. For each technique the following issues
can be discussed:
• Cost
• User experience
• Performance
• Technical skills required
• Compatibility – cross-platform/cross-browser support.
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2. Develop a plan for measuring the marketing effectiveness of an e-commerce site.
This question should be structured around the Focus On section (p. 628) and the
different components of Figure 12.11, that is:
3. Discuss the balance of using a website and traditional methods for marketing
research.
Key issues to be included are:
• Cost of techniques
• Responsiveness (speed)
• Bias – is the sample representative?
• Integration of technique in mixed-mode buying
• Different types of marketing research, for example, customer (market) research – main
focus, competitor and environmental data.
4. Choose an example of a simple brochureware website. Develop an

implementation plan for this site, recommending development techniques that will
be used to enhance the site.
Implementation issues include:
• Interface designs
• Authoring package
• Hosting location
• Review and testing
• Performance measurement
• Content management (updates).
1. You are developing a testing plan for an e-commerce site. Outline five key aspects
of the site you would test.
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• Customer orientation/relevance of content and services
• Usability
• Performance
• Accuracy of content
• Errors of links or other options.
2. Data migration is often overlooked in implementation planning. Explain what

data migration is and explain when it may need to occur for creation of an e-
commerce site for an existing business.
Data migration is the transfer of data from old systems to new systems. It will need to occur
to transfer the following from old to new system:
• Customer account details
• Product pricing and availability
• Product description.
3. Analyse the advantages and disadvantages of a soft versus hard website launch.
A soft launch has the advantage of identifying problems without exposing them to a
large number of visitors who, as a consequence, may not use the service in future. The
disadvantage is that time to market is increased.
4. Explain the following terms and suggest which is the most useful in measuring
the effectiveness of a website.
(a) Hit
Recorded for each graphic or text file requested from a web server. It is not a reliable
measure for the number of people viewing a page (least useful).
(b) Page impression
A more reliable measure than a hit denoting one person viewing one page.
(c) Site visit
Recorded each time a single visitor uses the site (most useful).
5. Why are conversion and attrition rates important in evaluating the

performance of an e-commerce site?
Conversion rate
It is the percentage of site visitors that perform a particular action such as making a
purchase. This is dependent on the site design and effectiveness of its marketing
communications. Companies will be looking to increase this.
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Attrition rate
It is the percentage of site visitors that are lost at each stage of making an online purchase.
This is the inverse of conversion rate and is also dependent on the site design and
effectiveness of its marketing communications. Companies will be looking to decrease this.
6. Suggest three key measures that indicate the contribution of an e-commerce site
to overall business performance for a company with online and offline presence.
• Internet contribution (direct) – percentage of online sales
• Internet contribution (indirect) – percentage of sales influenced by site
• Reach of site – percentage of market achieved by site.
Activity answers
Activity 12.1 Selecting applications software for a small business
To aid understanding of the different factors to assess, when selecting applications software
and their relative importance.
A start-up office supplies business which specialises in supply of printers is reviewing

its alternatives for different types of digital business system. Form groups with each group
selecting one type of digital business service from the list below and then discussing the
importance of the nine criteria for selecting software described above. A ranked list of the
criteria in order of importance should be produced. These can be put on a whiteboard, with
one type of software in each column to assess the commonality in requirements.
Digital business service types:
1. Customer relationship management application.
2. Supply chain management application.
3. Employee management system.
4. Web analytics software (see later in chapter).
Issues that could be referenced for each of these applications include:
• Reliability – must be accurate
• Security – must be available only to staff with ‘need to know’
• Support – once committed, do not want supplier to change
• Functionality – similar for many suppliers so less important. Ability to tailor is important
• Ease of use – less important since specialist staff will use
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• Extensibility – can it be added to – will it interface with other systems through an

Application Programming Interface (API)
• Scalability – will it be able to support more users or more demand (performance)
• Cost.
Activity 12.2 Understanding e-commerce and digital business
1. Identify the variables which will determine the choice of changeover method.
Table lists the main variables – Table 12.2, p. 610.
2. Which changeover alternative would you recommend for a B2B company if it

introduces a new intranet-based virtual helpdesk?
This activity is intended to show that it is often not a clear-cut decision on which
changeover method to use, and each of the methods may be used in the course of the
whole project. For example:
• During prototyping there is likely to be the use of piloting in one area of the company,
for a single country.
• During the project, even if it involves piloting there is going to be a phased

implementation with some modules available before others. Here, the static content
of the intranet, or perhaps the address book system will be implemented before the
virtual helpdesk.
• Parallel running occurs during all testing phases, since the old system will still be
running with the new nearly complete, but not handling live data. Here, it is likely
that initially, perhaps for a month there will be a fallback situation with parallel
running of the previous manual method of answering queries.
• At some point in all projects, there is a decision to move entirely to the new system,
with the parallel and phased approach. This will only occur once the development
team is confident in the use of the software.
3. Justify your answer by analysing in a table the degree of risk, from high to low for
each factor across each approach.
The following table also assigns a risk for each variable.
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Differences between changeover techniques
Variables Direct Parallel Phased Pilot

1. Cost Lowest Highest Medium–High Medium
2. Time Fastest Slowest Intermediate Intermediate
3. Quality of new Highest risk of Potentially best, Still has Better than direct, not
system after errors since do not elements of as certain as with
changeover change to new direct – parallel
system until although whole
satisfied with its system may not
performance fail, parts can
4. Impact on Minimal unless Could reduce Can still have Limits effect to one
customers major errors service if staff are problems in release into the live
encountered confused about new modules customer environment
which system
5. Impact on Lowest More work required Lower risk than Helps employee buy-
employees to run systems in direct in since know system
parallel, but does is tested
give confidence
about new system
6. Technical May be only May require two Not always –
issues practical separate hardware possible to
method if platforms and integrate two
systems are operating systems systems
very different to be run in parallel
Activity 12.3 Optimising the content review process at a B2C company
The extract below and Figure 12.4 illustrate a problem of updating encountered by a B2C
company. How can they solve this problem?
In one word, the answer is empowerment. The only way to increase the speed of the
process is to involve fewer staff and this means training them in the skills required for
update. In this case, the brand manager knows their product sector best, so they have to
write the copy and it is best if they have the sole responsibility for creation and review.
An additional check by the legal department may be necessary for certain types of changes.
Of course we need to set up different reviewing processes according to the size of the
changes made.
Activity 12.4 Creating a measurement plan for a B2C company
This activity acts as a summary to this section on digital business measurement. Review
Table 12.10 and assess the frequency with which metrics in each of the following
categories should be reported for a sell-side e-commerce site and acted upon. For each
column, place an R in the column for the frequency with which you think the data should
be recorded.
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The following are suggested, but the main issue is for a management team to agree to
what applies to them.
• Promotion – monthly
• Behaviour – daily
• Satisfaction – monthly for customer service aspects, daily for performance aspects
• Outcomes – daily or weekly
• Profitability – weekly or monthly.
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Instructor’s Manual

Digital Business and

For further instructor material

 Pearson Education Limited 2015

First published 2006

© Pearson Education Limited 2015 (electronic)

Introduction to digital business and e-commerce

After completing this chapter the reader should be able to:

• Outline the ongoing business challenges of managing digital business in an

The issues for managers raised in this chapter include:

• How do we explain the scope and implications of digital business to staff?

• How do we evaluate our current digital business capabilities?

• The impact of electronic communications on traditional businesses

• What is the difference between digital business and e-commerce?

• Digital business opportunities

• Business adoption of digital technologies for e-commerce and digital business

• Digital business risks and barriers to business adoption

1.1 The Facebook business model

1.2 eBay – the world’s largest online business

Suggested teaching and learning approaches

Notes on use of Figures in slides:

The opportunities of digital business?

The challenges of digital business management

Typical issues to discuss with students include:

• Reviewing new business and revenue models

• Reaching potential customers given fragmentation of media and new marketing

• Losing market share to competitors who are more agile online

• Reviewing the return on investment of new initiatives.

The impact of electronic communications on traditional business

• Social media marketing

• Poor site availability or performance

• Products unavailable although advertised

• Poor experience or service – negative reviews

• Managing security and data privacy of customers.

What is the difference between digital business and e-commerce?

1. Transactional e-commerce site

2. Services-oriented relationship-building website

3. Brand building site

4. Portal or media site

Digital business opportunities

Box 1.1 introduces the Reach–Richness–Affiliation model for success.

Drivers of digital technology adoption

Risks and barriers to digital business adoption

Case study 1.1 The Facebook business model

Note – Updates to this case study are provided at: http://www.smartinsights.com/social-

1. As an investor in a social network such as Facebook, which financial and customer-

A basic answer will provide:

• Understanding of financial metrics. Revenue, costs, growth.

• Clear framework of different metrics types – efficiency vs. effectiveness.

2. Complete a situation analysis for Facebook focusing on an assessment of the main

Typical risks are:

• Ad revenue limited because of difficulty of engaging audience in ads.

• Major privacy problem as with Beacon.

• Intellectual Property Rights.

3. For the main business risks to Facebook identified in Question 2, suggest

• Technical problems. Testing programme focusing on load testing.

• New entrants – developing proposition to lock-in existing users, forming partnerships

Case study 1.2 eBay – the world’s largest online business?

Updates to the eBay case study are available at: http://www.davechaffey.com/E-

It is best to divide this question into two parts.

1. How the characteristics of digital media have supported eBay’s growth.

• Change from a one-to-many communication model to one-to-one or many-to-many

See section starting on p. 43 for more details on these characteristics.