ITEC 1010

1
Fundamentals of Information
Systems, Ninth Edition
Chapter 5
Electronic Commerce and Enterprise
Systems
© 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain
product or service or otherwise on a password-protected website for classroom use.

Objectives
After completing this chapter, you will be able to:
Describe the current status of various forms of e-commerce,
including B2B, B2C, C2C, e-government, and m-commerce
Identify several advantages and challenges associated with e-
commerce and m-commerce
Identify and briefly describe several current e-commerce
applications
Identify the key components of technology infrastructure that
must be in place for e-commerce and m-commerce to work
© 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service
or otherwise on a password-protected website for classroom use.

Objectives
After completing this chapter, you will be able to (cont’d):
Discuss the key features of the electronic payment systems
needed to support e-commerce and m-commerce
Identify the basic activities and business objectives common to all
transaction processing systems.
Describe the transaction processing systems associated with the
order processing, purchasing, and accounting business functions
Identify the basic functions performed and the benefits derived
from the implementation of an enterprise resource planning
system, customer resource management, and product lifecycle
management system

Objectives
After completing this chapter, you will be able to (cont’d):
Describe the hosted software model for enterprise systems and
explain why this approach is so appealing to SMEs
Identify the challenges that organizations face in planning,
building, and operating their enterprise systems
Identify tips for avoiding many of the common causes for failed
enterprise system implementations

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An Introduction to Electronic Computers
• Electronic commerce: conducting business activities electronically over
computer networks
• Business activities that are strong candidates for conversion to e-commerce are:
• Paper based
• Time-consuming
• Inconvenient for customers

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Business-to-Business E-Commerce
• B2B e-commerce is a subset of e-commerce
• All the participants are organizations
• Useful tool for connecting business partners in a virtual supply chain to cut
resupply times and reduce costs
• Many organizations use both:
• Buy-side e-commerce to purchase goods and services from suppliers
• Sell-side e-commerce to sell products to their customers

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Business-to-Consumer E-Commerce
• B2C e-commerce
• Customers deal directly with an organization and avoid intermediaries; this is called
disintermediation
• Reasons for steady growth
• Cheaper goods and services via the Web
• Online shoppers can design a personalized product
• The use of social media networks to promote products and reach customers

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Business-to-Consumer E-Commerce

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Consumer-to-Consumer E-Commerce
• C2C e-commerce
• Involves electronic transactions between consumers are facilitated by a third party
• Popular sites include:
• eBay, Bidz.com, Craigslist, eBid, Etsy, Fiverr, Ibidfree, Kijiji, Ubid, and Taobao
• Companies and individuals involved in C2C must be careful
• Sales must not violate the rules of various county, state, and country legal jurisdictions

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Consumer-to-Consumer E-Commerce

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E-Government
• E-government is the use of information and communications technology to:
• Simplify the sharing of information
• Speed formerly paper-based processes
• Improve the relationship between citizens and government
• Forms of e-Government:
• Government-to-consumer (G2C)
• Government-to-business (G2B)
• Government-to-government (G2G)

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Mobile Commerce
• Mobile commerce (m-commerce) relies on the use of wireless devices
• The Internet Corporation for Assigned Names and Numbers (ICANN):
• Created a .mobi domain to help attract mobile users to the Web
• The market for m-commerce in North America
• Maturing much later than in Western Europe and Japan
• Worldwide, m-commerce accounted for 35 percent of all retail e-commerce
sales in the fourth quarter of 2015
• The number of mobile Web sites worldwide is growing rapidly
• Because of advances in wireless broadband technologies

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Advantages of Electronic and Mobile Commerce
• Reach new customers
• Reduce the cost of doing business
• Speed the flow of goods and information
• Increase the accuracy of order-processing
• Improve the level of customer service

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E-Commerce Challenges
• Dealing with Consumer Privacy Concerns
• About one-third of all adult Internet users will not buy online due to privacy concerns
• Overcoming Consumers’ Lack of Trust
• In online sellers
• Overcoming Global Issues
• Cultural, language, time and distance, infrastructure, currency, and legal challenges

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Electronic and Mobile Commerce Applications
• Areas in which applications are used
• Retail and wholesale – Manufacturing
• Marketing – Advertising
• Bartering – Retargeting
• Price comparison – Couponing
• Investment and finance – Banking

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Manufacturing
• Electronic exchange: an electronic forum where manufacturers, suppliers, and
competitors buy and sell goods, trade market information, and run back-office
operations
• Private exchanges are owned and operated by a single company
• Consortium-operated exchanges are run by a group of traditionally competing
companies with common procurement needs
• Independent exchanges are open to any set of buyers and sellers within a given
market

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Manufacturing

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Marketing
• Market segmentation: the identification of specific markets to target them with
advertising messages
• Divides the pool of potential customers into subgroups usually defined in terms of
demographic characteristics
• eXelate (a subsidiary of Nielson)
• Provides data as a service solution that customers can use to access a database of
more than 250 million business records

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Advertising
• Methods of buying mobile ad impressions
• Cost per thousand (CPM)
• Cost per click (CPC)
• Cost per action (CPA)
• Three main measures of success
• Number of users reached
• Click through rate (CTR)
• Number of actions users take

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Bartering
• With economic downturn, many people and businesses have turned to
bartering to gain goods and services
• A number of Web sites have been created to support bartering

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Retargeting
• An average of 74 percent of all online shopping carts are abandoned
• Retargeting is used by advertisers to recapture those shoppers by using
targeted and personalized ads to direct shoppers back to a retailer’s site

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Price Comparison
• Mobile phone apps enable shoppers to compare prices and products online
• In some cases, shopper can simply scan an item’s barcode or snap a photo of
the item

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Couponing
• In 2015, over $515 billion in consumer incentives were distributed in North
America
• Less than one percent were redeemed
• Shoppers can subscribe to mobile coupon aggregators
• Mobile coupon redemption rate is expected to increase due to coupon
integration in social networks

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Investment and Finance
• The Internet has revolutionized the world of investment and finance
• The brokerage business adapted to the Internet faster than any other arm of
finance

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Banking
• Online banking customers can:
• Check balances of their savings, checking, and loan accounts
• Transfer money among accounts
• Pay their bills
• Many banks enable customers to perform online banking activities via mobile
phone

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Technology Infrastructure Required to Support E-Commerce and M-
Commerce
• Poor Web site performance drives consumers to abandon some e-commerce
sites in favor of those with better, more reliable performance

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Hardware
• The Web server’s required storage capacity and computing power depend on:
• The software that must run on the server
• Volume of e-commerce transactions that must be processed
• Successful e-commerce solutions are designed to be highly scalable
• Can be upgraded to meet unexpected user traffic

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Hardware
• Key Web site performance measures
• Response time
• Transaction success rate
• System availability
• Key decision for a new e-commerce company
• Choosing whether to host its own Web site or to enlist a third-party Web service
provider

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Hardware

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Web Server Software
• Fundamental services needed in Web server software
• Security and identification
• Retrieving and sending Web pages
• Web site tracking
• Web site development
• Web page development

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E-Commerce Software
• Five core tasks that must be supported by e-commerce software
• Catalog management
• Product configuration
• Shopping cart facilities
• E-commerce transaction processing
• Web traffic data analysis

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Mobile Commerce Hardware and Software
• Limitations of handheld devices that complicate their use:
• Screens are small
• Input capabilities are limited to a few buttons
• Less processing power and less bandwidth than desktop or laptop computers
• Operate on limited-life batteries
• For these reasons
• Web developers must often rewrite Web applications so users with mobile devices
can access them

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Electric Payment Systems
• Authentication technologies are used by many organizations to confirm the
identity of a user requesting access to information or assets
• Digital certificate: an attachment to an e-mail message or data embedded in a
Web site that verifies the identity of a sender or Web site
• Certificate authority (CA): a trusted third-party organization or company that
issues digital certificates

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• Various measures are being implemented to increase the security associated
with the use of credit cards
• Address Verification System is a check built into the payment authorization request
- Compares the address on file with the address provided by the cardholder
• Card Verification Number
- A check of the additional digits typically printed on the back of the card

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• Transport Layer Security (TLS) is a communications protocol used to secure
sensitive data during e-commerce
• Electronic cash: an amount of money that is computerized, stored, and used as
cash for e-commerce transactions
• Credit, charge, debit, and smart cards are payment systems used for e-
commerce

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• Transaction processing systems (TPSs):
• Capture and process detailed data necessary to update the organization’s records
about fundamental business operations
• Include order entry, inventory control, payroll, accounts payable, accounts receivable,
general ledger, etc.
• A TPS provides valuable input to:
• Management information systems
• Decision support systems
• Knowledge management systems
Transaction Processing Systems

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• Batch processing system
• Business transactions are accumulated over a period of time and prepared for
processing as a single unit or batch
• Essential characteristic: the delay between an event and the processing of the related
transaction to update the organization’s records
• Online transaction processing (OLTP)
• Data processing in which each transaction is processed immediately
• At any time, the data in an online system reflects the current status
• Many organizations find that OLTP enables them to provide faster, more efficient
service
Traditional Transaction Processing Methods and Objectives

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• Organizations expect their TPSs to:
• Capture, process, and update databases
• Ensure that the data is processed accurately and completely
• Avoid processing fraudulent transactions
• Produce timely user responses and reports
• Reduce clerical and other labor requirements
• Help improve customer service
• Achieve competitive advantage

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• A TPS includes:
• Order processing systems
- Processing flow begins with receipt of customer order, then finished product inventory is
checked to see if sufficient inventory is on hand to fill the order
- Product pick list is printed at the warehouse and inventory is adjusted
- Customer invoice is created and copy included in the customer shipment
• Accounting systems
- Must track the flow of data related to all the cash follows that affect the organization
• Purchasing systems
- Systems that support the purchasing business function
- Inventory control, purchase order processing, receiving, and accounts payable

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• Many software packages:
• Provide integrated transaction processing system solutions for small and medium-size
enterprises (SMEs)
• Are easy to install and operate with a low total cost of ownership
• Have an initial cost of a few hundred to a few thousand dollars
Transaction Processing Systems for Entrepreneurs and Small and
Medium-Sized Enterprises

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• The transaction processing cycle
• Data collection
• Data editing
• Data correction
• Data manipulation
• Data storage
• Document production
Transaction Processing Activities

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• Capturing and gathering all data necessary to complete the processing of
transactions
• Data collection can be:
• Manual
• Automated via special input devices
• Source data automation
• Involves capturing data at its source and recording it accurately in a timely fashion
with minimal manual effort and in an electronic or digital form so that it can be
directly entered into the computer
• Example: a scanner reading a UPC code
• Cloud-based POS systems provide a range of capabilities
• Including advanced integration with digital loyalty programs, various accounting tools,
and the ability to generate gift cards and coupons
Data Collection

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Data Collection

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• Data editing
• Checking data for validity and completeness to detect any problems
• Examples
• Quantity and cost data must be numeric
• Names must be alphabetic
• Codes associated with an individual transaction are edited against a database
containing valid codes
Data Editing

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• Systems should provide error messages that alert those responsible for editing
the data
• Error messages should specify the problem so proper corrections can be made
• Data correction involves reentering data that was not typed or scanned
properly
Data Correction

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• Performing calculations and other data transformations related to business
transactions including:
• Classifying data
• Sorting data into categories
• Performing calculations
• Summarizing results
• Storing data in the organization’s database for further processing
Data Processing

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• Data Storage
• Involves updating one or more databases with new transactions
• After being updated, this data can be further processed and manipulated by
other systems
Data Storage

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• Document Production involves generating output records, documents, and
reports
• Hard-copy paper reports
• Displays on computer screens (soft copy)
• Results from one TPS can be input to another system
• Most TPSs provide other useful management information, such as:
• Printed or on-screen reports that help managers and employees perform various
activities
• Reports showing current inventory
• Reports required by local, state, and federal agencies
Document Production

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• An enterprise system is central to individuals and organizations of all sizes
• Ensures that information can be shared across all business functions and all levels of
management to support the running and managing of a business
• The ultimate goal is to satisfy customers and provide significant benefits by
reducing costs and improving service
• Businesses rely on enterprise systems to perform daily activities in areas such
as:
• Product supply and distribution
• Sales and marketing
• Human resources
• Manufacturing
• Accounting and taxes
Enterprise Systems

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• Enterprise resource planning (ERP)
• A set of integrated programs that manage a company’s vital business operations for
an entire organization
• Business process
• A set of coordinated and related activities that takes one or more kinds of input and
creates an output of value to the customer of that process
Enterprise Resource Planning

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• ERP systems evolved from materials requirement planning systems (MRP)
developed in the 1970s
• Large organizations were the first to take on the challenge of implementing ERP
Enterprise Resource Planning

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• Improved access to quality data for operational decision making
• Elimination of costly, inflexible legacy systems
• Improvement of work processes
• Opportunity to upgrade and standardize technology infrastructure
Advantages of ERP

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• ERP vendors are classified as:
• Tier I vendors – target large multinational firms with multiple geographic locations
and annual revenues in excess of $1 billion
• Tier II vendors – target medium-sized firms with annual revenues in the $50 million to
$1 billion range operating out of one or more locations
• Tier III vendors – target smaller firms with annual revenues in the $10 million to $50
million range that typically operate out of a single location
Leading ERP Systems

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Leading ERP Systems

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• Many large companies employed ERP on large mainframe computers in the
2000s
• ERP software vendors created new solutions for smaller companies
• Cloud-based solutions are available
• Examples: Plex and NetSuite
• Compiere offers an open-source ERP system
• Vendor’s ERP software may require customization to:
• Integrate other business systems
• Add data fields or change field sizes from those in the standard system
• To meet regulatory requirements
Leading ERP Systems

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• Customer relationship management (CRM) system
• Helps a company manage all aspects of customer encounters, including marketing,
sales, distribution, accounting, and customer service
• The goal of CRM is to understand and anticipate the needs of current and
potential customers
• CRM is used primarily in sales, marketing, and service organizations:
• To capture and view data about customers and to improve communications
• CRM software:
• Automates and integrates the functions of sales, marketing, and service in an
organization
Customer Relationship Management

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• Key features of a CRM system include:
• Contact management
• Sales management
• Customer support
• Marketing automation
• Analysis
• Social networking
• Access by smartphones
• Import contact data

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• Due to the popularity of mobile devices
• Shoppers can easily compare products and prices on their mobile phones
• Shopper can also tweet their experiences with a brand to dozens of friends
• Savvy retailers use their CRM systems to stay on top of what these customers
are saying on social networks
• Most CRM systems can now be accessed via smartphones

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• Product lifecycle management (PLM)
• An enterprise business strategy that creates a common repository of product
information and processes
• Supports the collaborative creation, management, dissemination, and use of product
and packaging definition information
• Product lifecycle management (PLM) software
• Provides a means for managing the data and processes associated with the various
phases of the lifecycle of a product
• The scope of PLM software may include computer-aided design, computer-aided
engineering, and computer-aided manufacturing
Product Lifecycle Management

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• Computer-aided design (CAD):
• The use of software to assist in the creation, analysis, and modification of the design
of a component or product
• Computer-aided engineering (CAE):
• The use of software to analyze the robustness and performance of components and
assemblies
• Computer-aided manufacturing (CAM)
• The use of software to control machine tools and related machinery in the
manufacture of components and products

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• Discrete manufacturing
• The production of distinct items e.g., autos, airplanes, furniture, or toys that can be
decomposed into their basic components
• Process manufacturing
• The production of products that are the result of a chemical process, e.g., gasoline
and pharmaceutical drugs that cannot be easily decomposed into its basic
components

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Overcoming Challenges in Implementing Enterprise Systems

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• Tips for avoiding a failed implementation
• Assign a full-time executive to manage the project
• Appoint an experienced, independent resource to provide project over- sight and to
verify and validate system performance
• Allow sufficient time to transition from the old way of doing things to the new system
and new processes
• Allocate sufficient time and money training people
• Define metrics to assess project progress and to identify project-related risks
• Keep the scope of the project well defined and contained to essential business
processes
• Be wary of modifying the enterprise system software to conform to your firm’s
business practices
Overcoming Challenges in Implementing Enterprise Systems

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• Many business application software vendors are pushing the use of the hosted
software model for businesses
• The goal is to help customers acquire, use, and benefit from the new technology while
avoiding much of the associated complexity and high start-up costs
• Using the hosted software model enables businesses to:
• Experiment with powerful software capabilities without making a major financial
investment
• Avoid employing a full-time IT person to maintain key business applications
Hosted Software Model for Enterprise Software

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Hosted Software Model for Enterprise Software

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Summary
• Electronic and mobile commerce are evolving, providing new ways of
conducting business that present both potential benefits and problems
• E-commerce and m-commerce require the careful planning and integration of a
number of technology infrastructure components
• An organization must have information systems that support routine, day-to-
day activities and that help a company add value to its products and services
• An organization that implements an enterprise system is creating a highly
integrated set of systems, which can lead to many business benefits

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