imchapter15.docx

1、imchapter15Chapter 15Economics and JustificationOf Electronic CommerceLearning ObjectivesUpon completion of this chapter, you will be able to:1. Describe the need for justifying EC investments, how it is done, and how metrics are used to determine justification.2. Understand the difficulties in meas

2、uring and justifying EC investments.3. Recognize the difficulties in establishing intangible metrics and describe how to overcome them.4. List and briefly describe traditional and advanced methods of justifying IT investments.5. Understand how e-CRM, e-learning, and other EC projects are justified.6

3、. Describe some economic principles of EC.7. Understand how product, industry, seller, and buyer characteristics impact the economics of EC.8. Recognize key factors to the success of EC projects and the major reasons for failures.ContentJustifying Investment in IT and EC atCalifornia State Automobil

4、e Association15.1 Why Justify E-Commerce Investments; How Can They Be Justified?15.2 Difficulties in Measuring and Justifying E-Commerce Investments15.3 Methods and Tools for Evaluating and Justifying E-Commerce Investments15.4 Examples of E-Commerce Project Justification15.5 The Economics of E-Comm

5、erce15.6 Factors That Determine E-Commerce Success15.7 Opportunities for Success in E-Commerce and Avoiding FailureManagerial IssuesReal-World Case: Justifying EC and ITInvestment in the State of IowaAnswers to Pause/Break Section Review QuestionsSection 15.1 Review1. List some of the reasons for ju

6、stifying an EC investment.Justifying an EC investment means comparing the costs of the project against its benefits in what is known as a cost-benefit analysis.2. Describe the risks of not conducting an EC justification study.However, even when formal analysis is not required, an organization should

7、 have some qualitative analysis to explain the logic of investing in the EC project.3. Describe how an EC investment is justified.Metrics are used to describe costs, benefits, or the ratio between them. They are used not only for justification, but also for other economic activities (e.g., to compar

8、e employee performance in order to reward specific employees).4. List the major EC investment categories.One basic way to categorize different EC investments is to distinguish between investment in infrastructure and investment in specific EC applications.5. When is justification of EC investments u

9、nnecessary? When the value of the investment is relatively small for the organization When the relevant data are not available, inaccurate, or too volatile When the EC project is mandatedit must be done regardless of the costs and benefits involved6. What are metrics? What benefits do they offer?A m

10、etric is a specific, measurable standard against which actual performance is compared.Section 15.2 Review1. How do organizations measure performance and productivity? What are the difficulties in measuring performance and productivity?One of the major benefits of using EC is increased productivity.

11、However, productivity increases may be difficult to measure for a number of different reasons.2. Why is it difficult to relate EC (IT) investments to organizational performance? List the major reasons.Data, or the analysis of the data, may hide productivity gains. Why is this? For manufacturing, it

12、is fairly easy to measure outputs and inputs.3. Define tangible costs and benefits.Tangible costs are those that are easy to measure and quantify and that relate directly to a specific investment.4. Define intangible costs and benefits and explain why they must be considered when justifying an IT in

13、vestment.Intangible costs may include the learning curve of the firms customer service employees to incorporate an EC system to respond to customer inquiries.5. Why is it difficult to measure the value of intangible benefits?The problems of measuring intangible costs and benefits become more complex

14、 as companies try to justify large investments in EC because of the special characteristics of EC.6. Describe a simple approach to the intangibles problem.Student responses may vary.7. How should management handle the uncertainties of benefits?The text provides a model on page 691 from A (2006) and

15、Baseline (2006).Section 15.3 Review1. List the items that constitute the business ROI and the technical ROI for an EC portal application.Business ROI relates to the EC investment benefits incurred for the improvement of the business and its operations. Technology ROI relates to the EC investment ben

16、efits incurred by improvements in the integration of technology and its deployment.2. What are the components of the balanced scorecard?This method evaluates the health or performance of the organization by looking at a broad set of factors, not just financial ones. It is becoming a popular tool for

17、 assessing EC projects.3. What are ROI calculators?Vendors and the consulting companies have accumulated quite a bit of experience in developing metrics and tools called ROI calculators to evaluate investments.4. Differentiate between business and technology ROI.Technology ROI is generally more diff

18、icult to calculate as IT resources generally benefit multiple initiatives.5. Describe the TCO and TBO.Total Cost of Ownership evaluates the sum of the costs of owning, operating and controlling an IT system whereas the Total Benefits of Ownership sums the tangible and intangible benefits of an IT sy

19、stem.Section 15.4 Review1. List five success factors for e-procurement.E-procurement (see Chapter 5) is not limited to just buying and selling; it also encompasses the various processes involved in buying and selling: selecting suppliers, submitting formal requests for goods and services to supplier

20、s, getting approval from buyers, processing purchase orders, fulfilling orders, delivering and receiving items, and processing payments.2. List five performance metrics for e-procurementSee table 15.1.3. List three tangible and three intangible benefits of e-CRM. Reduce the cost of sales. Reduce sal

21、es administration overhead. Improve the lead-to-sale closure ratio. Increase customer retention. Improve customer satisfaction and loyalty.4. List some metrics that can be used to justify e-training.End-user training that helps employees acquire or improve their IT skills plays a key rolein ensuring

22、 the smooth operation of organizations in the information economy.5. How is the cost of SOX calculated?Baseline calculates this cost by examining individual components. An example is available in Exhibit 15.9Section 15.5 Review1. How can EC enhance increasing returns in a business? (Hint: consult ro

23、i-.)Although producers may have initial increasing economies of scale, they eventually reach a point where costs increase faster than revenues when they produce more of the product, and additional production becomes less and less profitable2. How does EC impact the production cost curve?The producti

24、on function, shown in Exhibit 15.11, represents a mathematical formula that indicates that for the same quantity of production, Q, companies either can use a certain amount of labor or invest in more automation3. Define transaction costs. List some examples and explain how EC can reduce such costs.T

25、ransaction costs cover a wide range of costs that are associated with the distribution (sale) and/or exchange of products and services.4. How can EC be used to increase revenues?An organization can use EC to increase revenues through online storefronts, auctions, cross-selling opportunities, multich

26、annel distribution arrangements, and so on.5. What are the benefits of increasing reach? How can EC help?The more customers a company wants to reach, the fewer services it can provide to them. With EC, the curve can be shifted outward.6. How can organizations reduce psychological risk?Psychological

27、risks can be reduced by allowing the customer to utilize an EC-based calculator and avoid potentially embarrassing situations.7. Explain the impact of EC on product differentiation and agility.EC can be exploited to provide greater value to customers by enabling product differentiation.8. Define val

28、uation. Why is it so high for some EC startups?Valuation is the process of trying to determine the value or worth of a company. It is done for the purpose of selling a company or determining its value for a proposed merger. In the EC context, valuation often is conducted to determine a reasonable IP

29、O price when a company goes public.9. How can a company decide which e-marketplace to join?Hopkins & Kehoe (2006) suggest an economics based approach to evaluate the benefits and potential entrants to a marketplace.Section 15.6 Review1. Describe product characteristics in EC.Digitizable products, su

30、ch as software, documents, music, and videos, are particularly well suited for e-markets because they can be distributed to customers electronically, resulting in instant delivery and very low distribution costs.2. Describe pricing issues in EC.A products price may also be an important determinant o

31、f its success. The higher the product price, the greater the level of risk involved in the market transaction between buyers and sellers who are geographically separated and who may have never dealt with each other before.3. What are industry characteristics in EC?Electronic markets are most useful

32、when they are able to match buyers and sellers directly.4. What are seller characteristics in EC?Electronic markets reduce search costs, allowing consumers to find sellers that offer lower prices and/or better service.5. What are consumer characteristics in EC?Consumers can be classified as impulse, patient, or analytical. Electronic markets may have little impact on industries in which a sizable percentage of purchases are m