Creating an e-business summary

As we have discovered, an e-business truly does touch every department within a company. And a truly integrated e-business has optimized both its human and technology resources.

From forming a strategic business plan that incorporates traditional business practices with e-business solutions, to conducting a risk analysis and disaster recovery plan, ABC has many steps to take before it can be tagged a successful e-business. It must first develop a marketing strategy and ask itself fundamental questions regarding its operational success factors.

ABC must also create a financial plan that looks at past performance as well as future trends. E-business involves reducing operational costs as well as increasing sales. Finally, ABC must work to make its e-business solution work for the customer. The customer must ultimately benefit from the efficiencies that ABC and its business partners will gain from a well-strategized and implemented e-business campaign.

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Risk analysis and Disaster recovery

Along with the financial plan, ABC should incorporate a thorough legal study and a thorough risk analysis. These aspects cannot be overlooked, as they are the biggest defense an e-business company can have to protect its assets. ABC should first analyze its privacy and service commitment statements. There are important laws and regulations that explain how data is to be collected, stored and shared. ABC should be aware of the many resources available to an organization that explain and keep up-to-date on new laws and regulations.

ABC should also conduct a thorough analysis of its infrastructure. During this analysis there should be considerable time devoted to uncovering any weaknesses in either information storage procedures or the processes used to keep the website up and running in the event of a natural disaster. This is also known as a disaster recovery plan. And like any plan there needs to be documentation drawn out that highlights the weaknesses. Then a disaster recovery team can be assembled. There can be several teams for each area of recovery, but each team should have a leader. The team leaders are responsible for determining the problem, the root cause of the problem, finding a resolution to the problem and finally responding to the problem and fixing it. This scenario should be conducted prior to any ‘real’ disaster so that there is documentation available when the time comes.

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Reducing costs

Financial considerations should be given towards reducing the costs of operating the business. Even though most companies use the Internet to increase their marketing presence, there are many ways to lower operating costs by using the Internet and the technology advancements that the Internet offers. One way of doing this is to lower transactional costs. When customers self-service their accounts, they free up the customer service department’s time and the Sales departments time. This allows them to spend more time procuring additional sales. Further, EDI and XML transactions can be instituted to allow computers to ‘talk’ to one another and therefore alleviate human interaction and human costs. 

Another way to lower costs is to offer information online. This will decrease paper, ink, storage and management costs in the physical realm. Along these same lines, a company could reduce costs by offering online invoices. Companies routinely lose or misplace their invoices. Having an electronic version to send them will decrease time and delivery costs. Using e-mail to communicate with the customer and other business partners will reduce phone-call cost, but it will also serve as an electronic backup in case of further disputes. Also, when a company uses online suppliers to procure their goods, much of the ‘fat’ has been taken out of the equation and costs are typically lower by doing so. One way to buy online is through bidding sites. These sites can offer a company the raw materials it needs to operate, but it can also offer the machinery it needs as well.

Recruiting employees online can save costs as well. Doing research online can reduce the time it takes to come up with an answer. Another great advantage the Internet has in reducing costs is training employees or customers via the Web. Quarterly sales meetings can be conducted via the Web without the added time and expense of traveling. Plus, Webinars can be conducted to train users on using an e-commerce site or educating suppliers on the services offered by ABC in an effort to encourage them to push their products through ABC. These are many ways that the Internet can reduce overall company costs. These elements should be included in a thorough financial and accounting plan.

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Operating expenditures

As with the startup expenditures, the operating expenditures involve employee time. The e-commerce manager, MIS, programmers, graphics people, and customer service representatives must all be involved on the operational side of an e-business. Further telecommunication expenses are incurred monthly or quarterly, as well as basic utility expenses. 

Advertising also comes into play on the operational side of an e-business. Literature and other ‘hard’ advertising pieces must be created. Pay-per-click advertising and e-marketplaces should be advertised in so that horizontal partners push users to your site.  ABC may also wish to conduct live web demonstrations of its capabilities. This per-month resource must be budgeted.

While some business costs can be reduced in the e-business environment, it is more accurate to say that money can be spent more wisely after e-business implementation as a result of better reporting, trends data, and better accountability for marketing dollars spent versus true customer acquisition, ROI and lifecycle earnings from a customer.

The budgeting process is just as important in the e-business environment, so we will discuss budgeting in the next post.

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A Complete View of Costs Associated with Starting an e-Business Enabled Company
 

Startup expenditures

Even though ABC is a successful brick and mortar business in its own right, there are many expenses associated with starting an e-commerce division of a company. For instance, there are development costs involved. ABC wants to offer its users a unique and industry-leading searching mechanism for finding cogs based on several criteria. This will require development time and money. Further, the graphical layout for the new site will have to be determined. This will primarily be done in house, but a portion of the finished style sheets will be imagined and created by an outside graphic artist. This will require an expenditure. 

A minimal, but necessary, charge will be incurred to obtain a domain registration for the new company division. This project will require time from the marketing manager, e-commerce manager, graphics artist, programming, IT and accounting departments. The time involvement from these individuals is an incurred soft cost. Also, equipment must be purchased in order to service users in an efficient and secure manner. A middle-ware server must be bought and put in place so that credit card numbers are not floating around on the Net. This middle-ware server will also act as a liaison between the e-commerce site and the back-end inventory and financial systems. ABC will also require an additional router, a new hosting provider, and more programmed jobs to run security backups of information. 

These are the starting expenditures that must be considered in a financial plan. Next time we will discuss the operating expenditures.

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Improving profitability

Now that ABC has a plan to collect and join its data into a company-wide knowledge management (KM) system, it must begin answering the all-important question regarding improving profitability. Improved profitability can be achieved by utilizing the tools of the KM system. ABC can use the personal data of its customers to form a general description of its customer base. It can look at the products and services bought by the customer to answer questions regarding marketing and promotions. It can look at the internal notes on issues, complaints and resolutions to determine the best course of action when problems arise.

ABC can also improve its profitability by acting on the answers to its external environmental questions. It can improve its technologies to stay ahead of the competition. It can also utilize the technology and industry information to increase barriers to entry and effectively hold off competition for an extended period on time. The longer ABC can keep competition away from its customers, the longer it has to develop stronger relationships through increased customer service and to build up the customer’s loyalty to the company. Increased customer service and increased loyalty by the customer is a powerful barrier to entry in and of itself.

ABC can also act off the knowledge gained regarding its distributors and supplier’s power in the distribution chain. ABC can work to integrate systems and build stronger, mutually agreeable relationships with strategic alliances in order to minimize their power and increase ABC’s power in the chain. Because of the trends that can be seen from a KM system, ABC should be in a position to make educated guesses regarding its supplies and product substitutions. ABC should make it clear to its suppliers that if they cannot meet the demands of ABC’s customer to get the products delivered in a timely manner, ABC will seek out a comparable substitute from another supplier. The answers gained from the KM system will allow ABC to plan, create and implement an effective operations plan. An effective operations plan is only effective if there is also an effective financial plan. The financial plan of an organization takes into account many aspects of the business including viability, predictive accounting, operational costs and future goals, to name just a few.

In order to take a brick and mortar business and transfer its products and services online, the most important aspect to consider is the financial viability of the project. Just because a company is successful off-line does not necessarily mean that it will be a successful company on-line. Companies must live by the same business rules that traditional brick and mortar business live by. That is to say, once a traditional company expects more capital, then it should spend more money. This ‘traditional’ way of thinking, was not the direction that many early Internet retailers took. When one company, eToys, saw trouble ahead, and should have been looking to cut expenses, it still spent tremendous amounts of money on advertising.    This example is used quite often in the e-business arena to underscore the fact that a company cannot continue to show losses quarter after quarter and expect to stay in business. A solid financial plan is the first step a company must take before it takes the plunge into e-business.

Staying on this topic, we will next discuss how predictive accounting plays a major role in e-business success.

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These are fundamental questions that ABC must be able to answer in order to gage the effectiveness of its campaigns. It must know its customers’ ‘hot buttons’ in order to offer problem-solving solutions and advertise these solutions-based services to future customers. ABC could also look towards web analytical software to refine its marketing efforts and to help it determine future trends. The key to success is to not just gather and segment data but to use it to better understand customers. Once potential customers can be contacted and converted into true customers the next challenge is to ask the critical questions that will ultimately lead to a successful implementation of a company-wide e-business program.

Let us now examine the critical strategic questions that ABC Company must ask and answer to successfully implement its e-business operations. The focus will be on three main objectives: Data collection, joining information and improving profitability. Each one of these objectives will require a number of answers to a number of questions.   However, all of the answers shall be used for one purpose: to provide the management of ABC with the tools they need to assess their distant partners, or customers, and their direct partners, or distributors and suppliers.  These tools consist of INFORMATION.