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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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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