Page 58 - Electronic Commerce

Introduction to Electronic Commerce

each telephone increased as more people had them installed. As the network of
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telephones grew, the capability of each individual telephone increased because it could be
used to communicate with more people. This increase in the value of each telephone as
more and more telephones are able to connect to each other is the result of a network
effect. Imagine how much less useful (and therefore, less valuable) your mobile phone
today would be if you could only use it to talk with other people who had the same mobile
phone carrier.
Your e-mail account, which gives you access to a network of other people with e-mail
accounts, is another example of a network effect. If your e-mail account were part of a
small network, it would be less valuable than it is. Most people today have e-mail accounts
that are part of the Internet (a global network of computers, about which you will learn
more in Chapter 2). In the early days of e-mail, most e-mail accounts only connected
people in the same company or organization. Today’s Internet e-mail accounts are far
more valuable than single-organization e-mail accounts were because of the network
effect.
Regardless of how businesses in a particular industry organize themselves—as
markets, hierarchies, or networks—you need a way to identify business processes and
evaluate whether electronic commerce is suitable for each process. The next section
presents one useful structure for examining business processes.

IDENTIFYING ELECTRONIC COMMERCE
OPPORT UNITIES
Internet technologies can be used to improve such a wide range of business processes that
it can be difficult for managers to decide where and how to use them. One way to focus
on specific business processes as candidates for electronic commerce is to break the
business down into a series of value-adding activities that combine to generate profits and
meet other goals of the firm. In this section, you will learn how to analyze business
activities as a sequence of activities that create value for the firm.
Business activities are conducted by firms of all sizes. Smaller firms might combine
business activities to create one product, sell through one distribution channel, or sell to
one type of customer. Larger firms combine business activities to sell many different
products and services through a variety of distribution channels to several types of
customers. In these larger firms, managers organize their business activities into strategic
business units, which you learned about earlier in this chapter. Multiple business units
owned by a common set of shareholders make up a firm, or company, and multiple firms
that sell similar products to similar customers make up an industry.

Strategic Business Unit Value Chains
In his 1985 book, Competitive Advantage, Michael Porter introduced the idea of value
chains. A value chain is a way of organizing the activities that each strategic business unit
undertakes to design, produce, promote, market, deliver, and support the products or
services it sells. In addition to these primary activities, Porter also includes supporting
activities, such as human resource management and purchasing, in the value chain model.

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