Page 397 - Introduction to Electronic Commerce and Social Commerce

12.1 Why Justify E-Commerce Investments? How Can They Be Justified? 385

and to society. These are only some of the topics pre- • Companies now realize that EC is not necessarily
sented in this chapter. Other topics deal with the use of the solution to all problems. Therefore, EC projects
EC metrics. This chapter also provides a discussion of must compete with other internal and external proj-
successes and failures in e-commerce. Other implemen- ects for funding and resources. The answer usually
tation issues covered are the implementation of EC by is provided by ROI.
SMEs and the strategy of going global online. Finally, • Some large companies and many public organiza-
privacy, ethical issues, and intellectual property are cov- tions mandate a formal evaluation of requests for
ered. The chapter ends with an assessment of the future funding.
of e-commerce. • Companies are required to assess the success of EC
projects after their completion.
• The pressure by top management for better align-
ment of EC strategy with the business strategy.
• The success of EC projects may be assessed in order
12.1 WHY JUSTIFY E-COMMERCE to pay bonuses to those involved with the projects.
INVESTMENTS? HOW CAN THEY
BE JUSTIFIED?

Companies need to justify their EC investments for a number EC Investment Categories and Benefits
of different reasons.
Before we look at how to justify EC investments, let us
examine the nature of such investments. One basic way to
Increased Pressure for Financial Justification categorize different EC investments is to distinguish between
investments in infrastructure and investments in specific EC
Today, companies are careful with EC expenses and budgets. applications.
Technology executives feel the pressure for financial justifi- IT infrastructure provides the foundation for EC projects
cation and planning from top executives. However, there is or applications in the enterprise. IT infrastructure includes
still a long way to go as demonstrated by the following data: servers, intranets, extranets, data centers, data warehouses,
knowledge bases, and so forth. In addition, it is necessary to
• Most companies lack the knowledge or tools to do ROI integrate the EC applications with other applications through-
calculations for EC projects. out the enterprise that share the infrastructure. Infrastructure
• The vast majority of companies have no formal processes investments are made for the long term.
or metrics in place for measuring ROI for EC projects. EC applications are specific projects and programs for
• Many companies do not measure how completed EC proj- achieving certain objectives. The number of EC applications
ects compare with their promised benefits. can be large. They may be in one functional department, or
several departments may share them, which makes the assess-
At the same time, the demand for expanding or initiating ment of their costs and benefits more complex.
e-business projects is high. Therefore, it is recommended to Note: Cloud computing may provide a low-cost IT infra-
calculate the projected value of proposed EC projects in structure and EC applications and must be considered.
order to gain approval for them. For further discussion, see The major reasons that companies invest in IT and EC are
TeamQuest (2014). to improve business processes, lower costs, increase produc-
Note that in some cases, following the competitors is a tivity, increase customer satisfaction and retention, increase
major reason to embark on EC projects. In such cases, you revenue and market share, reduce time-to-market, and gain a
still need to do a formal justification, but it may be more of a competitive advantage.
qualitative in nature.

How Is an EC Investment Justified?
Other Reasons Why EC Justification Is Needed
Justifying an EC investment means comparing the costs of
The following are some additional reasons for conducting each project against its benefits in what is known as a cost–
EC justification: benefit analysis.