Online File W2.1 Examples of Digital Products - Pearsonwps.prenhall.com/wps/media/objects/8362/8562891/additional_online/... · reservations growth and dynamic content management

Chapter Two: E-Marketplaces: Mechanisms, Tools, and Impacts of E-Commerce 2-1

Online File W2.1 Examples of Digital Products

1. Information and entertainment products:◗ Paper-based documents: Books, newspapers, magazine journals, store coupons, marketing brochures, newsletters,

research papers, and training materials◗ Product information: Product specifications, catalogs, user manuals, and sales training manuals◗ Graphics: Photographs, postcards, calendars, maps, posters, and X-rays◗ Audio: Music recordings, speeches, and lectures◗ Video: Movies, television programs, and video clips◗ Software: Programs, games, and development tools

2. Symbols, tokens, and concepts:◗ Tickets and reservations: Airlines, hotels, concerts, sports events, and transportation◗ Financial instruments: Checks, electronic currencies, credit cards, securities, and letters of credit

3. Processes and services:◗ Government services: Forms, benefits, welfare payments, and licenses◗ Electronic messaging: Letters, faxes, and telephone calls◗ Business-value-creation processes: Ordering, bookkeeping, inventorying, and contracting◗ Auctions, bidding, and bartering◗ Remote education, telemedicine, and other interactive services◗ Cybercafes, interactive entertainment, and virtual communities

2-2 Part 1: Introduction to E-Commerce and E-Marketplaces

The ProblemRaffles Hotel, one of Singapore’s colonial-era landmarks,is part of a worldwide group of luxury and business hotels.Raffles Hotel operates in a very competitive environment.To maintain its world-renowned reputation, the hotel sparesno effort on every facet of its operation. The success of thegroup and each of its hotels depends on the group’s ability toattract customers to its hotels and facilities and on its abilityto contain costs. The group also operates the Swissôtel brandof hotels worldwide. Both the Raffles and Swissôtel brandsshare a reservation system.

The SolutionTo maintain its image and contain costs, Raffles mustaddress two types of issues—B2C and B2B. On the B2C side,Raffles maintains a diversified corporate portal, raffles.com,that introduces customers to the company and its services.The portal includes information on the hotels, a reservationsystem, links to travelers’ resources, a CRM program, and anonline store for Raffles products. The Web site capitalizes onthe underlying qualities of the luxurious Raffles Hotel prod-uct to communicate to the online audience. It has a clearlydefined and well-constructed navigation that integrates thebrand-level site with the individual hotel Web sites.

The Web site uses an architecture with logical and con-sistent navigational tiers, which has proven to be a highlysuccessful approach. Based on the individual hotel strategy,product mix, and target audience, the Web site navigationreflects the multi-tiered navigation structure. Each tier rep-resents an order of authority that helps lay out the organi-zation of the Web site. The tiered structure moves userscomfortably and easily toward a set of services, includingthe reservation process. This helps to focus on incrementalreservations growth and dynamic content management.

The Web site has an integrated online reservation systemthat provides bookers with an instant online booking facility.One section of the site, Raffles Direct, is designed to providethe corporate market with a user-friendly tool to book withtheir negotiated rates online. The strategic focus of using theInternet as a key driver for distribution is based on its beingthe ultimate direct-to-consumer distribution medium. Itconforms to the lowest cost and most inexpensive method todistribute hotel room inventory. A direct-to-consumer modelprovides long-term competitive advantages. It decreasesdependence on intermediaries, discounters, and traditionalchannels that are slowly becoming obsolete.

The Web site has recently been updated with improvedbooking functionalities and new interactive features. The siteincludes information in multiple languages to leverage thefast-growing Internet booking trends in some of the company’skey markets.

On the B2B side, in 2006 hospitalitybox.com, an e-marketplace for the hospitality and service industry, was set

up with a few strategic partners to offer a solution to stream-line the procurement process and enable the hospitality andservice organizations to reduce costs across the supply chain byeliminating inefficiencies. The portal offers product and servicesourcing, negotiation, selection, ordering, fulfillment, payment,and reporting. Buyers and suppliers have real-time access tobusiness intelligence to assist in the successful and efficientmanagement of their procurement and supply operations. Allprocurement activities are deployed through the HospitalityBoxdata center, so users do not need to purchase or lease any newhardware or software. Buyers use online catalogs of more than30,000 products and services, including office stationery, laun-dry and cleaning products, and perishable goods, and submitorder requests via a standard Web browser. User organizationsincur considerable cost savings, because the portal aggregatesorders through strategic partnerships with major suppliers andservice providers. Procurement negotiations now take placeonline. Buyer–seller relationships have been strengthened bythe private, online marketplace.

The ResultsIncreased bookings through Raffles’ proprietary Web sitesresulted in a strong growth of 77 percent in rooms revenue fromthis channel, exceeding both 2004’s strong growth of 64 percentand the industry-wide 2004 Internet growth rate of 32 percent(as reported by TravelCLICK in its 2004 eTRAK report).

By 2005, the global portal community consisted ofmore than 5,900 organizations. Annually, more than 470,000purchase-order transactions worth more than $100 millionare accrued. Forty-two active buying organizations includinghotels, offices, and retailers from around the world providemore than $1 million in savings. The portal also generatesregular reports for buyers, showing savings gained from thiscompetitive pricing model. Buyers and sellers garnerimprovements by using technology to increase productivityper human capital, linking to supply chain solutions throughthe Internet, increasing inventory management, procurementoperations, and B2B collaboration in a knowledge-basedenvironment. The hotel was purchased in 2006 by an invest-ment group that has made it the second-largest luxury hotelchain in the world.

Questions1. Identify the e-marketplaces in this case.

2. List all the EC mechanisms used by Raffles and howthey are used.

3. What other EC mechanisms would you recommend toRaffles?

4. List the EC business models used by the company.

5. List the type of transactions conducted by Raffles.

ONLINE FILE W2.2Application Case

HOW RAFFLES HOTEL IS CONDUCTING E-COMMERCE


REFERENCES FOR ONLINE FILE W2.2Raffles.com. raffles.com (accessed September 2006).TravelCLICK. “Major Hotel Chains Grew Internet

Reservations by 24 Percent 2004 YTD.” Hotelonline.com,January 24, 2005. hotel-online.com/News/PR2005_1st/Jan05_eTRAK.html (accessed September 2006).

Wikipedia. “Raffles Hotel.” 2006. en.wikipedia.org/wiki/Raffles_Hotel (accessed August 2006).


NTE EXCHANGEThe hauling industry is not very efficient. Though trucks arelikely to be full on outbound journeys, they are often emptyon the way back. (About 50% of the trucks on America’sroads at any one time are not full.) National TransportationExchange (NTE) attempted to solve this problem.

NTE (nte.net) used the Internet to connect shipperswho have loads they want to move cheaply with fleet man-agers who have space to fill. NTE helps create a spot market(a very short-term or one-time job market) by setting dailyprices based on information from several hundred fleetmanagers about the destinations of their vehicles and theamount of space they have available. (Such a spot marketdiffers from repetitive arrangements that are negotiatedand secured by a long-term contract.) NTE also obtainedinformation from shippers about their needs and flexibilityin dates. It then works out the best deals for the shippersand the haulers. When a deal was agreed upon, NTE issuedthe contract and handled payments. The entire process tookonly a few minutes. NTE collected a commission based onthe value of each deal; the fleet manager received extrarevenue that the company would otherwise have missed outon; and the shipper got a bargain price, at the cost of someloss of flexibility.

When NTE was first set up in 1995, it used a proprietarynetwork that was expensive and that limited the number of

buyers and sellers who could connect through it. By usingthe Internet, NTE was able to extend its reach down to thelevel of individual truck drivers and provide a much widerrange of services. Drivers could also use wireless Internetaccess devices to connect to the NTE Web site on the road.

In 2001, NTE expanded its services to improve inventorymanagement, scheduling, and vendor compliance along theentire supply chain. NTE’s software was integrated with itscustomers’ operations and systems. The company also offeredsuch value-added services as insurance, performance report-ing, and customer care.

As of 2009, NTE’s core competencies include Web exper-tise, many-to-many collaboration, transaction management,rules-based execution (particular to each customer’s needs),and superb customer service. NTE has changed its businessmodel to software provider. The original site is no longeravailable.

Questions1. What type of transaction was done at NTE? What type

of business model did NTE use?

2. What were the benefits of NTE’s services to truckers? Toshippers?

REFERENCES FOR ONLINE FILE W2.3Arena.com. ph.com/globalbusiness/business.aspx?gid=158

(accessed May 2009).Davidson, J. “Driving Logistics Online Markets.” 2001.

nte.net/dynamic/articles/TW0401.pdf (no longeravailable online).

The Economist. “Business and the Internet.” The Economist,June 26, 1999.

Nte.net. nte.net (accessed September 2006).


Online File W2.4 Infomediaries and the Information Flow Model

Information Flow

Flow of Products/Services

BuyersSellers

Infomediary Services• Matching• Search/complexity• Privacy• Informational• Infrastructural• Content• Community

Informationon Productsand Services

BuyerInformation

Infomediary Services• Matching• Search/complexity• Privacy• Informational• Infrastructural• Content• Community

Revenue from Sellers• Advertising• Transactions• Membership/subscription fee

Revenue from Buyers• Membership/subscription fee• Transactions• Fee for services

Infomediaries

Source: Grover, V., and J. Teng, “E-Commerce and the Information Market.” Communications of the ACM © 2001 by ACM Inc.


Online File W2.5 Limitations of Direct Seller–Buyer Interactions of Infomediaries

1. Search costs. It may be expensive for providers and consumers to find each other. In electronic marketplaces, thou-sands of products are exchanged among thousands of vendors and millions of consumers. Producers may have troubleaccurately gauging consumer demand for new products; many desirable items may never be produced simply becauseno one recognizes the demand for them. Some intermediaries maintain databases of customer preferences, and theycan predict demand and reduce search costs by selectively routing information from providers to consumers and bymatching customers with products and/or services.

2. Lack of privacy. Either the buyer or seller may wish to remain anonymous or at least protect some informationrelevant to a trade. Intermediaries can relay messages and make pricing and allocation decisions without revealingthe identity of one or both parties.

3. Incomplete information. The buyer may need more information than the seller is able or willing to provide, such asinformation about product quality, competing products, or customer satisfaction. An intermediary can gather productinformation from sources other than the product provider, including independent evaluators and other customers.Many third-party Web sites provide such information (e.g., bizrate.com, mysimon.com, and consumerguide.com).

4. Contract risk. A consumer may refuse to pay after receiving a product, or a producer may provide inferior products orgive inadequate postpurchase service. Intermediaries have a number of tools to reduce such risks. First, the broker candisseminate information about the past behavior of providers and consumers. The threat of publicizing bad behavioror removing a seal of approval may encourage both producers and consumers to meet the broker’s standard for fairdealing. Or the broker may accept responsibility for the behavior of parties in transactions it arranges and act as a“policeman” on its own. Third, the broker can provide insurance against bad behavior. The credit card industry usesall three approaches to reduce providers’ and consumers’ exposure to risk.

In the online auction arena or when you buy expensive items or buy from an unknown seller, some companies actas escrow agencies, accepting and holding payment from the buyer while the seller completes delivery of the productor service to the escrow agency. Then, if the product is satisfactory, the agency releases payment to the seller and theproduct to the buyer.

5. Pricing inefficiencies. By jockeying to secure a desirable price for a product, providers and consumers may missopportunities for mutually desirable trades. This is particularly likely in negotiations over unique or custom products,such as houses, and in markets for information products and other public goods where freeloading is a problem.Intermediaries can use pricing mechanisms that induce just the appropriate trades—for example, dealing with animbalance of buy and sell orders in stock markets.

For a study on how different strategies of intermediation affect the efficiency of electronic markets, see Yarom et al. (2003).For a study on how intermediaries manipulate pricing as well as information access, see Gaudeul and Jullien (2007).

REFERENCES FOR ONLINE FILE W2.5Gaudeul, J., and B. Jullien. “E-Commerce, Two-Sided

Markets and Info-Mediation.” In E. Brousseau andN. Curien (Eds.). Internet and Digital Economics.Cambridge, UK: Cambridge University Press, 2007.

Yarom, I., J. S. Rosenschein, and C. V. Goldman. “The Roleof Middle-Agents in Electronic Commerce.” IEEEIntelligent System, November/December 2003.



ELECTRONIC CATALOGS AT OFFICEMAXBoise Cascade Office Products, now a part of OfficeMax(officemaxsolutions.com), is a $5 billion office productswholesaler and retailer. Its B2B customer base includes morethan 100,000 large corporate customers and 1 million smallones, as well as individuals. The company’s 900-page papercatalog used to be mailed to customers once each year.Throughout the year, Boise also sent mini-catalogs tailoredto customers’ individual needs based on past buying habitsand purchase patterns. The company sells more than 200,000different items and has a global reach, allowing it to servemultinational companies.

In 1996, the company placed its catalogs online. Nowcustomers view the catalog at officemaxsolutions.com andcan order straight from the site or submit orders by e-mail.The orders are shipped the next day. Customers are thenbilled. In 1997, the company generated 20 percent of itssales through the Web site. In early 1999, the figure wasmore than 30 percent. The company acknowledges that itsInternet business is the fastest-growing segment of itsbusiness. By 2004, the majority of sales were made via theInternet.

Boise prepares thousands of individualized catalogs forits largest customers. As of 2002, the company has been

sending paper catalogs only when specifically requested.As indicated earlier, the vast majority of customers use theonline catalogs. It used to take about 6 weeks to produce asingle paper customer catalog, primarily because of the timeinvolved in pulling together all the data. Now the process ofproducing a Web catalog that is searchable, rich in content,and available in a variety of formats takes only 1 week.

One major advantage of B2B customized catalogs ispricing. If everyone has the same catalog, you cannot showthe customized price for each buyer, which is based on thecontract the customer signed and on the volume of goodsbeing purchased.

Boise estimates that electronic orders cost approximately55 percent less to process than paper-based ones. As of 2005,Boise sells to small companies and individuals under theOfficeMax brand (OfficeMax is a Boise company).

Questions1. What are the advantages of the electronic catalog to

Boise Cascade? To its customers?

2. What are the advantages of customized catalogs?

REFERENCES FOR ONLINE FILE W2.6Boise Cascade Office Products. boiseoffice.com/about/

ecommerce.shtm (no longer available online).Netscape Customer Profiles. wp.netscape.com/solutions/

business/profiles/boisecascade.html (no longer availableonline).

Internet Retailer. “OfficeMax Drives Up Conversions AfterRedesigning Site with Customer Input.” February 10,

2006. internetretailer.com/internet/marketing-conference/98725-officemax-drives-up-conversions-after-redesigning-site-customer-input.html (accessedMarch 2009).

OfficeMax. officemaxsolutions.com (accessed March2009).



REVERSE MORTGAGE AUCTIONS IN SINGAPOREHomebuyers like to get the lowest possible mortgage rates.In the United States, Priceline.com (priceline.com) will try tofind you a mortgage if you “name your own price.” However,a better deal may be available to homebuyers in Singapore,where reverse auctions are combined with “group purchasing,”saving about $20,000 over the life of a mortgage for eachhomeowner, plus $1,200 in waived legal fees. DollarDEX(DollarDEX 2004) offers the service in Singapore, Hong Kong,and other countries.

Here is how DollarDEX arranged its first project: Thesite invited potential buyers in three residential propertiesin Singapore to join the service. Applications, includingfinancial credentials, were made on a secure Web site. Then,seven lending banks were invited to bid on the loans. In asecure “electronic room,” borrowers and lenders negotiated.After 2 days of negotiations of interest rates and specialconditions, the borrowers voted on one bank. In the firstproject, 18 borrowers agreed to give the job to UnitedOverseas Bank (UOB), paying about 0.5 percent less thanthe regular mortgage interest rate. The borrowers negotiatedthe waiver of the legal fee as well. From this first project,UOB generated $10 million of business. Today, DollarDEXallows customers to participate in an individual reverseauction if they do not want to join a group.

The banks involved in the auctions can see the offersmade by competitors. Flexibility is high; in addition to interestrates, banks are willing to negotiate down-payment size and

the option of switching from a fixed-rate to a variable-rateloan. On average, there are 2.6 bank bids per customer.

Since summer 2003, in addition to mortgages,DollarDEX offers car loans, insurance policies, and travelservices. It also allows comparisons of mutual funds thathave agreed to give lower front-end fees. It also offersinsurance (including health, motor, home, home content,and SARS insurance). Customers also can choose one ormore unit trusts in which to invest and set up online giftregistries for weddings or specials events and invite friendsto place funds in them. Reports and advice are availableonline as well as face-to-face.

As of 2009, DollarDEX is one of Singapore’s top wealthmanagement companies, with a wide variety of financialproducts partnered with more than 80 brand-name local andglobal banks, fund managers, and insurers (DollarDEX 2009).The company advises and analyzes investments, offersnumerous types of insurance, and are still in the business ofintermediating home loans.

Questions1. How is group purchasing organized at Dollardex.com?

What services are offered?

2. Why does a reverse auction take place?

3. Can this model exist without an intermediary?

REFERENCES FOR ONLINE FILE W2.7DollarDEX. dollardex.com (accessed March 2009).DollarDEX. “DollarDEX Launched Reverse Auction

on Mortgages.” 2004. dollardex.com/SG/index. cfm?

current=../insights/home&type=press&start=640&searchText= (no longer available online).


Online File W2.8 EC Impact on B2C Direct Marketing

◗ Product promotion. The existence of e-marketplaces has increased the promotion of products and services through directmarketing. Contact with customers has become more information rich and interactive. Viral marketing in social networksis on the rise.

◗ New sales channel. Because of the direct reach to customers and the bidirectional nature of communications in EC, a newdistribution channel for existing products has been created.

◗ Direct savings. The cost of delivering information to customers over the Internet results in substantial savings tosenders of messages. Major savings are realized in delivering digitized products (such as music and software) rather thanphysical ones.

◗ Reduced cycle time. The delivery time of digitized products and services can be reduced to seconds. Also, the administrativework related to physical delivery, especially across international borders, can be reduced significantly, cutting the cycle timeby more than 90 percent. One example of this is TradeNet in Singapore, which reduced the administrative time of port-relatedtransactions from days to minutes. Cycle time can be reduced through improvements along the supply chain (e.g., byusing RFID).

◗ Improved customer service. Customer service can be greatly enhanced by enabling customers to find detailed informationonline. For example, FedEx and other shippers allow customers to trace the status of their packages. Also, auto-responders(see Online Tutorial 2 on eCRM) can answer standard e-mail questions in seconds. Finally, human experts’ services can beexpedited using help-desk software.

◗ Brand or corporate image. On the Web, newcomers can establish corporate images very quickly. What Amazon.com andGoogle.com did in just 3 years took traditional companies generations to achieve. A good corporate image facilitatestrust, which is necessary for direct sales. Traditional companies such as Intel, Disney, Toyota (Closing Case, Chapter 4) andWal-Mart use their Web activities to affirm their corporate identity and brand image.

◗ Customization. EC enables customization of products and services. Buying in a store or ordering from a televisionadvertisement usually limits customers to a supply of standard products. Dell is the classic example of customizationsuccess. Today, customers can configure not only computers but also cars, jewelry, shoes, clothes, gifts, and hundredsof other products and services. If done properly, a company can achieve mass customization that provides a compet-itive advantage and increases the overall demand for certain products and services. Customization is changingmarketing and sales activities both in B2C and in B2B.

◗ Advertising. With direct marketing and customization comes one-to-one, or direct, advertising, which can be much moreeffective than mass advertising. Direct advertising creates a fundamental change in the manner in which advertising isconducted, not only for online transactions but also for products and services that are ordered and shipped in traditionalways. As will be shown in Chapter 4, the entire concept of advertising is going through a fundamental change due to EC.

◗ Ordering systems. Taking orders from customers can be drastically improved if it is done online, reducing both processingtime and mistakes. Electronic orders can be quickly routed to the appropriate order-processing site. This process reducesexpenses and also saves time, freeing salespeople to develop marketing plans.

◗ Market operations. Direct e-marketing is changing traditional markets. Some physical markets may disappear, as will theneed to make deliveries of goods to intermediaries in the marketplace. In an e-marketspace, goods are delivered directlyto buyers upon completion of the purchase, making markets much more efficient and saving the cost of the shipment intoand from the brick-and-mortar store.

◗ Accessibility. The ability to access a market anytime from any place (especially with wireless devices) enhances directe-marketing.


Online File W2.9 Impacts of EC on Functional Areas of Organizations

Impacts of build-to-order manufacturing include:

Impacts on ManufacturingEC is changing manufacturing systems from mass production lines to demand-driven, just-in-time manufacturing. Thesenew production systems are integrated with finance, marketing, and other functional systems, as well as with businesspartners and customers.

Build-to-Order ManufacturingBuild-to-order (pull system) is a manufacturing process that starts with an order (usually customized). Once the orderis paid for, the vendor starts to fulfill it. This changes not only production planning and control but also the entiresupply chain and payment cycle. For example, manufacturing or assembly starts only after an order is received. Formore on build-to-order production, see Appendix 2A in Chapter 2. One implementation of build-to-order ispresented next.

Real-Time Demand-Driven ManufacturingSuccessful manufacturing organizations must respond quickly and efficiently to demand. Strategies and techniques ofthe past no longer work, and it is a challenge to transform from the traditional, inventory-centric model to a more prof-itable and flexible demand-driven enterprise. Demand-driven manufacturing (DDM) provides customers with exactly whatthey want, when and where they want it. Effective communication between the supply chain and the factory floor isneeded to make it happen. Partnerships must be focused on reducing costs through shared quality goals, shared designresponsibility, on-time deliveries, and continuous performance reviews. An explanation of the DDM process is providedin Exhibit W2.9.1

Virtual ManufacturingAn interesting organizational concept is that of virtual manufacturing—the ability to run multiple manufacturing plants asthough they were at one location. A single company controls the entire manufacturing process, from the supply of compo-nents to shipment, while making it completely transparent to customers and employees. For example, Cisco works with34 plants globally, 32 of which are owned by other companies. Each of Cisco’s products will look exactly alike, regardlessof where it was manufactured. Up-to-the-minute information sharing is critical for the success of this mass-customizationapproach.

Assembly LinesCompanies such as IBM, General Motors, General Electric, and Boeing assemble products from components that are manu-factured in many different locations, even different countries. Subassemblers gather materials and parts from their ven-dors, and they may use one or more tiers of manufacturers. Communication, collaboration, and coordination are critical insuch multi-tier systems. Using electronic bidding, assemblers acquire subassemblies 15 to 20 percent cheaper than beforeand up to 80 percent faster. Furthermore, such systems are flexible and adaptable, allowing for fast changes with minimumcost. Also, costly inventories that are part of mass-production systems can be minimized. Finally, as seen in the Boeingcase (Chapter 1), the system encourages suppliers to contribute innovative ideas.

According to Blecker (2006), Internet technologies in the future will impact the shop floors in isolated islands offactories in real time. Internal communication and collaboration systems will interconnect automation, such as a singlemachine, or an assembly line, increasing productivity, speed, and quality.

Impacts on Finance and AccountingE-markets require special finance and accounting systems. Most notable of these are electronic payment systems(Chapter 11). Traditional payment systems may be ineffective or inefficient for electronic trade. The use of new paymentsystems such as electronic cash is complicated because legal issues and agreements on international standards areinvolved. Nevertheless, electronic cash is certain to come soon, and it will change how payments are made. It could alsochange consumers’ financial lives and shake the foundations of financial systems.

Executing an electronic order triggers an action in what is called the back office. Back-office transactions include buyers’credit checks, product availability checks, order confirmations, changes in accounts payable, receivables, billing, and muchmore. These activities must be efficient, synchronized, and fast so that the electronic trade will not be slowed down. Anexample of this is online stock trading. In most cases, orders are executed in less than 1 second, and the trader can find anonline confirmation of the trade immediately.

(continued)


EXHIBIT W2.9.1 Real-Time Demand-DrivenManufacturing (DDM) Activities

Connect With the advantage of a robust supplier relationship management (SRM)system, manufacturers can communicate with certified suppliers toarrange the flow of supplies right into production lines based on demand.Inventory is reduced and unnecessary transactions are eliminated,increasing profitability and efficiency.

Adapt Employees and production lines are much more flexible in a DDM envi-ronment. Proactive machine maintenance prevents line disruptions, andresponse time can be improved by as much as 70 percent. Factories cancarry less inventory, and productivity is increased.

Respond It is necessary to know the customers and respond to their demographicand other changes with CRM.

Suppliers Certified suppliers can deliver parts straight to the point of need on theplant floor, resulting in fewer transactions, smaller inventory levels, andgreater efficiency. Procurement and supply chain management are simplified.

Human resources In addition to payroll, benefits, and safety, HR manages employee improve-ment and training. Factories pay for training so that workers who are skilledare better compensated. The factory is also more flexible when staffed withmultiskilled workers.

Accounting Accounting is responsible for billing and paying for orders coming in andgoing out and for reconciling cost pools among product families.

Transactions Material movements and storage do not add value. Transactions occur onlywhen material is pulled to the factory floor and when products are shipped.

Kanban Suppliers deliver components and lines make products only when theyreceive a Kanban, a visual pull signal that some part is needed. Responseis quick, overproduction is avoided, stock levels are kept low, and over-head is reduced.

Backflush All transactions are greatly simplified as RFID sensors detect finished productsas they reach the end of the line, automatically sending a signal that relievesinventory in the DDM system.

Storeroom The storeroom is used only to hold raw materials from uncertified suppliers sothat materials can be quality checked before moving to the production lines.

Strategic planning Line design and capacity must be flexible. Better use of people andmachines in response to customer demands ensures continuous produc-tivity and profitability.

Engineering When even the tiniest part of a complex assembly changes, many otherparts can be affected. Engineering ensures that all plans and products areupdated when they should be.

Customer service Customer service representatives link the customers to the manufacturer bypassing along orders, complaints, and service information so that the prod-ucts, plants, and employees can be modified to better serve the customer.

Online File W2.9 (continued)

One of the most innovative concepts in accounting and finance is the “virtual close,” which would allow companies toclose their accounting records, or “books,” within a day. This Cisco Systems project is described in Online File W2.9.1. Formore on impacts of EC on the financial services industry, see Malhotra and Malhotra (2006).

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ONLINE FILE W2.9.1Application Case

CISCO’S VIRTUAL CLOSECisco Systems, the company that supplies the vastnetworks that connect computers to the Internet, isusing technology to develop a product, Virtual Close,with which a company can close its accounting records(its “books”) more quickly. This will be done by con-necting the accounting and financial records of anentire company, even one with operations in dozens ofcountries, via an intranet. Cisco’s infrastructure willpermit information sharing almost instantly.

Cisco is implementing such a system for itself.Closing the quarterly accounts used to take up to10 days. Within 4 years, the chief financial officerworked the close down to 2 days (and significantly cutits cost). Cisco achieved its goal within 5 years: Itnow closes its books at the end of the quarter, themonth, and the year by noon the next day.

The advantages for Cisco and any other companythat uses Virtual Close are as follows:

◗ It provides strategic advantage to corporations,enabling them to make better decisions.

◗ Companies can become proactive, spotting problemsat any time, instead of just once a quarter. Problemsthat would otherwise have remained unseen for

months can be quickly addressed and their damageminimized.

◗ New opportunities can be detected early, allowingcompanies to exploit them quickly.

◗ Virtual Close will enable quick “drill-down” analysis,which locates the causes of either poor or excellentperformance.

◗ It will bring huge productivity gains related to corporatefinancial reporting.

Implementing Virtual Close in a large company isa lengthy process that may end in failure due to theproject’s complexity. However, not implementing itmight result in a competitive disadvantage.

Sources: Cisco.com (2009), Hartman (2004), and Moore (2005).

Questions1. What are the advantages of a virtual close?

2. How can Cisco benefit, as a vendor, from market-ing this concept?

3. Is this EC? Why or why not?



Impact on Human Resources Management and TrainingEC is changing how people are recruited (see Chapter 3), evaluated, promoted, and developed. EC also is changing the waytraining and education are offered to employees. Online distance learning is exploding, providing opportunities that neverexisted in the past. Companies are cutting training costs by 50 percent or more, and virtual courses and programs aremushrooming (see Chapter 7).

New e-learning systems offer two-way video, on-the-fly interaction, and application sharing. Such systems provide forinteractive remote instruction systems, which link sites over a high-speed intranet. At the same time, corporations arefinding that e-learning may be their ticket to survival as changing environments, new technologies, and continuouslychanging procedures make it necessary for employees to be trained and retrained constantly, a process known as e-HumanResources. EC systems are revolutionizing human resources (HR) operations (see Exhibit W2.9.2).

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EXHIBIT W2.9.2 Comparison of Traditional HR with E-HR

Key HR Process Traditional HR E-HRAcquiring Human ResourcesRecruitment and selection • Paper resumes and paper postings • Electronic resumes and Internet

• Positions filled in months postings• Limited by geographical • Positions filled in weeks or days

barriers • Unlimited access to globalapplicants

Selection • Costs directed at attraction • Costs directed at selection• Manual review of resumes • Electronic review of resumes• Face-to-face (ftf) process (scanning)

• Some distance interviewing (still ftf)Rewarding Human ResourcesPerformance evaluation • Supervisor evaluation • 360-degree evaluation

• Face-to-face evaluation • Appraisal software (online andhard copy)

Compensation and benefits • Time spent on paperwork • Time spent on assessing market(benefits changes) salaries

• Emphasis on salary and bonuses • Emphasis on ownership and• Naïve employees quality of life• Emphasis on internal equity • Knowledgeable employees• Changes made by HR • Emphasis on external

equity• Changes made by employees

onlineDeveloping Human ResourcesTraining and development • Standardized classroom training • Flexible online training

• Development process is HR driven • Development process is employee driven

Career management • HR lays out career paths for • Employees manage their careersemployees with HR

• Reactive decisions • Proactive planning with • Personal networking (local area technology

only) • Electronic and personalnetworking



Key HR Process Traditional HR E-HRProtecting Human ResourcesHealth and safety • Building and equipment safety • Ergonomic considerations

• Physical fatigue • Mental fatigue and wellness• Mostly reactive programs • Proactive programs to reduce stress• Limited to job-related stressors • Personal and job-related stressors

• Focus on employee–employee relations

Employee relations/legal • Focus on employee–management • Weaker union presencerelations • Intellectual property/data security

• Stronger union presence • Inappropriate uses of technology • Equal employment opportunity • Use of technology monitoring/• Sexual harassment/discrimination Big Brother• Task performance monitoring

Retaining Human ResourcesRetention strategies • Not a major focal point • Currently the critical HR activity

• Online employee opinion surveys• Cultivating an effective company

culture• Mundane tasks done by technology,

freeing time for more interesting work

Work–family balance • Not a major focal point • Development and monitoring ofprograms

• Providing childcare and eldercare• Erosion of work–home boundaries

REFERENCES FOR ONLINE FILE W2.9Blecker, T. “Internet Technologies in Factory Automation.”

In M. Khosrow-Pour (Ed.). Encyclopedia of E-Commerce,E-Government, and Mobile Commerce. Hershey, PA: IdeaGroup Reference, 2006.

Cisco. “Corporate Overview.” newsroom.cisco.com/dlls/company_overview.html (accessed March 2009).

Ensher, E. A., T. Nielson, and E. Grant-Vallone. “Talesfrom the Hiring Line.” Organizational Dynamics,October–December 2002, Table 1, p. 240. Copyright(2006), with permission from Elsevier.

Hartman, A. Ruthless Execution. Upper Saddle River, NJ:Prentice Hall, 2004.

Malhotra, R., and D. K. Malhotra. “The Impact of Internetand E-Commerce on the Evolving Business Models inthe Financial Services Industry.” International Journal ofElectronic Business, 4, no. 1 (2006).

Moore, G. Dealing with Darwin. New York: PenguinGroup, 2005.

Strohmeier, S. “Research in e-HRM: Review andImplications.” HRM Review, 17, no. 1 (2007).

Source: Reprinted from Organizational Dynamics, October–December 2002, Eshner et al., “Tales from the Hiring Line,” Table 1,p. 240. Copyright (2006), with permission from Elsevier.

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