Advantages and Disadvantages of Electronic Communication
Technology in Modern Communication
Communication is needed for decision-making, coordination, control, and planning. Communication is required for processing information in the accounting department, finance department, personnel department, establishment, of public relations, sales department, market research, production department, purchase department etc. Communication with the government, shareholders, and prospective investors, customers etc. is also required for the day to day functioning of the business concern. The conventional process of communication is not sufficient to meet the multidimensional needs of the firm enterprises. So, the need for modern communication technology emerges to meet the desired need of modern business operations. Worldwide communication has been facilitated by the electronic transmission of data which connects individuals, regardless of geographic location, almost instantly.
Definition of Electronic Communication
Communication using electronic media known as electronic communication. Such communication allows transmission of message or information using computer systems, fax machine, e-mail, title or video conferencing and satellite network. People can easily share conversation, picture, image, sound, graphics, maps, interactive software and thousands of things for the development of electronic communication. Due to electronic technology, jobs, working locations and cultures are changing, and therefore people can easily access to worldwide communication without any physical movement.
L.C. Bovee and Others said, “Electronic communication is the transmission of information using advanced techniques such as computer moderns, facsimile machines, voice mail, electronic mail, teleconferencing, video cassettes, and private television networks.”
Advantages of Electronic Communication
The following points highlight on the advantages of electronic communication:
1. Speedy transmission: It requires only a few seconds to communicate through electronic media because it supports quick transmission.
2. Wide coverage: World has become a global village and communication around the globe requires a second only.
3. Low cost: Electronic communication saves time and money. For example, Text SMS is cheaper than the traditional letter.
4. Exchange of feedback: Electronic communication allows the instant exchange of feedback. So communication becomes perfect using electronic media.
5. Managing global operation: Due to the advancement of electronic media, business managers can easily control operation across the globe. Video or teleconferencing e-mail and mobile communication are helping managers in this regard.
Disadvantages of Electronic Communication
Electronic communication is not free from the below limitations:
1. The volume of data: The volume of telecommunication information is increasing at such a fast rate that business people are unable to absorb it within the relevant time limit.
2. The cost of development: Electronic communication requires huge investment for infrastructural development. Frequent change in technology also demands further investment.
3. Legal status: Data or information, if faxed, may be distorted and will cause zero value in the eye of law.
4. Undelivered data: Data may not be retrieved due to system error or fault with the technology. Hence required service will be delayed
5. Dependency: Technology is changing every day, and therefore developing countries face the problem as they cannot afford the new or advanced technology. Therefore developing countries need to be dependent towards developed countries for sharing global network.
XXX . V0 Modern Finance Theory
This timely text examines the role that financial markets and institutions play in modern macroeconomics. Over the last couple of decades there has been a fair amount of research on microeconomic models of market failure and the impact of such failures on business cycles and other macroeconomic phenomena. the importance of having efficient financial markets in achieving economic growth, and the constraints on growth in the absence of a working financial system.
Outcomes are easy to measure in financial markets: you either beat the index or you don’t. And the results could not be clearer about how few people possess any real skill.
Experts, not traders, would set the prices of the securities in the marketplace. “The time seems to be ripe for the publication of elaborate monographs on the investment value of all the well-known stocks and bonds listed on the exchanges,” he wrote. “The last word on the true worth of any security will never be said by anyone, but men who have devoted their whole lives to a particular industry should be able to make a better appraisal of its securities than the outsider can.”
Williams’s new science of investing featured the now-familiar dividend discount model. In short, this model quantifies the idea that the investment value of a security is equal to “the present worth of the expected future dividends.”7 Williams laid this out in simple formula form:
Armed with this formula and a desired rate of interest, investors needed only a way to forecast future dividends. Williams believed he had a straightforward solution. The investor should “make a budget showing the company’s growth in assets, debt, earnings, and dividends during the years to come.”8 Rather than using an accountant’s ledger book, however, Williams proposed that investors use algebraic formulas instead. Williams believed that growth could be modeled using a logarithmic curve:
With this logarithmic model for growth (the familiar “S-curve” that Bain & Company consultants so dearly love) and a few additional formulas to provide the “terminal value” once competitive forces had stalled growth, Williams believed the true value of a company could be determined.
Combining a company’s budget with these new algebraic formulas offered an approach that Williams believed was “altogether new to the accountant’s art.” Williams grew almost giddy with excitement contemplating the beauty of his new technique. “By the manipulation of algebraic symbols, the warp of development is traced through the woof of time with an ease unknown to ordinary accounting.”9 One can only imagine what literary metaphors might decorate Williams’s prose had he lived to see the modern Excel model!
Yet as he waxed philosophical about the new art of algebraic accounting, Williams acknowledged that some might be skeptical of the supposed ease of his method. “It may be objected that no one can possibly look with certainty so far into the future as the new methods require and that the new methods of appraisal must therefore be inferior to the old,” he wrote. “But is good forecasting, after all, so completely impossible? Does not experience show that careful forecasting—or foresight as it is called when it turns out to be correct—is very often so nearly right as to be extremely helpful to the investor?”10
Williams acknowledged this key limitation of his model—uncertainty about the future. But this, he argued, was a problem for others, not the fault of his beautiful mathematical models. “If the practical man, whether investment analyst or engineer, fails to use the right data in his formulas, it is no one’s fault but his own,” he wrote.11
Williams’s theories had grown out of the chaos of the Crash of 1929, and he retained a pessimism about the “practical men” that were his contemporaries. “Since market price depends on popular opinion, and since the public is more emotional than logical, it is foolish to expect a relentless convergence of market price towards investment value,” he wrote.12
But the generation of finance researchers emerging after World War II was more optimistic. The success of American industry—and American science—in defeating the Nazis inspired confidence in a new generation of researchers who believed that better math and planning could change the course of human affairs.
Markowitz, Sharpe, and the Capital Asset Pricing Model
Harry Markowitz was one of these men. Born in 1927, a teenager during the war, he studied economics at the University of Chicago in the late 1940s. After Chicago, Markowitz researched the application of statistics and mathematics to economics and business first at the Cowles Commission and then at the RAND Corporation. He was at the epicenter of the new wave of technocratic, military-scientific planning institutes.Markowitz understood the key problem with Williams’s ideas. “The hypothesis (or maxim) that the investor does (or should) maximize discounted return must be rejected,” he wrote in his 1952 paper.13 “Since the future is not known with certainty, it must be ‘expected’ or ‘anticipated’ returns which we discount.”
Without accounting for risk and uncertainty, Markowitz observed, Williams’s theory “implies that the investor places all his funds in the security with the greatest discounted value.”14 This defied common sense, however, and so Markowitz set out to update Williams’s theory. “Diversification is both observed and sensible; a rule of behavior which does not imply the superiority of diversification must be rejected both as a hypothesis and as a maxim,” he argued.15
Markowitz’s explanation for why diversification was both observed and sensible was that investors care about both returns and about “variance.” By mixing together different securities with similar expected returns, investors could reduce variance while still achieving the desired return. Investors, he believed, were constantly balancing expected returns with expected variance in building their portfolios.
The logical next step in this argument was that the prices of different assets should have a linear relationship to their expected variance to maintain a market equilibrium where one could only obtain a higher return by taking on a higher amount of variance. This was the logic of the Capital Asset Pricing Model developed by Markowitz’s student William Sharpe.
Sharpe’s Capital Asset Pricing Model was meant as “a market equilibrium theory of asset prices under conditions of risk.”16 He believed that “only the responsiveness of an asset’s rate of return to the level of economic activity is relevant in assessing its risk. Prices will adjust until there is a linear relationship between the magnitude of such responsiveness and expected returns.”17 Sharpe measured responsiveness by looking at each security’s historical variance relative to the market, which he labeled its beta.
To be sure, not everyone from Williams’s era was so enthusiastically enamored with the prospect of experts planning the appropriate pricing of investments. At the same time as Williams was completing his 1937 dissertation, Friedrich Hayek was attacking this type of planning mindset. If society were turned over to experts and planners, he wrote:
change will be quite as frequent as under capitalism. It will also be quite as unpredictable. All action will have to be based on anticipation of future events and the expectations on the part of different entrepreneurs will naturally differ. The decision to whom to entrust a given amount of resources will have to be made on the basis of individual promises of future return. Or, rather, it will have to be made on the statement that a certain return is to be expected with a certain degree of probability. There will, of course, be no objective test of the magnitude of the risk. But who is then to decide whether the risk is worth taking?18Alas, it would be another forty years before the notion of state planning by experts generally fell out of fashion and Hayek was given the Nobel Prize for his 1940s era work on price discovery in the broader field of economics. It is enough to note for our purposes that in financial economics many of the hangovers of the Williams/Markowitz/Sharpe era, and its religious faith in algebraic calculations and experts’ forecasting power, lasted well beyond the nightmare of the 1970s.
The Empirical Invalidation of Modern Finance Theory
The intellectual history of modern finance theory thus followed a simple logical flow. A stock is worth the net present value of future dividends. But investors must not only care about expected return—otherwise they would put all their money in one stock—they must also care about the variance of their investment portfolios. If investors want to maximize expected return and minimize expected variance, then expected variance should have a linear relationship with expected return.This is the core idea: combining a forecast of future cash flows with an assessment of future variance based on the historical standard deviation of a security’s price relative to the market should produce an “equilibrium” asset price.
Williams, Markowitz, and Sharpe were all brilliant men, and their models have a certain mathematical elegance. But there is one big problem with their theoretical work: their models don’t work. The accumulated empirical evidence has invalidated nearly every conclusion they present.
Robert Shiller won the Nobel Prize for conclusively proving that the dividend discount model was a failure. In a paper for the Cowles Commission thirty years after Markowitz’s work was published, Shiller took historical earnings, interest rates, and stock prices, and calculated the true price at every moment of every stock in the market with the benefit of perfect hindsight. He found that doing this could explain less than 20 percent of the variance in stock prices. He concluded that changes in dividends and discount rates could “not remotely justify stock price movements.”
Below is a graph showing the actual future value of earnings discounted back at the actual interest rates relative to the actual stock market index over time. As you can see, the stock market index is far more volatile than could possibly be explained through the dividend discount model.
Future earnings and interest rates do not explain stock price movements as Williams thought they would. Variance also fails to explain stock prices, as Markowitz and Sharpe thought they would.
In a review of forty years of evidence, Nobel Prize winner Eugene Fama and his research partner Ken French declared in 2004 that the Capital Asset Pricing Model (CAPM) was bunk: “despite its seductive simplicity, the CAPM’s empirical problems probably invalidate its use in applications.”19 These models fail because they assume predictability: they assume that it is possible to forecast future dividends and future variance by using past data.
The core prediction of the model—that stocks with higher price volatility should produce higher returns—has failed every empirical test since 1972. Below is a graph from Fama and French showing CAPM’s predictions relative to reality.
A New Philosophy of Unpredictability
So what is the alternative? A philosophy based on unpredictability. As we have seen time and time again, experts cannot predict the future. The psychologist Philip Tetlock ran a twenty-year-long study in which he picked 284 experts on politics and economics and asked them to assess the probability that various things would or would not come to pass.20 By the end of the study, in 2003, the experts had made 82,361 forecasts. They gave their forecasts in the form of three possible futures and were asked to rate the probability of each of the three. Tetlock found that assigning a 33 percent probability to each possible alternative future would have been more accurate than relying on the experts.Think back to 2016: The experts told us that Brexit would never happen. They told us that Trump would never win the Republican primary, much less the general election. In both cases, prominent academics and businessmen warned of terrible consequences for financial markets (consequences that, of course, never came to pass). These are only two glaring examples of the larger truth Tetlock has identified: experts are absolutely terrible when it comes to predicting the future.
Stanford economist Mordecai Kurz argues that there are a variety of rational interpretations of historical data that lead to different logical predictions about the future (just think of all the different analysts and researchers currently putting out very well-researched and very well-informed predictions for the price of oil one year from now). But only one of those outcomes will come true, and when the probability of that one outcome goes from less than 100 percent to 100 percent, every other alternative history is foreclosed.21 Kurz has developed a model that explains 95 percent of market volatility by assuming that investors make rational forecasts that future events nevertheless prove incorrect.
The forecast error arises from investors’ inability to accurately predict the future. What looks inevitable in retrospect looks contingent in the moment, the product of what Thomas Wolfe called “that dark miracle of chance that makes new magic in a dusty world.”
In his 1962 classic The Structure of Scientific Revolutions, historian of science Thomas Kuhn posited that scientists rely on simplified models, or paradigms, to understand the observed facts. These paradigms are used to guide scientific enquiry until such enquiry turns up facts that cast these paradigms into doubt. Scientific revolutions are then required to develop new paradigms to replace the old, disproven ones.
The economists Harrison Hong, Jeremy Stein, and Jialin Yu have posited that markets function in a similar way.22 Investors come up with simplified models to understand individual securities. When events unfold that suggest that these simple models are incorrect, investors are forced to revise their interpretation of historical data and develop new paradigms. Stock prices move dramatically to adjust to the new paradigm.
Ever-changing paradigms are necessary because the world is infinitely complex, and forecasting would be impossible without simplification. Think of all of the many things that affect a stock’s price: central bank policy, fund flows, credit conditions, geopolitical events, oil prices, the cross-holdings of the stocks’ owners, future earnings, executive misbehavior, fraud, litigation, shifting consumer preferences, etc. No model of a stock’s price could ever capture these dynamics, and so most investors rely instead on dividend discount models married to investment paradigms (e.g., a growth investor who looks for companies whose growth is underpriced relative to the market combines a paradigm about predicting growth with a dividend discount model that compares the rate of that growth to what is priced into the stock). But both these dividend discount models and these investment paradigms are too simple and are thus frequently proven wrong.
Market volatility results from these forecasting errors in predictable ways that fit with our empirical observations of stock prices. Stock returns are stochastic, rather than linear, reacting sharply to paradigm shifts. High-priced glamour stocks are more apt to experience unusually large negative price movements, usually after a string of negative news. The converse is true for value stocks. As a result, stocks with negative paradigms outperform stocks with positive paradigms because, when those paradigms are proven wrong, the stock prices move dramatically. These empirical truths have been widely validated.23
A more humanistic approach to finance suggests that the most intellectually honest approach—and the most profitable trading strategy—is to bet against the experts. This theory has the benefit of wide empirical support. Consider two natural conclusions that flow from a philosophy of unpredictability: preferring low-cost funds over high-cost funds and preferring contrarian strategies that buy out-of-favor value stocks. Evidence shows that there is a significant negative correlation between expenses paid to management companies and returns for investors.24
In direct contradiction to the capital asset pricing model, value stocks significantly outperform growth stocks.25 Large value stocks outperform large growth stocks by 0.26 percent per month controlling for CAPM, and small value stocks outperform small growth stocks by 0.78 percent per month controlling for CAPM. This is a significant and dramatic difference in return that stems entirely from betting on out-of-favor stocks that the experts dislike, and avoiding the glamorous, in-favor stocks that professional investors like.
These findings are consistent with an assumption of unpredictability. Those who try to predict fail, and the stocks of companies that are predicted to grow underperform the stocks of companies that are predicted not to grow. Growth is simply not predictable.26
Broader Implications
The man who would go on to become the youngest recipient of the Nobel Prize in economics, Kenneth Arrow, began his career during World War II in the Weather Division of the U.S. Army Air Force. The division was responsible for turning out long-range weather forecasts.Arrow ran an analysis of the forecasts and found that his group’s predictions failed to beat the null hypothesis of historical averages. He and his fellow officers submitted a series of memos to the commanding general suggesting that, in light of this finding, the group should be disbanded and the manpower reallocated.
After months of waiting in frustration for a response, they received a terse response from the general’s secretary. “The general is well aware that your division’s forecasts are worthless. However, they are required for planning purposes.”
Finance professionals rely on discounted cash flow models and capital asset pricing assumptions not because they are correct but because they are required for planning purposes. These tools lend social power to the excellent sheep of American society, the conventionally smart but dull and unimaginative strivers: the lawyers of the baby-boom generation and the MBAs of the millennial era.
These managerial capitalists are not trying to remake the world. They are neither craftsmen, pursuing a narrow discipline for the satisfaction of mastering a métier, nor are they entrepreneurs, pursuing bold ideas to satisfy a creative or competitive id. Rather, they are seeking to extract rents from “operating businesses” by taking on roles in private equity or “product management” where their prime value add will be the creation of multi-tab Excel models and beautifully formatted PowerPoint presentations.
Ironically, these theories were invented to avoid bubbles, to replace the volatility of markets with the predictability of an academic discipline. But corporate America’s embrace of empirically disproven theories speaks instead to a hollowness at the core—the prioritization of planning over purpose, of professional advancement over craftsmanship, and rent-seeking over entrepreneurship.
Harvard Business School and the Stanford Graduate School of Business are the Mecca and Medina of this new secular faith. The curriculum is divided between courses that flatter the vanity of the students (classes on leadership, life design, and interpersonal dynamics) and courses that promote empirically invalidated theories (everything with the word finance in the course title). Students can learn groupthink and central planning tools in one fell swoop.
Indeed, the problem of the business schools is so clear that a few clever wags on Wall Street now use the “Harvard MBA Indicator” as a tool to detect bubbles. If more than 30 percent of Harvard MBAs take jobs in finance, it is an effective sell signal for stocks.
Our capitalist economy offers every possible incentive for accuracy and the achievement of excellence. Why do people keep using bad theories that have failed in practice and have been academically invalidated? Not because these theories and methods produce better outcomes for society, but because they create better outcomes for the middle manager, creating a set of impenetrably complex models that mystify the common man and thus assure the value of the expert, of the MBA, of the two-years-at-an-investment-bank savant.
Active investment management does not work for investors because it was not designed to benefit them: it was designed to benefit the managers. The last decade of sclerotic economic growth has shown that, in many cases, corporate management teams are not working to benefit the shareholders, the employees, or anyone other than themselves.
XXX . V00 DEVELOPING NEW BUSINESS MODEL
Developing New Business Models
Most executives assume that creating a sustainable business model entails simply rethinking the customer value proposition and figuring out how to deliver a new one. However, successful models include novel ways of capturing revenues and delivering services in tandem with other companies. In 2008 FedEx came up with a novel business model by integrating the Kinko’s chain of print shops that it had acquired in 2004 with its document-delivery business. Instead of shipping copies of a document from, say, Seattle to New York, FedEx now asks customers if they would like to electronically transfer the master copy to one of its offices in New York. It prints and binds the document at an outlet there and can deliver copies anywhere in the city the next morning. The customer gets more time to prepare the material, gains access to better-quality printing, and can choose from a wide range of document formats that Fed-Ex provides. The document travels most of the way electronically and only the last few miles in a truck. FedEx’s costs shrink and its services become extremely eco-friendly.Some companies have developed new models just by asking at different times what their business should be. That’s what Waste Management, the $14 billion market leader in garbage disposal, did. Two years ago it estimated that some $9 billion worth of reusable materials might be found in the waste it carried to landfills each year. At about the same time, its customers, too, began to realize that they were throwing away money. Waste Management set up a unit, Green Squad, to generate value from waste. For instance, Green Squad has partnered with Sony in the United States to collect electronic waste that used to end up in landfills. Instead of being just a waste-trucking company, Waste Management is showing customers both how to recover value from waste and how to reduce waste.
New technologies provide start-ups with the ability to challenge conventional wisdom. Calera, a California start-up, has developed technology to extract carbon dioxide from industrial emissions and bubble it through seawater to manufacture cement. The process mimics that used by coral, which builds shells and reefs from the calcium and magnesium in seawater. If successful, Calera’s technology will solve two problems: Removing emissions from power plants and other polluting enterprises, and minimizing emissions during cement production. The company’s first cement plant is located in the Monterey Bay area, near the Moss Landing power plant, which emits 3.5 million tons of carbon dioxide annually. The key question is whether Calera’s cement will be strong enough when produced in large quantities to rival conventional Portland cement. The company is toying with a radical business model: It will give away cement to customers while charging polluters a fee for removing their emissions. Calera’s future is hard to predict, but its technology may well upend an established industry and create a cleaner world.
Developing a new business model requires exploring alternatives to current ways of doing business as well as understanding how companies can meet customers’ needs differently. Executives must learn to question existing models and to act entrepreneurially to develop new delivery mechanisms. As companies become more adept at this, the experience will lead them to the final stage of sustainable innovation, where the impact of a new product or process extends beyond a single market.
Creating Next-Practice Platforms
Next practices change existing paradigms. To develop innovations that lead to next practices, executives must question the implicit assumptions behind current practices. This is exactly what led to today’s industrial and services economy. Somebody once asked: Can we create a carriage that moves without horses pulling it? Can we fly like birds? Can we dive like whales? By questioning the status quo, people and companies have changed it. In like vein, we must ask questions about scarce resources: Can we develop waterless detergents? Can we breed rice that grows without water? Can biodegradable packaging help seed the earth with plants and trees?Sustainability can lead to interesting next-practice platforms. One is emerging at the intersection of the internet and energy management. Called the smart grid, it uses digital technology to manage power generation, transmission, and distribution from all types of sources along with consumer demand. The smart grid will lead to lower costs as well as the more efficient use of energy. The concept has been around for years, but the huge investments going into it today will soon make it a reality. The grid will allow companies to optimize the energy use of computers, network devices, machinery, telephones, and building equipment, through meters, sensors, and applications. It will also enable the development of cross-industry platforms to manage the energy needs of cities, companies, buildings, and households. Technology vendors such as Cisco, HP, Dell, and IBM are already investing to develop these platforms, as are utilities like Duke Energy, SoCal Edison, and Florida Power & Light.• • •
Two enterprise wide initiatives help companies become sustainable. One: When a company’s top management team decides to focus on the problem, change happens quickly. For instance, in 2005 General Electric’s CEO, Jeff Immelt, declared that the company would focus on tackling environmental issues. Since then every GE business has tried to move up the sustainability ladder, which has helped the conglomerate take the lead in several industries. Two: Recruiting and retaining the right kind of people is important. Recent research suggests that three-fourths of workforce entrants in the United States regard social responsibility and environmental commitment as important criteria in selecting employers. People who are happy about their employers’ positions on those issues also enjoy working for them. Thus companies that try to become sustainable may well find it easier to hire and retain talent.
Leadership and talent are critical for developing a low-carbon economy. The current economic system has placed enormous pressure on the planet while catering to the needs of only about a quarter of the people on it, but over the next decade twice that number will become consumers and producers. Traditional approaches to business will collapse, and companies will have to develop innovative solutions.
That will happen only when executives recognize a simple truth: Sustainability = Innovation.
Facing banks and financial institutions
- Not making enough money. Despite all of the headlines about banking profitability, banks and financial institutions still are not making enough return on investment, or the return on equity, that shareholders require.
- Consumer expectations. These days it’s all about the customer experience, and many banks are feeling pressure because they are not delivering the level of service that consumers are demanding, especially in regards to technology.
- Increasing competition from financial technology companies. Financial technology (FinTech) companies are usually start-up companies based on using software to provide financial services. The increasing popularity of FinTech companies is disrupting the way traditional banking has been done. This creates a big challenge for traditional banks because they are not able to adjust quickly to the changes – not just in technology, but also in operations, culture, and other facets of the industry.
- Regulatory pressure. Regulatory requirements continue to increase, and banks need to spend a large part of their discretionary budget on being compliant, and on building systems and processes to keep up with the escalating requirements.
What Will You Do In The Digital Economy?
By now, most executives are keenly aware that the digital economy can be either an opportunity or a threat. The question is not whether they should engage their business in it. Rather, it’s how to unleash the power of digital technology while maintaining a healthy business, leveraging existing IT investments, and innovating without disrupting themselves.
Yet most of those executives are shying away
from such a challenge. According to a recent study by MIT Sloan and Capgemini, only 15% of CEOs are executing a digital strategy, even though 90% agree that the digital economy will impact their industry. As these businesses ignore this reality, early adopters of digital transformation are achieving 9% higher revenue creation, 26% greater impact on profitability, and 12% more market valuation.Why aren’t more leaders willing to transform their business and seize the opportunity of our hyperconnected world? The answer is as simple as human nature. Innately, humans are uncomfortable with the notion of change. We even find comfort in stability and predictability. Unfortunately, the digital economy is none of these – it’s fast and always evolving.
Digital transformation is no longer an option – it’s the imperative
At this moment, we are witnessing an explosion of connections, data, and innovations. And even though this hyperconnectivity has changed the game, customers are radically changing the rules – demanding simple, seamless, and personalized experiences at every touch point.Billions of people are using social and digital communities to provide services, share insights, and engage in commerce. All the while, new channels for engaging with customers are created, and new ways for making better use of resources are emerging. It is these communities that allow companies to not only give customers what they want, but also align efforts across the business network to maximize value potential.
To seize the opportunities ahead, businesses must go beyond sensors, Big Data, analytics, and social media. More important, they need to reinvent themselves in a manner that is compatible with an increasingly digital world and its inhabitants (a.k.a. your consumers).
Here are a few companies that understand the importance of digital transformation – and are reaping the rewards:
- Under Armour: No longer is this widely popular athletic brand just selling shoes and apparel. They are connecting 38 million people on a digital platform. By focusing on this services side of the business, Under Armour is poised to become a lifestyle advisor and health consultant, using his product side as the enabler.
- Port of Hamburg: Europe’s second-largest port is keeping carrier trucks and ships productive around the clock. By fusing facility, weather, and traffic conditions with vehicle availability and shipment schedules, the Port increased container handling capacity by 178% without expanding its physical space.
- Haier Asia: This top-ranking multinational consumer electronics and home appliances company decided to disrupt itself before someone else did. The company used a two-prong approach to digital transformation to create a service-based model to seize the potential of changing consumer behaviors and accelerate product development.
- Uber: This startup darling is more than just a taxi service. It is transforming how urban logistics operates through a technology trifecta: Big Data, cloud, and mobile.
- American Society of Clinical Oncologists (ASCO): Even nonprofits can benefit from digital transformation. ASCO is transforming care for cancer patients worldwide by consolidating patient information with its CancerLinQ. By unlocking knowledge and value from the 97% of cancer patients who are not involved in clinical trials, healthcare providers can drive better, more data-driven decision making and outcomes.
It’s time to take action
During the SAP Executive Technology Summit at SAP TechEd on October 19–20, an elite group of CIOs, CTOs, and corporate executives will gather to discuss the challenges of digital transformation and how they can solve them. With the freedom of open, candid, and interactive discussions led by SAP Board Members and senior technology leadership, delegates will exchange ideas on how to get on the right path while leveraging their existing technology infrastructure.
What Is Digital Transformation?
Achieving quantum leaps through disruption and using data in new contexts, in ways designed for more than just Generation Y — indeed, the digital transformation affects us all. It’s time for a detailed look at its key aspects.
Data finding its way into new settings
Archiving all of a company’s internal information until the end of time is generally a good idea, as it gives the boss the security that nothing will be lost. Meanwhile, enabling him or her to create bar graphs and pie charts based on sales trends – preferably in real time, of course – is even better.But the best scenario of all is when the boss can incorporate data from external sources. All of a sudden, information on factors as seemingly mundane as the weather start helping to improve interpretations of fluctuations in sales and to make precise modifications to the company’s offerings. When the gusts of autumn begin to blow, for example, energy providers scale back solar production and crank up their windmills. Here, external data provides a foundation for processes and decisions that were previously unattainable.
Quantum leaps possible through disruption
While these advancements involve changes in existing workflows, there are also much more radical approaches that eschew conventional structures entirely.“The aggressive use of data is transforming business models, facilitating new products and services, creating new processes, generating greater utility, and ushering in a new culture of management,” states Professor Walter Brenner of the University of St. Gallen in Switzerland, regarding the effects of digitalization.
Harnessing these benefits requires the application of innovative information and communication technology, especially the kind termed “disruptive.” A complete departure from existing structures may not necessarily be the actual goal, but it can occur as a consequence of this process.
Having had to contend with “only” one new technology at a time in the past, be it PCs, SAP software, SQL databases, or the Internet itself, companies are now facing an array of concurrent topics, such as the Internet of Things, social media, third-generation e-business, and tablets and smartphones. Professor Brenner thus believes that every good — and perhaps disruptive — idea can result in a “quantum leap in terms of data.”
Products and services shaped by customers
It has already been nearly seven years since the release of an app that enables customers to order and pay for taxis. Initially introduced in Berlin, Germany, mytaxi makes it possible to avoid waiting on hold for the next phone representative and pay by credit card while giving drivers greater independence from taxi dispatch centers. In addition, analyses of user data can lead to the creation of new services, such as for people who consistently order taxis at around the same time of day.“Successful models focus on providing utility to the customer,” Professor Brenner explains. “In the beginning, at least, everything else is secondary.”
In this regard, the private taxi agency Uber is a fair bit more radical. It bypasses the entire taxi industry and hires private individuals interested in making themselves and their vehicles available for rides on the Uber platform. Similarly, Airbnb runs a platform travelers can use to book private accommodations instead of hotel rooms.
Long-established companies are also undergoing profound changes. The German publishing house Axel Springer SE, for instance, has acquired a number of startups, launched an online dating platform, and released an app with which users can collect points at retail. Chairman and CEO Matthias Döpfner also has an interest in getting the company’s newspapers and other periodicals back into the black based on payment models, of course, but these endeavors are somewhat at odds with the traditional notion of publishing houses being involved solely in publishing.
The impact of digitalization transcends Generation Y
Digitalization is effecting changes in nearly every industry. Retailers will likely have no choice but to integrate their sales channels into an Omni channel approach. Seeking to make their data services as attractive as possible, BMW, Mercedes, and Audi have joined forces to purchase the digital map service HERE. Mechanical engineering companies are outfitting their equipment with sensors to reduce downtime and achieve further product improvements.“The specific potential and risks at hand determine how and by what means each individual company approaches the subject of digitalization,” Professor Brenner reveals. The resulting services will ultimately benefit every customer – not just those belonging to Generation Y, who present a certain basic affinity for digital methods.
“Think of cars that notify the service center when their brakes or drive belts need to be replaced, offer parking assistance, or even handle parking for you,” Brenner offers. “This can be a big help to elderly people in particular.”
Chief digital officers: team members, not miracle workers
Making the transition to the digital future is something that involves not only a CEO or a head of marketing or IT, but the entire company. Though these individuals do play an important role as proponents of digital models, it also takes more than just a chief digital officer alone.For Professor Brenner, appointing a single person to the board of a DAX company to oversee digitalization is basically absurd. “Unless you’re talking about Da Vinci or Leibnitz born again, nobody could handle such a task,” he states.
In Brenner’s view, this is a topic for each and every department, and responsibilities should be assigned much like on a soccer field: “You’ve got a coach and the players – and the fans, as well, who are more or less what it’s all about.”
Here, the CIO neither competes with the CDO nor assumes an elevated position in the process of digital transformation. Implementing new databases like SAP HANA or Hadoop, leveraging sensor data in both technical and commercially viable ways, these are the tasks CIOs will face going forward.
Human Skills for the Digital Future
Technology Evolves.
So Must We.
Uniquely Human Abilities
AI is excellent at automating routine knowledge work and generating new insights from existing data — but humans know what they don’t know.
We’re driven to explore, try new and risky things, and make a difference.
We deduce the existence of information we don’t yet know about.
We imagine radical new business models, products, and opportunities.
We have creativity, imagination, humor, ethics, persistence, and critical thinking.
There’s Nothing Soft About “Soft Skills”
To stay ahead of AI in an increasingly automated world, we need to start cultivating our most human abilities on a societal level. There’s nothing soft about these skills, and we can’t afford to leave them to chance.
We must revamp how and what we teach to nurture the critical skills of passion, curiosity, imagination, creativity, critical thinking, and persistence. In the era of AI, no one will be able to thrive without these abilities, and most people will need help acquiring and improving them.
Anything artificial intelligence does has to fit into a human-centered value system that takes our unique abilities into account. While we help AI get more powerful, we need to get better at being human.
XXX . V0000 Electronic Communication Systems Information Systems Security and control
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XXX . V00000 Wide-Area Wireless Communication: Microwave, Satellite, 3G, 4G & WiMAX planning on moving to a new house on the outskirts of the city. You're a little worried about whether you will be able to get wireless Internet on your mobile phone service at your new home. So, you go to a local electronics store to get some advice. Here are some of the options: 2G, 3G, WiMAX, satellite phone and satellite Internet. So what does that all mean? Time for a closer look at wide-area wireless communications. Wireless CommunicationA wireless communication network refers to any type of network that establishes connections without cables. Wireless communications use electromagnetic (EM) waves that travel through the air. There are three main categories of wireless communication, based on how far the signal travels.In short-range wireless communication, the signal travels from a few centimeters to several meters. Examples include Bluetooth, infrared and ZigBee. In medium-range wireless communication, the signal travels up to 100 meters or so. WiFi is the best-known example. In wide-area wireless communication, the signal travels quite far, from several kilometers to several thousand kilometers. Examples of wide-area wireless communication systems are cellular communications, WiMAX and satellite communications. All of these use some form of microwave signals. MicrowavesMicrowaves are high-frequency signals in the 300 MHz to 300 GHz range. The signals can carry thousands of channels at the same time, making it a very versatile communication system. Microwaves are often used for point-to-point telecommunications, which means that the signal is focused into a narrow beam. You can typically recognize microwave-based communication systems by their use of a large antenna, often in a dish format. This is in contrast to radio signals, which are typically broadcast in all directions. Radio signals operate in the 3 Hz to 300 MHz range.Microwave signals are used for both satellite and ground-based communications. Many TV and telephone communications in the world are transmitted over long distances using microwave signals. They use a collection of ground stations and communication satellites. Ground stations are typically placed roughly 50 kilometers apart so they 'see' each other. Microwaves are also used in - you guessed it - microwave ovens. These microwaves, however, are quite different from those used in communication systems. First, the microwaves have a much higher power level so they can heat your food. Second, the signal doesn't carry any information because you're not trying to tell your lasagna something. Cellular CommunicationsMobile phones have become one of the most widely used wireless communication devices. You probably use one every day and don't think too much about how it actually works - except when it doesn't work.So, how do mobile phones work? A mobile phone or cell phone is very much like a two-way radio; you can wirelessly send and receive information. There are a few major components to the mobile phone system. These include cell towers, network processing centers and the actual phones themselves. Communications within a cellular network are made possible by cell towers. Your mobile phone establishes a wireless connection using electromagnetic waves with the nearest cell tower. This is a two-way connection, meaning you can both send and receive information. The cell tower has a wired connection to the telephone network. This makes it possible for you to connect with any other telephone in the world. So when you make a phone call from one cell phone to another, your phone connects to the cell tower, the cell tower connects to a network processing center, the network connects to another cell tower and that cell tower connects to the cell phone you are trying to reach. All this happens within a split second back and forth. As you move about your day, your wireless connection will jump from one cell tower to the next depending on where you are. This makes it possible to maintain a connection even if you travel great distances. The transmission distance of cell towers is in the order of several kilometers, so cell towers are placed close enough together for their signals to overlap. The area covered by a single cell tower is referred to as a 'cell' or 'site.' A large metropolitan area may have hundreds of cells to cover the entire region. If you are in a remote area far from the nearest cell tower, your phone will lose its connection to the network. These are the dreaded 'dead zones' without service. You may also lose service if you are in a location where signals have difficulty penetrating. This includes metal and concrete - and this is why you often lose reception in an elevator or in an underground parking garage. Anywhere else your phone doesn't work? You got it - in an airplane at 30,000 feet. The cellular network uses ground-based towers, so as soon as you get in the air, you're going to lose the signal. 1G, 2G, 3G and 4GMobile telephone systems have evolved through the various generations of technology. The first generation, or 1G technology, dates back to the 1980s and was based strictly on analog signals. The second generation, or 2G technology, was developed in the 1990s and used a completely digital system. A number of different 2G network technologies have been developed, including GSM (mostly used in Europe and Asia) and CDMA (mostly used in North America).Third generation, or 3G technology, was developed around the year 2000 and is able to carry a lot more data. In fact, 3G does not refer to a specific technology but to any network technology that provides a data transfer rate of at least 200 kilobits per second. A number of different 3G technologies exist, including upgraded versions of 2G technologies as well as some new ones. Each generation of technology uses different communication protocols. This includes details on which specific frequencies are being used, how many channels are involved and how information is converted between digital and analog. Different protocols means that with each generation, all the hardware needs to be upgraded, including the cell towers, network processing centers and the phones themselves. Different technologies within a single generation are also not always compatible, which means that you cannot assume you can use your 3G phone in a different country. As of 2013, fourth generation, or 4G technology, is under development, including HSPA+, LTE and WiMAX. 4G promises to deliver higher data transfer rates, approximately 10 times faster compared to 3G. These speeds are competitive with broadband Internet services available in homes and offices. While 4G is still under development, there has been a tremendous growth in data transfer over cellular networks. If you are like most smartphone users, you check email, upload photos and download videos. With around six billion mobile phones being used as of 2013, this means a whole lot of network traffic. WiMAXOne of the 4G technologies is WiMAX, or Worldwide Interoperability for Microwave Access. WiMAX is a standard for metropolitan area networks. It is similar to WiFi but works over greater distances and at higher transmission speeds. This means you need fewer base stations to cover the same area relative to WiFi.WiMAX is not only an example of a 4G cellular network technology; it can also provide direct Internet access to metropolitan areas. It can be used to reach areas that are currently not served by phone and cable companies. WiMAX consists of two components: towers and receivers. WiMAX towers are similar to cell towers, and the signals can cover a large area. WiMAX receivers can be installed into mobile computing devices, similar to a WiFi card or at fixed locations in homes and offices. XXX . V00000 The digital future of work: What skills will be needed? Robots have long carried out routine physical activities, but increasingly machines can also take on more sophisticated tasks. Experts provide advice on the skills people will need going forward. For an 18-year-old today, figuring out what kind of education and skills to acquire is an increasingly difficult undertaking. Machines are already conducting data mining for lawyers and writing basic press releases and news stories. In coming years and decades, the technology is sure to develop and encompass ever more human work activities. Yet machines cannot do everything. To be as productive as it could be, this new automation age will also require a range of human skills in the workplace, from technological expertise to essential social and emotional capabilities. In this video, one in a four-part series, experts from academia and industry join McKinsey partners to discuss the skills likely to be in demand and how young people today can prepare for a world in which people will interact ever more closely with machines. The interviews were filmed in April at the Digital Future of Work Summit in New York, which was hosted by the McKinsey Global Institute (MGI) and New York University’s Stern School of Business. Interviewees include NYU provost Katherine Fleming and professors Arun Sundararajan and Vasant Dhar; Tom Siebel, founder, chairman, and CEO of C3 IoT; Anne-Marie Slaughter, president and CEO of New America; Jeff Wald, cofounder and president of WorkMarket; Allen Blue, cofounder of LinkedIn; Mike Rosenbaum, CEO of Arena; along with MGI chairman and director James Manyika and MGI partners Michael Chui and Susan Lund. Interview transcriptX : For young people today, what’s clear is that they’re going to need to continue to learn throughout their lifetime. The idea that you get an education when you’re young and then you stop and you go and work for 40 or 50 years with that educational training and that’s it—that’s over. All of us are going to have to continue to adapt, get new skills, and possibly go back for different types of training and credentials. What’s very clear is that what our kids need to do is learn how to learn and become very flexible and adaptable.Y : The future of work that a college graduate is looking at today is so different from the future of work that I looked at when I was a college graduate. There’s far less structure, there’s far less predictability. You don’t know that you can invest in a particular set of capabilities today and that will be valuable in 20 years. We used to be able to say, “This is the career I’m going to choose.” That’s a difficult bet to make today with so much change. Z : More generally what I tell students is that it would help if you had the skills that are required to deal with information because those are the core skills that are necessary these days to help you learn new things. This ability to learn things on your own to some extent will be driven by the core skills you have and how you can handle and process information. P : The most important message is you need to prepare for yourself. If people are sitting back, waiting to be candidly taken care of by a welfare state, I don’t think that’s a very good answer. R : We found that, for example, in something like 60 percent of all occupations an average 30 percent of their work activities are automatable. What does that mean? We’re going to see more people working alongside machines, whether you call that artificial augmentation or augmented intelligence, but we’re going to see a lot more of that. That’s quite important because it raises our whole sense of imperatives. It means that more skill is going to be required to make the most of what the machines can do for the humans. | ||||||||||||||||||||||||||||||||
Workforce transitions in a time of automation ?
They’re going to need skills that they can only get by doing things. So every time they’re given the opportunity to do something, they should say yes to it, even if it doesn’t strike them initially as being exactly what they want to be doing.
Automation is happening, and it will bring substantial benefits to businesses and economies worldwide, but it won’t arrive overnight. A new McKinsey Global Institute report finds realizing automation’s full potential requires people and technology to work hand in hand.
Automation, digital platforms, and other innovations are changing the fundamental nature of work. Understanding these shifts can help policy makers, business leaders, and workers move forward.
Online talent platforms are increasingly connecting people to the right work opportunities. By 2025 they could add $2.7 trillion to global GDP, and begin to ameliorate many of the persistent problems in the world’s labor markets.
Automation is happening, and it will bring substantial benefits to businesses and economies worldwide, but it won’t arrive overnight. A new McKinsey Global Institute report finds realizing automation’s full potential requires people and technology to work hand in hand.
XXX . V000000 ELECTRONIC DATA INTERCHANGE
Electronic data interchange (EDI) is the use of computer and telecommunication technology to move data between or within organizations in a structured, computer retrievable data format that permits information to be transferred from a computer program in one location to a computer program in another location, without manual intervention. An example is the transmission of an electronic invoice from a supplier's invoicing software to a customer's accounts receivable software. This definition includes the direct transmission of data between locations, transmission using an intermediary such as a communication network, and the exchange of digital storage devices such as magnetic tapes, diskettes, and CD-ROMs.
EDI is one of the most important subsets of electronic commerce —the use of computer and telecommunication technology to facilitate the information exchange between two parties in a commercial transaction. The intent of all electronic commerce is to automate business processes. Some transactions can be completely paperless and move data from one computer application to another computer application. By strict definition EDI falls under this type of electronic commerce. Other electronic commerce transactions are also paperless but involve manual intervention. Examples are Internet transactions requiring one party to enter data manually. Electronic mail is another example of paperless but manual electronic commerce. Sometimes firms claim to be doing EDI when they are really performing a manual-to-computer transaction such as electronic order entry.
Another form of electronic commerce is based on physical media interacting with computers and telecommunications processes. Examples of this third type are facsimile transmission (paper plus telecommunications) and processes that involve information captured by bar coding, optical character recognition, and radio frequency tagging.
Exhibit I shows how EDI contrasts with facsimile transmission (fax) and electronic mail (e-mail). Fax is the transfer of totally unstructured data. With fax, a digitized image of a paper document is transmitted. While mail time delays are avoided, the receiver of a facsimile transmission would not be able to enter the image directly into a computer program without rekeying. E-mail also moves data electronically but is designed for person-to-person applications. It uses a free format rather than a structured format. A party receiving an e-mail purchase order, for example, would not likely be able to automatically read it into an order entry program, and would most likely have to rekey the information.
Exhibit 1
Contrasting EDI with Fax and E-Mail
Contrasting EDI with Fax and E-Mail
EDI has two important subsets, illustrated diagrammatically in Exhibit 2. Electronic Funds Transfer (EFT) is EDI between financial institutions. The result of an EFT transaction is the transfer of monetary value from one account to another. Examples of EFT systems in the United States are FedWire and Automated Clearing House (ACH) payments. FedWire is the same-day, real-time, electronic transfer of funds between two financial institutions using the communication network of the Federal Reserve. ACH transfers are batch-processed electronic transfers that settle in one or two business days. An example of an ACH transfer is the direct deposit of payroll offered by many firms to their employees. Using the ACH network, the originating bank sends electronic payment instructions to each receiving bank. Another application of the ACH system is direct debiting, which many consumers use to make mortgage, utility, and insurance payments.
Exhibit 2
Relationship between EDI, EFT and FEDI
Relationship between EDI, EFT and FEDI
Financial EDI (FEDI) is EDI between banks and their customers or between banks when there is not a value transfer. For example, a firm may receive electronic reports from its bank listing all checks received the previous day. A bank may also send its monthly statement to a firm using FEDI. Some firms send FEDI payment orders to their banks to initiate supplier payments.
BENEFITS OF EDI
EDI was developed to solve the problems inherent in paper-based transaction processing and in other forms of electronic communication. In solving these problems, EDI is a tool that enables organizations to reengineer information flows and business processes. Problems with the paper-based transaction system are:
- Time delays. Delays are caused primarily by two factors. Paper documents may take days to transport from one location to another. In addition, manual processing delays are caused by the need to key, file, retrieve, and compare data.
- Labor costs. In non-EDI systems, manual processing is required for data keying, document storing and retrieving, sorting, matching, reconciling, envelope stuffing, stamping, signing, etc. While automated equipment can help with some of these processes, most managers will agree that labor costs for document processing represents a significant proportion of their overhead. In general, labor-based processes are much more expensive than non-labor-intensive operations involving computers and telecommunications.
- Errors. Because information is keyed multiple times and documents are transported, stored, and retrieved by people, non-EDI systems tend to be error prone.
- Uncertainty. Uncertainty exists in two areas. First, paper transportation and other manual processing delays mean that the time the document is received is uncertain. Once a transaction is sent, the sender does not know when the transaction will be received nor when it will be processed. Second, the sender does not even know whether the transaction has been received at all nor whether the receiver agrees with what was sent in the transaction.
- High Inventories. Because of time delays and uncertainties in non EDI processing, inventories are often higher than necessary. Lead times with paper processing are long. In a manufacturing firm, it may be virtually impossible to achieve a just-in-time inventory system with the time delays inherent in non-EDI processing systems.
- Information Access. EDI permits user access to a vast amount of detailed transaction data—in a non-EDI environment this is possible only with great effort and time delay. Because EDI data is already in computer-retrievable form, it is subject to automated processing and analysis. Such information helps one retailer, for example, monitor sales of toys by model, color, and customer zip code. This enables the retailer to respond very quickly to changes in consumer taste.
INFRASTRUCTURE FOR EDI
To make EDI happen, four elements of infrastructure must exist: (1) format standards are required to facilitate automated processing by all users; (2) translation software is required to translate from a user's proprietary format for internal data storage into the generic external format and back again; (3) value-added networks are very helpful in solving the technical problems of sending information between computers; and (4) inexpensive microcomputers are required to bring all potential users—even small ones—into the market. It has only been in the past several years that all of these ingredients have fallen into place.
FORMAT STANDARDS.
To permit the efficient use of computers, information must be highly organized into a consistent data format. A format defines how information in a message is organized: what data goes where, what data is mandatory, what is optional, how many characters are permitted for each data field, how data fields are ordered, and what codes or abbreviations are permitted.Early EDI efforts in the 1960s used proprietary formats developed by one firm for exclusive use by its trading partners. This worked well until a firm wanted to exchange EDI documents with other firms who wanted to use their own formats. Since the different formats were not compatible, data exchange was difficult if not impossible.
To facilitate the widespread use of EDI, standard formats were developed so that an electronic message sent by one party could be understood by any receiver that subscribes to that format standard. In the United States the Transportation Data Coordinating Committee began in 1968 to design format standards for transportation documents. The first document was approved in 1975. This group pioneered the ideas that are used by all standards organizations today. North American standards are currently developed and maintained by a volunteer organization called ANSI (American National Standards Institute) X12 Accredited Standards Committee (or simply ANSI X12). The format for a document defined by ANSI Xl2 is broad enough to satisfy the needs of many different industries. Electronic documents (called transaction sets by ANSI X12) are typically of variable length and most of the information is optional. When a firm sends a standard EDI purchase order to another firm, it is possible for the receiving firm to pass the purchase order data through an EDI translation program directly to a business application, without manual intervention.
INDUSTRY CONVENTIONS.
To satisfy users from many different organizations with vastly different needs, the ANSI X12 standards must remain very generic. Some industries have developed their own subsets of the more generic EDI formats. These formats may be considered to be essentially customized formats of the more generic standard EDI formats. For example, the ANSI X12 standard defines two-digit codes for more than 400 units of measure. The automotive industry does not need nearly that many, so their industry convention documentation defines only a handful of units of measure. This makes EDI less confusing for implementers.TYPES OF STANDARDIZED DOCUMENTS.
There are currently generic standards for more than 300 types of transactions, including: purchase order, invoice, functional acknowledgment, purchase order acknowledgment, payment order, request for quote, insurance claim, inventory data, grade transcript, student loan data, freight invoice, bill of lading, lockbox receipt, load tender, library loan request, promotion announcement, advanced ship notice, material release, telephone bill, price/sales catalog, and claim tracer.EDIFACT STANDARDS.
Under the auspices of the United Nations, a format standard has been developed to reach a worldwide audience. These standards are called EDI for Administration, Commerce, and Transport (EDIFACT). They are similar in many respects to ANSI Xl2 standards but are accepted by a larger number of countries. In the future, all new ANSI X12 EDI documents will be developed using the EDIFACT format.TRANSLATION SOFTWARE.
Translation software makes EDI work by translating data from the sending firm's internal format into a generic EDI format. Translation software also receives a sender's EDI message and translates it from the generic standard into the receiver's internal format. There are currently translation software packages for almost all types of computers and operating systems.VALUE-ADDED NETWORKS (VANS).
When firms first began using EDI, most communications of EDI documents were directly between trading partners. Unfortunately, direct computer to-computer communications requires that both firms (1) use similar communication protocols, (2) have the same transmission speed, (3) have phone lines available at the same time, and (4) have compatible computer hardware. If these conditions are not met, then communication becomes difficult if not impossible. A value-added network (VAN) can solve these problems by providing an electronic mailbox service. By using a VAN, an EDI sender need only learn to send and receive messages to/from one party: the VAN. Since a VAN provides a very flexible computer interface, it can talk to virtually any type of computer. This means that to do EDI with hundreds of trading partners, an organization has to talk to only one party.VANs also provide a secure interface between trading partners. Since trading partners send EDI messages only through the VAN, there is no fear that a trading partner may dip into sensitive information stored on the computer system nor that a trading partner nay send a computer virus to the other partners.
One of the most important recent developments in EDI is the use of the Internet as the delivery network for EDI transactions. Since the Internet is so widely available, even most smaller firms have access to and familiarity with the use of browsers. Some service providers are using browser technology to permit trading partners to enter data into forms on web pages. The data can then be translated into EDI format and transmitted to the receiving party. While not strictly computer-to-computer, this process allows a receiver to make greater use of EDI on their side of the transaction.
INEXPENSIVE COMPUTERS.
The fourth building block of EDI is inexpensive computers that permit even small firms to implement EDI. Since microcomputers are now so prevalent, it is possible for firms of all sizes to deal with each other using EDI.EXAMPLES OF EDI
The Bergen Brunswig Drug Company, a wholesale pharmaceutical distributor in Orange, California, is one of the most successful companies in using EDI for many of its business processes. To generate an order to Bergen Brunswig, a customer (pharmacist) uses a handheld bar code scanner to capture the UPC (Uniform Product Code) number on a shelf label for a product to be ordered. The pharmacist enters the quantity desired into a keypad on the scanner and moves onto the next item. All items in the pharmacy can be scanned in only a few minutes. A microcomputer next reads the information contained in the scanner and an electronic order is prepared for the pharmacist's review. The order is sent via EDI to a Bergen Brunswig distribution center where the order is analyzed and resequenced to match the product location in the distribution center. Within five hours, the order is delivered to the pharmacy. Bergen Brunswig has been able to eliminate all order takers, reduce errors to near zero, fulfill orders faster, reduce overhead costs, and build customer loyalty. The company also uses EDI for sending purchase orders to pharmaceutical manufacturers, receiving invoices, and handling charge backs.
The JCPenney Company has an operating center in Salt Lake City, Utah, which uses EDI to receive almost all of its invoices from suppliers. The result has been substantial savings in terms of personnel costs (four processing centers were combined into one and several hundred people who did manual processing were no longer needed), a reduction in errors, faster matching of invoice and purchase order, more timely payments, and a reduction in paper storage requirements.
U.S. auto manufacturers are also extensive users of EDI. Chrysler, as illustrated in Figure 3, has applied EDI to reengineer its manufacturing processes. Once a contract has been negotiated with a parts supplier, Chrysler sends the supplier weekly electronic material releases specifying the intended use of parts over an eight-week horizon. Several days before the parts are needed, Chrysler sends an EDI delivery order to the supplier detailing precisely how many parts are needed for delivery on a certain date, where the parts are to be delivered, what bar coding is to be put on the containers, and when delivery is expected. Some suppliers are told how to sequence the parts on the truck for most effective unloading. After the supplier loads the parts, an EDI advanced shipping notice is sent to Chrysler verifying that the delivery is on the way. Chrysler scans the parts in as they arrive and may send an electronic discrepancy report if there are problems. Payments are often made electronically on a settlement date specified in the contract. No invoice is used in this reengineered process. In this environment Chrysler needs very little inventory and, in fact, has been able to shave approximately $ 1 billion from its parts inventory.
Exhibit 3
EDI in the Automotive Industry
EDI in the Automotive Industry
Use of EDI is spreading to many different types of organizations. The insurance industry is beginning to use EDI for health care claims, procedure authorization, and payments. Universities are using EDI for sending grade transcripts, interlibrary material requests, and student loan information. Retailers are sending EDI inventory data to suppliers and charging them with oversight of inventory levels and shipment initiation. The federal government and most states are now using EDI to collect tax filing information.
STATUS OF EDI
EDI appears to be entering into a rapid growth phase. According to an extensive market survey completed by the EDI Group, a division of Thomson EC Resources, well over 60 percent of U.S. firms with more than 5,000 employees are using EDI. Over the past several years there has been an enormous increase in the infrastructure supporting EDI, including seminars and conferences, books, periodicals, consultants, and software companies. From its current growth patterns, EDI is poised to become more and more important as a data communication tool that enables organizations to more efficiently design internal processes and external interactions with trading partners.
ELECTRONIC MAIL
From its roots as an obscure mode of communication among computer hobbyists, academics, and military personnel, e-mail use has burgeoned to a medium of mass communication. According to published estimates from International Data Corp., a technology market research firm, as of 1998 there were 82 million personal and business e-mail accounts in the United States. For comparison, that figure was equal to half the number of telephones in use, an impressive proportion given that e-mail has been in existence only a quarter as long as the telephone.
E-mail's late 1960s inception came about from the work of Ray Tomlinson, a computer scientist working for a defense contractor. Tomlinson's work was for the U.S. Defense Department's Arpanet, the project that later spawned the Internet.
E-MAIL TECHNOLOGY
E-mail technology for the Internet (as opposed to closed private systems) follows a number of universal standards as codified by the International Telecommunication Union (ITU) and the International Organization for Standardization (ISO). These standards help ensure that e-mail, like Internet communications in general, is not bounded by platform or geography.
An e-mail message is essentially one or more files being copied between computers on a network such as the Internet. This transfer of files is automated and managed by a variety of computer programs working in consort. A simple e-mail may be a single text file; if special formatting, graphics, or attachments are used in the message, multiple binary files or encoded Hypertext Markup Language (HTML) files may be transmitted in a single e-mail message.
A typical e-mail system consists of at least three software components with supporting hardware:
- the user's e-mail application
- a message transfer agent or engine
- a message store
The message transfer agent (MTA), also called a mail engine, is behind-the-scenes software that runs on a mail server, the computer(s) dedicated to sorting and routing e-mail in a network. The MTA determines how incoming and outgoing messages should be routed. Thus, if a message is sent from one internal corporate user to another, the MTA normally routes the e-mail within the corporate system without sending it through the Internet. If, however, a message is intended for a user outside the organization, the mail server transmits the file to an external gateway or a public Internet backbone router that will, in turn, deliver the message to the recipient's system. This is a simplification, as a message may actually be passed through several intermediate computers on the Internet before reaching its destination.
The message store is the software and hardware that handles incoming mail once the MTA has determined that mail belongs to a specific user on the system. The store may be configured to work in different ways, but, in essence it is user-specific directory space on a network server in which unread incoming messages are stored for future retrieval by the e-mail applications. This is where, for instance, e-mail sent overnight sits until the recipient turns on his computer the next day and opens his e-mail program. The software configuring the message store may automatically delete copies of the messages once they are downloaded to the user's computer or it may archive them. Message stores are also capable of automatically categorizing mail and performing other mail-management tasks.
E-MAIL SECURITY AND PRIVACY
In spite of all its conveniences, e-mail is still a notoriously insecure method of communication, particularly in corporate environments. Technologically, most of the security encryption tools and other privacy safeguards available on the mass market are easily broken by experienced hackers. It is even simpler to forge an e-mail from someone using their address. Furthermore, what many employees don't realize is that their employers can—and do—legally monitor e-mail on the corporate system. A series of court cases have arisen from such activities, and the courts have upheld companies' rights to control information transmitted on their computer systems. Common information systems practices such as scheduled backups of network data can make the process of e-mail monitoring even easier for employers. Employer e-mail surveillance has already taken on seemingly excessive zeal: one company allegedly reported an employee to the police for sending a fellow employee an e-mail describing how he was forced to put a pet to sleep; the employer misunderstood the e-mail as a death threat against a coworker.
In response to such circumstances, some observers have concluded that corporate e-mail users should assume there is no privacy in their e-mail communications. A representative from a well-known Internet applications company likened it to sending a postcard in conventional mail—the entire message is visible to anyone who chooses to look.
CORPORATE E-MAIL POLICIES
Because of the contentious legal and ethical issues surrounding e-mail surveillance and misuse, as well as problems with excessive use of e-mail, copyright violation, and the ease of sending offensive messages, many corporations have instituted formal e-mail policies that inform employees of their rights and obligations. Some aspects of a strong e-mail policy include
- informing employees that e-mail is considered company property and can be legally monitored
- explaining the company's e-mail monitoring practices and philosophy
- encouraging employees to be cautious about what they say in e-mail and how they use it
- identifying clear examples of inappropriate use
- requiring each employee to sign the e-mail policy statement
Several forms of e-mail monitoring are practiced, ranging from routine, comprehensive surveillance to occasional inquiries when suspicions arise. Some security experts recommend the latter approach, which is much less resource-intensive. It is also possible to electronically automate surveillance so that, for example, all e-mail header and size information is logged by a computer. Consistent trafficking of very large e-mail messages may suggest inappropriate usage, depending on the employee's job. With automated tracking, corporate officials can focus on screening messages that are most likely to violate policy, e.g., identifying e-mail that contains discriminatory language. Monitoring can also be harnessed to protect the corporate system from external abuses such as large broadcasts of unsolicited e-mail, or "spam."
THE BUSINESS OF E-MAIL
In 1998 there were an estimated 40 million business e-mail users. For companies, e-mail represents simultaneously a source of costs to the business and a tool for cost-savings or even new revenues. Obvious costs associated with e-mail include buying the hardware and software, maintaining the system, and the staff hours spent using e-mail.
If the time spent reading and sending e-mail is less than the amount the employee would have spent otherwise (or accomplishes more per unit of time), then e-mail achieves a cost advantage for the business. It is not clear how often this is the case, however. A number of studies have reported that e-mail use hasn't so much supplanted other modes of business communication, but added to them. A 1998 Gallup poll suggested that people receive an average of 190 business communications of all kinds, including e-mail, each day, an increase over previous levels. Such findings have led some to believe that if left uncontrolled, e-mail could be sapping productivity.
Meanwhile, marketing organizations are increasingly using e-mail to reach customers, through both solicited and unsolicited messages. The market research firm Forrester Research claimed that, in 1998, broadcast e-mail service was a fledgling $8 million industry, but by 2002 it was expected to blossom into a $250 million trade. Moreover, for companies selling products and services via solicited e-mail, the medium was forecast to generate $952 million in revenue by 2002. Although laws passed in state legislatures could limit the uses of unsolicited e-mail, the arena clearly represents untapped revenue for some companies.
EMBEZZLEMENT
Embezzlement is a form of fraud that involves misappropriation of money or property by someone who has been entrusted with it by virtue of their position or employment. Larceny and theft, on the other hand, involve taking, by trespass or force, money or property that belongs to someone else.
Depending on the amount of money or value of property involved, embezzlement is a misdemeanor or felony and a statutory crime punishable by fine and/or imprisonment. According to one profile, however, the typical embezzler is not usually prosecuted, usually does not receive a jail sentence upon conviction, and usually does not repay the victim or pay court costs.
An embezzler may be a public official or someone employed in a fiduciary capacity. Such a person is entrusted with funds or property by virtue of his or her position. When they use funds or property belonging to another person or business for their own account, they are guilty of embezzlement. While virtually any business can be the victim of embezzlement, the crime most often occurs in financial institutions, healthcare companies, and a variety of small businesses.
Examples of embezzlement include bookkeepers stealing from their employers' accounts by making false journal entries, altering documents, and manipulating expense records. Embezzlement may take the form of making payments to "dummy" suppliers and vendors. Employees of financial institutions may attempt to embezzle by diverting funds from legitimate accounts into "dummy" accounts.
The criminal act of embezzlement usually involves three distinct phases. At each stage the embezzler leaves indications that a crime has occurred; unlike many other crimes, however, there often is little hard evidence to indicate that a crime has been committed. The first phase of embezzlement is the criminal act itself, taking money or property manually, by computer, or by telephone. Once the crime has been committed, the embezzler attempts to conceal it. Making a phony payment, falsifying a document, or making misleading journal entries are some of the ways that embezzlers try to hide their crime. Finally, the third phase of criminal activity involves converting the stolen assets into cash and spending it.
At each step the embezzler is subject to detection. The act itself must be witnessed in order for the embezzler to be caught at the first stage. Concealment of the act results in altered records or miscounted cash that can be detected by auditors. Conversion usually results in lifestyle changes that can be noted by fellow employees.
In order to protect themselves from embezzlement, companies need to develop a program to recognize signs of employee fraud. One aspect of such a program is recognizing accounting irregularities. Embezzlers usually alter, forge, or destroy checks, sales invoices, purchase orders, and similar documents. Examination of source documents can often lead to the detection of embezzlement.
Internal controls are another important aspect of a fraud prevention program. A company's internal control system should be examined for weaknesses. Internal controls are designed to protect a company's assets. If they are weak, then the assets are not safe. Typical controls that help prevent embezzlement include segregating duties, regular or programmed transfers of employees from department to department, and mandatory vacations. In the banking industry, the Office of the Controller of the Currency requires that all bank employees in the United States take at least seven consecutive days of vacation per year. Many cases of fraud have been discovered while employees were on vacation and unable to cover their tracks.
Other recognizable signs of embezzlement include anything out of the ordinary, such as unexplained inventory shortages, unmet specifications, excess scrap material, larger than usual purchases, significantly higher or lower account balances, excessive cash shortages or surpluses, and unreasonable expenses or reimbursements. Finally, embezzlers often reveal themselves through noticeable lifestyle and behavioral changes. Embezzlers are often first-time criminals whose feelings of guilt cause them to act erratically and unpredictably. They usually spend the money they have embezzled rather than saving it. A successful fraud prevention program should include incentives for employees to report unusual behavioral and lifestyle changes in fellow employees.
EMERGING MARKETS
The term "emerging markets," while commonly used, is difficult to define. From the perspective of the United States, an emerging market would be one to which a previously untapped potential for U.S. exports or investment might be anticipated.
Despite the collapse of Latin American markets, investor confidence in emerging markets continued to climb, topping $20 billion in total net assets in diversified emerging-market mutual funds by 1997, notably in East Asia.
Then in July 1997, the emerging markets collapsed. Made cautious by concerns regarding the return of Hong Kong to the People's Republic of China, many investors temporarily halted investments in Southeast Asia. Ironically, the transition of Hong Kong to China went smoothly, but the subsequent downturn in investments to the region caused a real estate crisis in Thailand, which devalued its currency so severely that the effects were felt in an equally overextended Malaysia and Indonesia. Unlike the essentially stable political systems of Thailand and Malaysia, however, the economic crisis in Indonesia uncovered racist tensions, political instability, and corruption so severe that it led to widespread anti-Chinese riots and eventual political collapse. Soon after, the economic crisis spread to other East Asian nations that had strong ties to Indonesia, Thailand, and Malaysia. Singapore was especially affected and faced its most serious downturn since its independence. South Korea underwent its own economic upheavals, including the collapse of major companies and its own change of government. By 1997 the effects of the East Asian economic crisis had destabilized other emerging markets such as Russia and began to affect the overall economic health of even such major developed economic powers as Japan.
IDENTIFYING EMERGING MARKETS
Despite this, emerging markets still remain attractive if they can carry such favorable prospects as stable governments, privatization of key sectors, changes in foreign investment opportunities and rapid economic growth. With some reservations, of the original ten "Big Emerging Markets" identified by the Commerce Department in 1994, only India, Turkey, and South Africa continue to meet those criteria, as does, to a lesser extent, the Chinese Economic Area.
Such East European markets as the Czech Republic, Slovenia, and Hungary also still offer strong growth opportunities as yet unaffected by the Latin American or East Asian economic crises.
Political changes remain among the main reasons certain nations come to the fore as emerging markets. For example, the lifting of various U.S. trade embargoes against South Africa has created a marked potential for U.S. exports following the elimination of that nation's apartheid policies. South Africa has for years been Africa's strongest economy, but the overwhelming response to the political situation in that nation stunted U.S. exports until fairly recently.
Identification as an emerging market could also reflect a change toward U.S. trade within the policy of another established market. This liberalization of trade previously restrictive to U.S. exports could thus inspire new and rapid demand for formerly unavailable U.S. products. The creation of economic zones within the People's Republic of China, for example, made it considerably easier than in past years for U.S. exports to enter China. This, coupled with the liberalization of central control in the designated free economic zones, has led to rapid development. Indeed, Guangdong province (next to Hong Kong) would be the world's fastest growing economy were it treated as an independent state.
Similarly, the post-communist governments of Eastern European nations as well as the newly independent states represent the opening of markets previously walled off from most U.S. exports. While many of these nations remain unstable or economically underdeveloped, the stability of nations such as Poland (the first of the Warsaw Pact nations to throw off a communist or Soviet-influenced government) or the strong manufacturing base of Hungary or the Czech Republic make them potentially promising as emerging markets.
Political factors from abroad have helped some nations emerge as U.S. export and investment destinations. Turkey's active role as an alternative Moslem economic system to such fundamentalist Islamic models as Iran have helped it emerge as a major regional player in the Islamic states of the former Soviet Union, such as Kazakhstan and Turkmenistan. Additionally, Turkey's trade ties with Europe and its repeated attempts to join the European Union (rebuffed for several political reasons unrelated to its economy) have further added to its aura of stability as an emerging market.
The lifting of restrictions in trade simultaneously from both the United States and from another nation could also earmark that nation as an emerging market for U.S. goods. The North American Free Trade Agreement (NAFTA), for example, represented a lifting of trade restrictions in Mexico and the United States taking place in both countries at the same time. This free trade allowed Mexico, already an important destination for U.S. exports, to "emerge" as an even more important export destination. Indeed, it is for this reason that Mexico is still viewed as an emerging market despite political difficulties and the economic instability that followed the 1994 peso crisis.
An emerging market could also reflect the potential for the rapid economic development of another nation with no change in existing trade restrictions directed against the United States or directed against that nation by the United States. For instance, the massive economic reform program begun in July 1991 in India, and still ongoing, has helped to transform its previously stagnant economy. India's moves to deregulate lending rates and bank reserve requirements, its plans to privatize such public services as the telephones, its revamping of foreign investment regulations, and its reduction of many tariffs, have created strong economic growth. With this comes a related U.S. export potential of goods and services directed toward India's steady economic strength.
AFFECTS OF MERCOSUR
The free trade inroads made following the creation in 1991 of the South American customs union, Mercosur, have strengthened the economies of its four signatory nations: Argentina, Brazil, Uruguay, and Paraguay. Mercosur, which formally took effect on January 1, 1995, has added a source of economic strength independent of trade outside of South America. It is at least in part the potential strength of Mercosur that has led to continued interest in the four nations. Thus, both Paraguay and Uruguay continue to prosper directly from their participation in the Mercosur trade liberalization. For example, Paraguay, a major producer of cotton, has traditionally exported only as raw material 90 percent of its cotton to Brazil. Following the formation of Mercosur, it has been able to export manufactured cotton products such as thread and cloth to Brazil without paying duties. The result has been a boom in textile manufacturing in Paraguay.
Similarly, the position of Uruguay directly in the path between Buenos Aires and São Paulo has strengthened the nation's role as a transportation center due to duty-free trucking. The result is the current proposal to build the 47-kilometer bridge over the Rio de la Plata connecting the Uruguayan border city with the Argentine capital on the opposite bank. The bridge, when completed, would be the longest of its type in the world—and would reinforce Uruguay's position as a commercial crossroads. Additionally, the bridge, unthinkable before Mercosur, would substantially cut the transportation time between Mercosur's two greatest industrial centers.
The stability linked to Mercosur, coupled with a decade of economic austerity measures and with fewer protectionist trade policies, has also resulted in increased U.S. export opportunities. In Brazil, the calming of political turmoil, the implementation in November 1998 of marked economic austerity measures, and debt-equity swaps have enhanced Brazil as an emerging market despite its potential economic risks. Finally, Argentina's currency reform—tying the newly coined peso to the U.S. dollar—as well as its elimination of exchange controls and import quotas, has added considerably to its reputation as Mercosur's most attractive emerging market for U.S. investment, and enabled it to recover fairly rapidly from the Latin American economic crisis that had spread from Mexico in 1994.
EVERCHANGING STATUS
Probably, the clearest lesson of both the Mexican peso crisis and the East Asian economic crisis is that no list of emerging markets is ever stable. Once an emerging market does remain consistent, it is no longer "emerging"; rather it is an "established" market. Earlier emerging markets such as Greece, Spain, and Portugal have long since become established. Other markets have come to seem too established to include in a list of emerging markets although they may have grown to the level of established only recently (for example, Singapore).
Some potentially important markets may not be fully justified in being labeled as emerging markets—yet. These future or nascent emerging markets are myriad. One could argue for including Morocco, for example, since at an 11 percent growth rate, it had among the world's fastest growing gross national products in the late 1990s. Yet Morocco has little infrastructure for capitalizing on its rapid growth. One could argue for countries such as Colombia or Venezuela, but their internal political unrest arguably makes them somewhat suspect despite their economic strengths. Thus, any list of emerging markets should not be viewed as definitive but rather as continually evolving.
XXX . V000000 FUNDAMENTALS OF E-COMMERCE
1.0 INTRODUCTION
The cutting edge for business today is Electronic Commerce (E-commerce). Most people think E-commerce means online shopping. But Web shopping is only a small part of the E-commerce picture. The term also refers to online stock, bond transactions, buying and downloading software without ever going to a store. In addition, E-commerce includes business-to-business connections that make purchasing easier for big corporations. While there is no one correct definition of E-commerce, it is generally described as a method of buying and selling products and services electronically. The main vehicles of E-commerce remain the Internet and the World Wide Web, but use of email, fax, and telephone orders are also prevalent.
1.1 OBJECTIVES
After going through this unit, you will be able to
- define what is E-commerce
- discuss the applications of E-commerce
- discuss the types of E-commerce
- describe the life cycle of implementation of E-commerce
- differentiate between E-commerce and other forms of commerce
- list the modes of payments involved in E-commerce
Electronic commerce is the application of communication and information sharing technologies among trading partners to the pursuit of business objectives. E-Commerce can be defined as a modern business methodology that addresses the needs of organizations, merchants, and consumers to cut costs while improving the quality of goods and services and increasing the speed of service delivery. E-commerce is associated with the buying and selling of information, products and services via computer networks. Key element of e-commerce is information processing. The effects of e-commerce are already appearing in all areas of business, from customer service to new product design. It facilitates new types of information based business processes for reaching and interacting with customers – online advertising and marketing, online-order taking and on-line customer service etc. It can also reduce costs in managing orders and interacting with a wide range of suppliers and trading partners, areas that typically add significant overhead to the cost of products and services. Also E-commerce enables the formation of new types of information-based products such as interactive games, electronic books, and information-on demand that can be very profitable for content providers and useful for consumers. Virtual enterprises are business arrangements in which trading partners separated by geography and expertise are able to engage in complex joint business activities, as if they were a single enterprise. One example would be true supply chain integration, where planning and forecast data are transmitted quickly and accurately throughout a multi-tier supply chain. Another example would be non-competing suppliers with a common customer using E-commerce to allow that customer to do "one stop shopping" with the assurance that a single phone call will bring the right materials to the right location at the right time.
1.3 INFORMATION SUPERHIGHWAY (I-Way)
Any successful E-commerce application will require the I-Way infrastructure in the same way that regular commerce needs the interstate highway network to carry goods from point to point. A myriad of computers, communications networks, and communication software forms the nascent Information Superhighway (I-Way). The I-Way is not a U.S phenomenon but a global one, as reflected by its various labels worldwide. For instance, it is also called the National Information Infrastructure (NII) in the United States, Data-Dori in Japan and Jaring, which is Malay for "net" in Malaysia. The I-Way and yet-to-be developed technologies will be key elements in the business transformation. And while earlier resulted in small gains in productivity and efficiency, integrating them into the I-Way will fundamentally change the way business is done. These new ideas demand radical changes in the design of the entire business process. I-Way is not one monolithic data highway designed according to long-standing, well-defined rules and regulations based on well-known needs. The I-Way will be a mesh of interconnected data highways of many forms: telephone wires, cable TV wires, radio-based wireless-cellular and satellite. The I-Way is quickly acquiring new on-ramps and even small highway systems.
1.4 CONSUMER ORIENTED E-COMMERCE APPLICATIONS
The wide range of applications for the consumer marketplace can be broadly classified into
- Entertainment: Movies on demand, Video cataloging, interactive ads, multi-user games, on-line discussions
- Financial services and information: Home banking, financial services, financial news
- Essential services: Home shopping, electronic catalogs, telemedicine, remote diagnostics
- Educational and training: Interactive education, video conferencing, on-line databases
- BUILDING BLOCKS IN THE INFRASTRUCTURE OF E-COMMERCE APPLICATIONS
- Common business services, for facilitating the buying and selling process
- Messaging and information distribution, as a means of sending and retrieving information
- Multimedia content and network publishing, for creating a product and a means to communicate about it.
- The I-Way is the very foundation for providing the highway system along which all E-commerce must travel.
- PILLARS SUPPORTING THE E-COMMERCE APPLICATIONS
Technical standards – To dictate the nature of information publishing, user interfaces, and transport in the interest of compatibility across the entire network.
Electronic Commerce can offer both short term and long-term benefits to the companies. Not only can it open new markets, enabling you to reach new customers, but it can also make it easier and faster for you to do business with your existing customer base. Moving business practices, Such as ordering, invoicing and customer support, to network-based system can also reduce the paperwork involved in business-to-business transactions. When more of the information is digital, one can better focus on meeting your customer’s needs. Tracking customer satisfaction, requesting more customer feedback, and presenting custom solutions for the clients are just some of the opportunities that can stem from E-commerce.
1.8 MULTIMEDIA CONTENT FOR E-COMMERCE APPLICATIONS
Multimedia content can be considered both fuel and traffic for E-commerce applications. The technical definition of Multimedia is the use of digital data in more than one format, such as the combination of text, audio, video and graphics in a computer file/document. Its purpose is to combine the interactivity of a user-friendly interface with multiple forms of content. The success of E-commerce applications also depends on the variety and innovativeness of multimedia content and packaging. E-commerce requires robust servers to store and distribute large amounts of digital content to consumers. These multimedia storage servers are large information warehouses capable of handling various content. Theses servers must handle large-scale distribution, guarantee security and complete reliability.
1.9 CLIENT-SERVER ARCHITECTURE IN E-COMMERCE
All E-commerce applications follow the client-server model. Clients are the devices plus software that request information from servers. Servers are the computers which server information upon the request by the clients. Client devices handle the user interface. The server manages application tasks, handles storage and security and provides scalability (ability to add more clients as needed for serving more customers). The client-server architecture links PC’s to a storage (or database) server, where most of the computing is done on the client.
The client-server model allows the client to interact with the server through a request-reply sequence governed by a paradigm known as message passing. Commercial users have only recently begun downsizing their applications to run on client-server networks, a trend that E-commerce is expected to accelerate.
1.10 TYPES OF E-COMMERCE
The following three strategies are the focal points for E-Commerce
1.10.1 Business-to-business E-commerce: The Internet can connect all businesses to each other, regardless of their location or position in the supply chain. This ability presents a huge threat to traditional intermediaries like wholesalers and brokers. Internet connections facilitate businesses’ ability to bargain directly with a range of suppliers -- thereby eliminating the need for such intermediaries.
- Business-to-consumer E-commerce: One-way marketing. Corporate web sites are still prominent distribution mechanisms for corporate brochures, the push, one-way marketing strategy.
Relationship Marketing: The most prominent of these new paradigms is that of relationship marketing. Because consumer actions can be tracked on the web, companies are experimenting with this commerce methodology as a tool for market research and relationship marketing:
- Consumer survey forms on the web
- Using web tracking and other technology to make inferences about consumer buying profiles.
- Customizing products and services
- Achieving customer satisfaction and building long-term relationships
- Intra-company E-commerce: Companies are embracing intranets at a phenomenal growth rate because they achieve the following benefits:
Enhancing communications - effective communication and training of employees using web browsers builds a sense of belonging and community.
Distributing software - upgrades and new software can be directly distributed over the web to employees.
Sharing intellectual property - provides a platform for sharing expertise and ideas as well as creating and updating content - "Knowledge webs". This is common in organizations that value their intellectual capital as their competitive advantage.
Testing products - allows experimentation for applications that will be provided to customers on the external web.
While many technologies can fit within the definition of "Electronic commerce," the most important are:
- Electronic data interchange (EDI)
- Bar codes
- Electronic mail
- Internet
- World Wide Web
- Product data exchange
- Electronic forms
EDI is the computer-to-computer exchange of structured business information in a standard electronic format. Information stored on one computer is translated by software programs into standard EDI format for transmission to one or more trading partners. The trading partners’ computers, in turn, translate the information using software programs into a form they can understand.
Bar Codes
Bar codes are used for automatic product identification by a computer. They are a rectangular pattern of lines of varying widths and spaces. Specific characters (e.g. numbers 0-9) are assigned unique patterns, thus creating a "font" which computers can recognize based on light reflected from a laser.
The most obvious example of bar codes is on consumer products such as packaged foods. These codes allow the products to be scanned at the check out counter. As the product is identified the price is entered in the cash register, while internal systems such as inventory and accounting are automatically updated.
The special value of a bar code is that objects can be identified at any point where a stationary or hand held laser scanner could be employed. Thus the technology carries tremendous potential to improve any process requiring tight control of material flow. Good examples would be shipping, inventory management, and work flow in discrete parts manufacturing.
Electronic Mail
Messages composed by an individual and sent in digital form to other recipients via the Internet.
Internet
The Internet is a decentralized global network of millions of diverse computers and computer networks. These networks can all "talk" to each other because they have agreed to use a common communications protocol called TCP/IP. The Internet is a tool for communications between people and businesses. The network is growing very, very fast and as more and more people are gaining access to the Internet, it is becoming more and more useful.
World Wide Web
The World Wide Web is a collection of documents written and encoded with the Hypertext Markup Language (HTML). With the aid of a relatively small piece of software (called a "browser"), a user can ask for these documents and display them on the user’s local computer, although the document can be on a computer on a totally different network elsewhere in the world. HTML documents (or "pages," as they are called) can contain many different kinds of information such as text, pictures, video, sound, and pointers, which take users immediately to other web pages. Because Web pages are continually available through the Internet, these pointers may call up pages from anywhere in the world. It is this ability to jump from site to site that gave rise to the term "World Wide Web." Browsing the Web (or "surfing the Net") can be a fascinating activity, especially to people new to the Internet. The World Wide Web is by far the most heavily used application on the Internet.
Product Data Exchange
Product data refers to any data that is needed to describe a product. Sometimes that data is in graphical form, as in the case of pictures, drawings and CAD files. In other cases the data may be character based (numbers and letters), as in the case of specifications, bills of material, manufacturing instructions, engineering change notices and test results.
Product data exchange differs from other types of business communications in two important ways. First, because graphics are involved users must contend with large computer files and with problems of compatibility between software applications. (The difficulty of exchanging CAD files from one system to another is legendary.) Second, version control very quickly gets very complicated. Product designs, even late in the development cycle, are subject to a great deal of change, and because manufacturing processes are involved, even small product changes can have major consequences for getting a product into production.
Electronic Forms
Electronic forms is a technology that combines the familiarity of paper forms with the power of storing information in digital form. Imagine an ordinary paper form, a piece of paper with lines, boxes, check-off lists, and places for signatures. To the user an electronic form is simply a digital analogue of such a paper form, an image, which looks like a form but which appears on a computer screen and is filled out via mouse, and keyboard. Behind the screen, however, lie numerous functions that paper and pencil cannot provide. Those extra functions come about because the data from electronic forms are captured in digital form, thus allowing storage in data bases, automatic information routing, and integration into other applications.
1.12 DETERMINING TECHNOLOGICAL FEASIBILITY
As business needs are determined, it is necessary to establish the technological feasibility of various E-commerce plans that could meet the needs. The starting point should be a clear sense of what functions each E-commerce technology can provide to improve business functioning. We summarize these in the below given table :
Most Powerful Functions of Each E-commerce Technology
| |
Technology
|
Business Value
|
| EDI |
|
| Bar Code |
|
| Electronic mail |
|
| World Wide Web |
|
| Product Data Exchange |
|
| Electronic Forms |
|
1.13 ELECTRONIC COMMERCE VERSUS OTHER FORMS OF COMMERCE
The methods of doing business differ from traditional commerce to the extent to which electronic commerce combines information technology, telecommunications technology, and business processes to make it practical to do business in ways that could not otherwise be done. To illustrate, let’s draw on some examples. In each of these cases technology and business process must work together if EC is to be successful.
Example of EC
|
Technology
|
Business Process
|
| Information access Manufacturer provides suppliers with access to data base on Electronic commerce networks | Customer
|
|
| Interpersonal communication services Joint customer - supplier design |
|
|
| Shopping services Web to shop for commodities | Seller
| Seller
Buyer
|
| Virtual enterprise Integrated supply chain |
|
|
1.14 IMPLEMENTATION OF E-COMMERCE: A LIFE CYCLE APPROACH
Proper implementation requires deliberate attention to seven stages of technology life cycle :
- Awareness Training: Provides an understanding of what the technology is, a general sense of what it can do for a business, and how to begin implementation.
- Business Analysis: It is easy to jump immediately from "awareness" to the details of "requirements analysis", but doing so is a mistake. To assure maximum value from EC, there must be a thorough understanding of how the new technology can help the business.
- Requirements Analysis: Yields an understanding of what kind of EC functionality is needed to meet business requirements. As an example: business need equals to keep customers informed of changing product availability and price. Requirement equals to web based catalogue.
- Design: Sets out specifics, e.g. Who are my potential vendors? By when do I need different parts of the system up and running? What will the system cost?
- Implementation: The system becomes real. New technology comes in the door. Training is conducted. New business process begins to function. And so on.
- Integration and Validation: Make sure the system performs as per its specifications.
- Maintenance: Keeps the system running, deals with unforeseen circumstances, and plans for improvement.
1.15 ELECTRONIC SHOPPING CART
An electronic shopping cart works the same way a shopping cart does in the physical world. As you browse through an online store, you can place products in your virtual shopping cart, which keeps track of the products you have placed in it. When you're ready to leave the store, you click a "check out" link that shows you what you've placed in your virtual shopping cart. You can usually remove items that you're no longer interested in purchasing and then enter your shipping and payment information to process your order.
1.16 IS E-COMMERCE SAFE?
No e-commerce system can guarantee 100-percent protection for your credit card, but you're less likely to get your pocket picked online than in a real store. Although Internet security breaches have received a lot of press attention, most vendors and analysts argue that transactions are actually less dangerous in cyberspace than in the physical world. For merchants, E-commerce is actually safer than opening a store that could be looted, burned, or flooded. The difficulty is in getting customers to believe that E-commerce is safe for them. Consumers don't really believe it yet, but experts say E-commerce transactions are safer than ordinary credit card purchases. Ever since the 1.0 versions of Netscape Navigator and Microsoft Internet Explorer, transactions can be encrypted using Secure Sockets Layer, a protocol that creates a secure connection to the server, protecting the information as it travels over the Internet. SSL uses public key encryption, one of the strongest encryption methods around. A way to tell that a Web site is secured by SSL is when the URL begins with https instead of http.
Browser makers and credit card companies are promoting an additional security standard called Secure Electronic Transactions (SET). SET encodes the credit card numbers that sit on vendors' servers so that only banks and credit card companies can read the numbers.
1.17 SYSTEMS OF PAYMENTS IN E-COMMERCE
E-commerce is rife with buzzwords and catchphrases. Here are some of the current terms people like to throw around:
1.17.1 Credit card-based: If consumers want to purchase a product or service, they simply send their credit card details to the service provider involved and the credit card organization will handle this payment like any other.
1.17.2 Smart cards: These are credit and debit cards and other card products enhanced with microprocessors capable of holding more information than the traditional magnetic stripe. The chip can store significantly greater amounts of data, estimated to be 80 times more than a magnetic stripe. Smart cards are basically of two types:
Electronic Purses: These are wallet-sized smart cards embedded with programmable microchips that store sums of money for people to use instead of cash for everything from buying food to paying subway fares.
1.17.4 Electronic checks: Currently being tested by Cybercash, electronic checking systems such as PayNow take money from users' checking accounts to pay utility and phone bills.
1.17.5 Electronic wallet: This is a payment scheme, such as Cybercash’s Internet Wallet, that stores your credit card numbers on your hard drive in an encrypted form. You can then make purchases at Web sites that support that particular electronic wallet. When you go to a participating online store, you click a Pay button to initiate a credit card payment via a secure transaction enabled by the electronic wallet company's server. The major browser vendors have struck deals to include electronic wallet technology in their products.
1.17.6 : Transactions in amounts between 25 cents and $10, typically made in order to download or access graphics, games, and information, are known as micropayments. Pay-as-you-go micropayments were supposed to revolutionize the world of E-commerce..
1.18 SUMMARY
E-commerce is a new way of conducting, managing and executing business transactions using computer and telecommunications networks. As awareness of the Internet throughout the commercial world and general public increases, competitiveness will force lower entry barriers, continued rapid innovation and expansion of markets. The real key to making electronic commerce over the Internet a normal, everyday business activity is the convergence of the telecommunications, content/media and software industries. E-Commerce is expected to improve the productivity and competitiveness of participating businesses by unprecedented access to an on-line global market place with millions of customers and thousands of products and services.
1.19 GLOSSARY
CGI script: Common gateway Interface is a scripting system designed to work with HTTP Web Servers. The scripts, usually written in the Perl coding language, are ofter used to exchange data between a Web server and databases.
Digital Cash: An electronic replacement of cash.
Joint Electronic Payments Initiative (JEPI): This initiative, led by the World Wide Web Consortium and CommerceNet, is an attempt to standardize payment negotiations. On the buyer’s side (the client side), JEPI serves as an interface that enables a Web browser, and wallets, to use a variety of payment protocols. On the merchant’s side(the server side), JEPI acts between the network and transport layers to pass off the incoming transactions to the proper transport and payment protocols.
Microcash: Small denomination digital tokens.
Microtransactions: Low-cost, real-time transactions using microcash.
Smart cards: A credit card-sized plastic card with a special type of integrated circuit embedded in it. The integrated circuit holds information in electronic form and controls who uses this information and how.
Tokens: Strings of digits representing a certain amount of currency. The issuing bank validates each token with a digital stamp.
Value added networks: Networks that are maintained privately and dedicated to EDI between business parteners.
= MA THEREFORE TRANSMISION AND DISTRIBUTION ON MODERN FINANCE MATIC=
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