E-commerce communications strategies and practices

E-Commerce Communications

Electronic commerce or e-commerce is the term used to describe all forms of information exchange and business transactions based on information and communication technologies. There are different types of formal definitions of e-commerce, but the wide scope involved has resulted in many definitions focusing on only certain aspects. A fairly comprehensive definition covers e-commerce from four different perspectives (Kalakota and Whinston, 1997, p.38) - communications, business process, service and online. From a communications perspective, e-commerce is the transfer of information, products, services and payments over communication and electronic networks. The business process is about application of information and communications technology for automation of business activities and transactions. From a service perspective, e-commerce provides solutions to consumers and organizations for enhancing business performance and efficiency such as improvement in quality, deliverables and resolving customer complaints in quick time. The online element of e-commerce allows buying and selling of products on the internet and other online systems. Since, e-commerce involves transactions between business partners; there is a common tendency to use the term e-business as an alternative. The terms are also used interchangeably. It is generally accepted that e-business is a broader version of e-commerce and includes not just buying and selling, but also servicing customers, collaborating with business partners and carrying out electronic communications within the organization. In the words of Lou Gerstner's who served as Chief Executive Officer of IBM, "E-business is all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage." (Turban, Lee; King and Michael, 2000, p.78)

Electronic commerce is commonly classified by the nature of transaction. Business-to-business (B2B) is one of the most common forms of transactions that takes place across the world and includes inter-organizational system transactions and electronic market transactions. Business-to-consumer (B2C) includes retailing transactions, with sellers offering goods and services to individual shoppers and consumers. In the consumer-to-consumer (C2C) category, the transaction is between consumers themselves, without the intervention of producers; middlemen may or may not be involved. C2C is mostly personal in nature as the transaction is between one individual and another. Examples include sale of residential property, antiques, cars and personal computers. Consumer-to-business (C2B) is essentially the reverse of B2C, where consumers, mostly individuals sell products and services to organizations or other sellers. A growing type of e-commerce is the non-business type, wherein academic institutions, non-business and non-profit organizations use electronic commerce to reach out to more people, reduce costs and improve service. Intra-business or organizational e-commerce refers to activities and transactions within the organization. This is used for ensuring instant and cost-effective communication among employees spread over wide geographical area, exchange of data and information on the business and online training. (Whiteley, 2000, p.88)

There are three broad categories of e-commerce - electronic markets, electronic data interchange and internet commerce. While the categorization is based on differences in application and functional attributes, in practice they often overlap each other. An electronic market is an information system that enables buyers and sellers to exchange information about products and prices. (Been, et al., 1995, p.3). Thus, the primary function of electronic markets is to assist the buyer in her search for the required products; for the sellers, it facilitates spread of information of the products to several buyers simultaneously, thus enhancing the probability of sale. Electronic market is generally associated with B2B or B2C categories of e-commerce. It is very effective in commodity markets, where products and price offerings are more or less similar across the entire market. For example, international trade in commodities such as wheat, rice, cotton, edible oils, cotton, and metals is greatly benefited by electronic markets, where buyers can have multiple options in terms of product specifications, price, and place of delivery while the sellers can have access to large number of customers across the world. In view of the global reach of the electronic markets, buyers are increasingly carrying out extensive searches till they find the best buy at the lowest cost. Thus, there is a view that electronic market in the commodity business is more efficient distribution of market information which can lead to 'best buys' for buyers and decreasing profit possibilities for sellers (Been et al., 1995, p.4). A major world wide application of electronic markets is in the commercial airline passenger booking system. Passengers can locate available seats, decide on the time and type of airline and also bargain for attractive prices.

In electronic markets, two types of buyer-seller relationships exist. One, the linkage between buyer and seller is established at the time of transaction and may be for one transaction only. Two, there is a definite purchase agreement between the seller and buyer, over a period of time, which is also referred to as subscription transaction. Electronic markets are invariably built around freely accessible networks and online service providers generally play the role of market makers. Typically, the sellers, in collaboration with market makers decide which business transactions they will offer in the electronic market. Communication networks are usually decided both by the sellers and consumers and may vary for different transactions. A distinct feature of electronic markets is that no joint guidelines are framed in advance between buyer and seller. (Amor, 1999, p.25)

Electronic Data Interchange (EDI) is used for routine transactions that occur on a regular basis in organizations. It is popularly referred to as paperless trading. The International Data Exchange Association has defined EDI as 'the transfer of structured data, by agreed message standards, from one computer system to another, by electronic means.' This definition comprises of four elements, integral to all EDI systems. Structured data refers to the codes, values and pieces of text that are used in EDI transactions. For instance in the process of selling products, each customer is assigned a code, each order has a unique identification number, each product has unique code and every order is quantified and valued. The method of structuring data is useful as all transactions can be recorded systematically, business done during any period can be estimated quickly and information made available on delivery, payments received and due from customers. These valuable data can be stored for years and retrieved as and when necessary for analysis, which can help in formulating future strategies. (Berge, 1991, p.45)

The second component in the definition is 'agreed message standards', which implies that any EDI transaction must have a standard format. The objective of a standard format is to enable the business deal with all customers uniformly and to eliminate confusions while dealing with several customers. In an organization, purchase orders, work orders and service contracts generally have standard formats; these are examples of agreed message standards. The third element is 'from one computer system to another', that is EDI messages are sent from one computer to another; it is not necessary for people to read the message or once again key it into the receiving system. It is done automatically - for example, there could be an EDI system between a supplier and a buyer in such a way that the buyer can place an order on the EDI, which would be automatically received and processed at the supplier's end. The final element in the definition is 'by electronic means'. EDI messages are generally transferred by data communication systems or networks; however, physical transfer using a floppy disk, magnetic tape or compact disk would also come within the ambit of EDI.

Traditionally, EDI systems functioned on the expensive value added networks, which were generally confined among large companies, due to the investment involved. For instance, the United Nations EDI for administration, commerce and trade (EDI-FACT), is one of the most popular traditional EDIs. In the United States, ANSI X.12 is widely used. Traditional EDI companies such as IBM and AT&T use leased or dedicated telephone lines or value added network for data exchanges. Global manufacturers and retailers such as Unilever, Procter and Gamble, Toyota and Wal-Mart have used successful EDI to improve quality and service to customers and reap rich profits. However, the traditional EDI prevented such large companies having business links with numerous small companies from using the EDI. The advent of internet has revolutionized the usage of EDI, as it enables all companies, irrespective of size to communicate effectively. The internet seems to be the best suited medium for EDI, for a variety of reasons:

the internet is a freely accessible network with little or no geographical and political constraints the global reach of internet is far superior to any other form of communication medium usage of internet is cost effective and the costs are going down as the number of users increase the internet is user-friendly, self-supportive and can communicate from any part of the world using the internet for EDI is in line with the growing interest of businesses to deliver information electronically, especially through the world wide web (Commission of the European communities, 1992, p.3)

In view of the above advantages, internet-based EDI has the potential to completely replace the conventional EDI systems. Types of internet-based EDI: Internet e-mail can be used in place of value added network to support the transfer of data in EDI. Alternatively, companies can create extranet systems through which trading partners can exchange information in web form, whose fields correspond to the fields in EDI messages. The third option is for companies to make use of the services of a web-based EDI hosting service, which will enable them to provide their own EDI services over the internet. Netscape Enterprise is an example of web-based EDI software available to companies. (Commission of the European communities, 1992, p.4)

The central element to EDI is the coding and structuring of the data into a common and accepted format, which is no easy task. There are many EDI standards developed in various industry sectors or in specific countries and there are complex structures and procedures to support the standards. The need for standards stems from the reality that without a common format, data is meaningless and results in a situation where large amount of data in various forms creates confusion among trading partners, users and consumers. As EDI involved transfer of data or information from one computer system to another, different formats will not produce the desired results as processing becomes cumbersome. When the format is standard, then it is simple to process and complete the transactions to the satisfaction of all concerned. The typical EDI standard attempts to provide a standard for data exchange that is standardized and available for use, independent of hardware and software, independent of the special interest of any party in the trading network and completely covers data requirements. In essence, EDI standards provide a common language for transfer of information and data between the partners. (Hagel and Armstrong, 1997, p.66)

The evolution of EDI standards is quite complex and began from the formats used for file transfer of data between computer applications. However, there are three broad stages through which the EDI developed into its present form. The earliest stage was the development of formats by organizations that had to process large volumes of data on a routine basis. In this stage, the data recipients framed the standard and customer followed it. In the second stage, EDI transformed into an application independent interchange standard, primarily developed by industry sectors and national bodies to serve the requirements of specific user communities. The third stage of evolution resulted when the sector and national standards could not keep pace with the growing requirements of cross sectoral and international trade, which demanded further sophistication and standardization of formats between organizations in various countries. Since international trade involved a lot of documentation covering shipping, customs, financing, payments, insurance and statutory procedures, there was a definite need for common formats. This compulsion resulted in the birth of EDIFACT, under the aegis of the United Nations and developed as a universal standard for commercial EDI. (Emery, 1999, p.3)

EDIFACT, acronym for Electronic Data Interchange for Administration, Commerce and Transport, was originally a European standard. It first appeared in the mid eighties due to the efforts of United Nations Economic Commission for Europe, supported by the Commission of the European Union. The United Nations promoted the development of standards on trade documentation; a notable effort was the standardization of invoices, which was very important to companies that processed a large number of invoices. EDIFACT truly became international when it was accepted as the world standard by the United States of America. Although America had its own EDI standard, the American National Standards Institute (ANSI) X12, it decided to adopt the EDIFACT as the international standard. The EDIFACT standard, like all standards, focuses on the exchange of electronic documents. (Rowan, 1999, p.32)

There are eleven sectors covered by EDIFACT - transport, customs, finance, construction, statistics, insurance, tourism, healthcare, social administration, public administration and public procurement. In respect of trading, the documents include order, dispatch advice, invoice, and payment order and remittance advice. EDIFACT messages are transmitted in an electronic envelope known as an interchange, within which there can be any number of messages. The messages are comprised of data segments, which in turn have tags and data items. The tag serves as identified for the data segment and the data items or elements provide the codes and values in the document. Once the message is transmitted, users access the data segment relevant to their particular needs. Sectoral and national EDI standards have been quite popular among trade sector organizations for exchange of general business documents. In the United Kingdom, one of the widely used earlier standards was the ODETTE or Organization for Data Exchange by Tele-transmission. TRADACOMS is the UK EDI standard for general trade including retailing, while Germany and France developed SEDOS and GENCOD respectively. Most of the countries are planning to evolve their standards to the EDIFACT, so that they become truly international. (Whiteley, 1995, p.89)

For ease of use, data transmitted is generally in the form of codes. Products, customers and prices can be coded rather than sending the entire descriptions every time. Codes not only save time, but also improve efficiency and reliability. European Article Number (EAN) and Universal Product Code (UPC) are used for bar codes on goods in Europe and the United States respectively. For instance, the EAN is a 13-digit coding system, the first two digits denoting the country; the next five indicating the manufacturer prefix number, the next five for item reference and the last two digits denote the check digit. For certain merchandise that is not used in large volumes, the option of 8-digit EAN is available. For the EDI to function and interface with the communication networks, software is essential. The efficiency and speed of the EDI system depends on the software and its flexibility to operate on a variety of computers. The users may be employing a range of computers from a simple personal computer to a complex mainframe system and unless the software is able to run on various systems, its use can become restricted. Generally, the EDI software is sourced from specialist suppliers.

However, it is common for the software to be supplied by one of the major trading partners or it may be provided as part of an application package by the developer as an integral or value-added feature. In some cases the value added network supplier may also provide the EDI software as part of his efforts to enhance business prospects. Another possibility is that some third parties may provide the EDI software as product or service line extension - for example, banks provide the software for collection and accounting of payments involved in electronic transactions. With advanced technology and the growth of electronic documentation, EDI software suppliers provide additional and value added features. These include interfacing with the value added network, support of multiple EDI standards, sophisticated facilities for ease of formatting internal application data, option for encrypting EDI message and options for transactions by facsimile or e-mail to those customers not using EDI. (Champy; Buday and Nohria, 1996, p.26)

EDI can find use in any organization where the administrative processes are computerized and there is exchange of standardized transactions with other organizations on a regular basis. Bhs, the mega retailer in fashion goods with about 120 retail outlets across Europe is one of the extensive users of EDI. The company places order with its 400-odd suppliers through the EDI, with the primary objective of ensuring just-in-time supply. In 1994, Bhs estimated that it could be processing about four-and-a-half million replenishment decisions every week through the EDI system. The objective of communication processes in EDI is the execution and settlement of exchanges of the trade cycle. A typical communication cycle for execution of a purchase order will involve the following steps: (1) Customer sends order to the supplier (2) Supplier sends the goods and delivery note (3) Supplier follows up the delivery note with invoice (4) Customer makes payment against the invoice and sends payment advice. This four step procedure perhaps represents an ideal communication process and in practice, the transactions are much more complex. Hence there is need for building in more flexibility for addressing complex situations such as amendment to orders, cancellation of orders and supplier's inability to execute the order. (Norris; West and Gaughan, 2000, p.61) six stage maturity model is often used to describe the evolution of EDI (Whiteley, 1995, p.16). The six stages include discovery, introductory, integration, operational strategic and innovative. The first stage, discovery, happens when an organization realizes the need for EDI to solve administrative problems and address customer requests. Such a need intensifies, when competition has already put an EDI system in place and started reaping the benefits. In the introductory stage, organizations usually start with pilot schemes for evaluating the feasibility of the proposed EDI system. The pilot EDI system is tested with one or few trading partners. Based on the initial experience and results, the pilot scheme is modified, fine tuned and standardized for implementation with all trading partners. The introductory stage entails investment for hardware and software and may not guarantee immediate results. The third stage, integration involves the interface the EDI software with the business applications software to enable automatic electronic transfer of EDI messages. Unless proper integration is achieved, the benefits of EDI can never be fully achieved. In the operational stage, organizations attempt to realize the savings of time and cost and eliminate transactional errors. For achieving significant cost savings, the EDI usage must reach a critical mass in terms of the numbers of partners and the frequency of transactions. The strategic stages, allows the organization to make fundamental changes in established business practices to improve efficiency and reduce costs. This may need continuous review of the strategies adopted in the EDI transactions. For instance, the development of just-in-time manufacture and quick response supply practices on the EDI, it is possible to achieve drastic reduction in processing time and dispense with intermediary functions such as inventory holding. The six and the last stage, innovative stage can provide the platform for organizations to change the very nature of products and services, for gaining competitive advantage in the market place. A good example of EDI based innovation is car maker Rover Cars, which stopped producing cars for inventory and took up production only based on orders, following the implementation of EDI. With the aid of EDI, Rover was able to cut down the car production cycle from seven weeks to two. (Turban, Lee; King, and Michael, 2000, p.81)

There is a general feeling that the rapid evolution of internet e-commerce has the potential to make EDI redundant. However the reality is different, as the two systems serve to meet different objectives. Internet e-commerce provides the platform for searching of products and generally for making specific purchases. Customers use internet e-commerce to ensure purchase of products at competitive prices and do not pay too much attention on the sellers. However, EDI is an application to application interface meant for routine and repetitive transactions of the organization with numerous customers. It is therefore not feasible to completely replace EDI with internet e-commerce. In fact, from the perspective of e-commerce vendors, EDI will be a main element of the supply chain. Intranet is a corporate local area network (LAN) or a wide area network (WAN) that is based on internet technology, protected by firewall systems. The intranet performs the function of linking databases, servers, clients and application programs like Enterprise Resource Planning. Intranets are based on the same TCP/IP protocol as the internet, yet function in closed circuits which limit access only to authorized people. Firewalls protect the system from unauthorized interference. Since intranet uses the internet as the medium for connectivity, it eliminates the need for separate leased networks. (Emery, 1999, p.4)

An extended form or internet is the extranet, which uses the TCP/IP protocol of internet to link intranets in different locations. The direct advantage is the capability of business to have low cost networks, irrespective of the locations. But the major concern is that the extranet is vulnerable to external attack as the transactions are conducted over the internet. Security of extranet is enhanced by creating tunnels of data flows, with the aid of cryptography and authorization algorithms. Such a technology is popularly referred to as virtually private network. (VPN). With a protected environment, extranets allows groups to collaborate and share information exclusively. To improve security, companies separate databases they are willing to share with business partners from the regular intranets. The acceptance and reach of intranet is growing at exponential proportions. For instance according to Forrester Research in 1997, 64% of the Fortune 1000 companies already had intranet. During that time, 32% were in the process of building intranets (Maddox, 1997, p.14). Intranet can provide a wide range of generic functions including database access, interactive communication, document distribution and workflow, telephony, integration with e-commerce and extranet. The type of information that is most commonly included in intranets include corporate policies and procedures, document sharing, directories, training programs, customer databases, product catalogues, purchase orders and travel reservation services. (Chabrow, 1998, p.12). Some of these functions such as purchase orders and travel reservation services are directly related to electronic marketing.

The application of intranet has been so wide spread, that it is difficult to cover all areas. Attempts have been made to classify the applications of intranet based on the functional areas (Robinson, 1996, p.106). These include electronic commerce, customer service, reduced time to market, enhanced group decision and business process, virtual organizations, document management, software distribution, project management, training and transaction processing. One of the major benefits of intranet is the elimination of paper based information delivery, which results in lower costs and greater efficiencies. Thanks to the rapid advances in technology, intranet applications are frequently classified by industry. The classification by InformationWeek Online on the top 100 intranet and extranet solutions is based on industry - financial services which includes banking, stock exchanges, commodity exchanges, insurance and other financial services, information technology, manufacturing, retail and services.

The application of intranet in services comprise of construction, engineering, education, environmental, health care, media, entertainment, telecommunications, transportation and utilities. Some of the global companies which have successful intranet systems are FedEx, Compaq, Silicon Graphics and Lockheed Martin. For instance, FedEx has an intranet system linking more than 60 internal web sites used by employees. An unique function of this intranet is the package tracking system, that enables customers to know the status of packages sent or expected. This service has resulted in customers tracking their packages, while employees are left with more time to attend to other problems. Since the customer cannot access any other part of the intranet, business confidentiality is assured. It has been estimated that the intranet saved over USD 2 million every year in operating costs. In due course, FedEx implemented and innovative system, wherein it provided computer systems to retailers who shipped the orders. (Robinson, 1996, p.107).

Extranets are gaining in popularity since it overcomes the limitation of distances and has all the virtues of intranet systems. They grant access to external business partners, suppliers and customers to a restricted portion of the business network. Extranet applications are available in four categories. Extranet development tools offer inputs to design extranet servers, customer data base, security, electronic commerce applications and electronic catalogues. Extranet hosing and network connectivity deal with security of networks and provide extranet services for corporations. Extranet services impart expertise on extranet design and services for corporate clients. Virtual private networks enable networking remote users and providing wide area networks for corporations. There are four types of extranet service providers - consultants, developers, system integration firms and internet services providers for design, development, integration and hosting of extranet services. (Szuprowicz, 1998, p.55). The benefits of extranets are numerous; the major ones include enhanced communications, productivity improvement, business performance improvement, cost reduction and efficient information delivery. A powerful application is the embedded extranet which allows access to different trading partners for collective benefit. For example, FedEx manages the shipping and delivery of products for Cisco. Customers of Cisco cannot find out the status of their consignment through Cisco's network and instead depend on the computer network of FedEx. To solve this inconvenience, FedEx provided dynamic links to Cisco's website. The customer can now request the status on Cisco's webpage, which will divert the request to FedEx's server over the embedded extranet. FedEx network reports the status of the consignment to the Cisco webpage, which can be accessed by the customer. Thus, the embedded extranet has a major role to improve the dynamics of supply chain management in future.

In internet commerce, the internet plays a vital role in exchange of transactions. There are several components that enable communication over the internet. The network protocol used on the internet is the Transmission Control Protocol/Internet Protocol (TCP/IP). In this protocol, messages are split up into segments or packets and dispatched into the network with source and destination addresses plus header information along with a unique sequence number. The packets are then re-assembled at the receiving system and the message is reproduced. Thus, the TCP/IP protocol plays a very important role in error-free communication of messages. The internet service provider (ISP) provides users the access to the internet through a modem which connects the user computer to the internet. Commercial uses of the internet are varied and provide far-reaching benefits to users. The World Wide Web and electronic mail are two of the most extensively used facilities for communication across the internet. The world-wide-web is an ocean of information, which can be accessed by users. This facility has resulted in reduction of costs and time for collecting information on a wide range of subjects. Websites of individuals and companies are used for communication in business transactions. Electronic mail or e-mail has perhaps revolutionized the way in which people communicate. Communication via e-mail is faster, cheaper, time and location independent and eliminates paper work and replication. The biggest advantage of e-mail is that large volumes of data can be communicated to any number of users instantly and such communication can be kept as a record for future reference. (Emery, 1999, p.6)

The success of internet commerce applications largely depends not just on transfer of information and data, but on error-free completion of commercial transactions. In other words, the transaction is complete only if the buyer gets his order delivered and the seller received the payment. The commonest payment method in business to consumer electronic commerce is credit card. However, the security concerns over credit card information and authentication has dissuaded many buyers to stay off internet payment systems. To provide security and privacy, companies use the Secure Socket Layer protocol. Later, two major credit card companies, Visa and MasterCard jointly developed a more reliable protocol, the Secure Electronic Transmission (SET). Despite the advent of these protocols, the fear of security and privacy over providing credit card information over the internet is still prevalent among buyers. Other forms of payments transfer over the internet include electronic funds transfer, debit cards, electronic check systems, stored-value cards and electronic cash. Efforts are in progress to integrate the various payment systems, including payments by internet and non-internet systems to overcome the difficulties faced by buyers and sellers in making and realizing payments. (Kalakota, and Whinston, 1997, p.41) major successful use of the internet is in business to business (B2B) transactions. The B2B electronic commerce is an attempt to link companies without additional network systems. Entities of B2B electronic commerce are the selling company, the buying company, electronic intermediary, deliverer, network platform, protocols and communication and back-end information system. Each of these elements play a defined role in the B2B transactions and the integration all these roles is central to the success of B2B electronic commerce, There are different models of B2B - supplier oriented market place, buyer oriented market place and intermediary oriented market place. In the supplier oriented market place model, both individual consumers and business buyers use a common market place provided by the supplier; for example the supplier's electronic store which offers information on the products catalogue and order information. Dell, Intel, Cisco and IBM are some of the companies, which have used this model successfully. It has been reported that, in 1998, Dell sold as much as 90% of its computers to business buyers through the internet. (Rowan, 1999, p.32)

An important variant of the supplier oriented marketplace is electronic auctions, which permits select buyers to procure goods at high discount rates; for the sellers, this gives the chance to dispose off surplus goods. The supplier-oriented market place, however, requires that buyers manually enter the order information into its own company information system. This can be time consuming and expensive for companies such as General Electric and Boeing, which buys several items on the internet at any given point of time. Buyer oriented market place overcomes this problem, by enabling large corporations to open their own marketplace on the internet and invite bids for the items they wish to procure. An electronic intermediary company establishes the intermediary oriented market place, where sellers and buyers meet for conducting transactions. This is the best option for medium and small-scale buyers and sellers, as they cannot afford to have their own marketplaces. Intermediary oriented market place includes third party electronic bidding, auctions and bartering. One of the popular intermediary market place is General Electric's TPN Post, which its own bidding site to facilitate other buyers submit requests for quotations. (Parker, 1996, p.95)

In business-to-business networking, a revolutionary development is the evolution of virtual corporation, which is defined as an organization composed of several business partners, agreeing to share costs and resources with the objective of producing a product or service. Permanent virtual corporations are formed to create or utilize productive resources rapidly, frequently and concurrently. The functioning and management of a virtual corporation depends on the B2B e-commerce platform. There are three major objectives of a virtual corporation - excellence in core competence, optimum utilization of the resources of business partners and making the best of market opportunities. Various other B2B models such as business-to-business auctions, managed interactive bidding, facilitating auctions and bartering and business-to-business services, strive to provide efficient platforms for transacting business between companies. (Norris; West and Gaughan, 2000, p.63)