Management Information Systems:
Managing the Digital Firm
Seventeenth Edition, Global Edition
Chapter 10
E-commerce: Digital Markets, Digital
Goods
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Learning Objectives
10.1 What are the unique features of e-commerce, digital markets, and
digital goods?
10.2 What are the principal e-commerce business and revenue models?
10.3 How has e-commerce transformed marketing?
10.4 How has e-commerce affected business-to-business transactions?
10.5 What is the role of m-commerce in business, and what are the most
important m-commerce applications?
10.6 What issues must be addressed when building an e-commerce
presence?
10.7 How will MIS help my career?
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E-commerce Today
• E-commerce: Use of the Internet and Web to transact business
• Began in 1995 and grew exponentially; still stable even in a recession
• Companies that survived the dot-com bubble now thrive
• The new e-commerce: social, mobile, local
• Move from desktop to smartphone
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Figure 10.1 The Growth of E-commerce
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Why E-commerce is Different (1 of 2)
• Ubiquity
– Marketspace is virtual
– Transaction costs reduced
• Global reach
– Transactions cross cultural and national boundaries
• Universal standards
– One set of technology standards: Internet standards
• Richness
– Supports video, audio, and text messages
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Why E-commerce is Different (2 of 2)
• Interactivity
• Information density
– Greater price and cost transparency
– Enables price discrimination
• Personalization/customization
– Technology permits modification of messages, goods
• Social technology
– Promotes user content generation and social
networking
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Key Concepts in E-commerce –
Digital Markets and Digital Goods in a
Global Marketplace
• Internet and digital markets have changed the way companies conduct
business
• Information asymmetry reduced
• Menu costs, search and transaction costs reduced
• Dynamic pricing enabled
• Switching costs
• Delayed gratification
• Disintermediation
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Figure 10.2 The Benefits of
Disintermediation to the Consumer
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Digital Goods
• Goods that can be delivered over a digital network
• Cost of producing first unit is almost entire cost of product
• Costs of delivery over the Internet very low
• Marketing costs remain the same; pricing highly variable
• Industries with digital goods are undergoing revolutionary
changes (publishers, record labels, etc.)
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Types of E-commerce
• Three major types
– Business-to-consumer (B2C)
▪ Example: Amazon.com
– Business-to-business (B2B)
▪ Example: Elemica
– Consumer-to-consumer (C2C)
▪ Example: eBay
• E-commerce can be categorized by platform
– Mobile commerce (m-commerce)
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E-commerce Business Models
• Portal
• E-tailer
• Content provider
• Transaction broker
• Market creator
• Service provider
• Community provider
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E-commerce Revenue Models
• Advertising
• Sales
• Subscription
• Free/Freemium
• Transaction fee
• Affiliate
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Interactive Session: Organizations:
Deliveroo: Australian Food Delivery
Platform
• Class discussion
– Analyze Deliveroo using the competitive forces and
value chain models. What is its competitive
advantage?
– What is the relationship between information
technology and Deliveroo’s business model? Explain
your answer.
– Is Deliveroo a viable business? Explain your answer.
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How Has E-commerce Transformed
Marketing? (1 of 2)
• Internet provides new ways to identify and communicate
with customers
• Long tail marketing
• Different marketing and advertising formats
– Search
– Display ads
– Video and rich media
– Email
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How Has E-commerce Transformed
Marketing? (2 of 2)
• Behavioral targeting
– Tracking online behavior of individuals
– On individual websites/apps and across advertising
networks
• Programmatic ad buying
• Native advertising
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Figure 10.3 Website Visitor Tracking
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Figure 10.4 Website Personalization
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Figure 10.5 How an Advertising
Network Works
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Social E-commerce and Social
Network Marketing (1 of 2)
• Social media one of fastest growing branding and marketing methods
• Social e-commerce based on digital social graph
• Features
– Newsfeed
– Timelines
– Social sign-on
– Collaborative shopping
– Network notification
– Social search (recommendations)
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Social E-commerce and Social
Network Marketing (2 of 2)
• Social network marketing
– Seeks to leverage individuals’ influence over others
– Targeting a social network of people sharing interests and
advice
– Facebook’s “Like” button
– Social networks have huge audiences
• Social shopping sites
• Wisdom of crowds
• Crowdsourcing
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Interactive Session: Management: Engaging
“Socially” with Customers
• Class discussion
– Assess the management, organization, and technology issues for
using social media technology to engage with customers.
– What are the advantages and disadvantages of using social media
for advertising, brand building, market research, and customer
service?
– Give an example of a business decision in this case study that
was facilitated by using social media to interact with customers.
– Should all companies use social media technology for customer
service and marketing? Why or why not? What kinds of companies
are best suited to use these platforms?
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How Has E-commerce Affected
Business-To Business Transactions?
• U.S. B2B trade in 2020 estimated at about $14.5 trillion
– U.S. B2B e-commerce in 2020 estimated at $6.7 trillion
• Internet and networking helps automate procurement
• Variety of Internet-enabled technologies used in B2B
– Electronic data interchange (EDI)
– Private industrial networks (private exchanges)
– Net marketplaces
– Exchanges
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Electronic Data Interchange (EDI)
• Computer-to-computer exchange of standard transactions
such as invoices, purchase orders
• Major industries have EDI standards
– Define structure and information fields of electronic
documents
• More companies are moving toward web-enabled private
networks
– Allow them to link to a wider variety of firms than EDI
allows
– Enable sharing a wider range of information
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Figure 10.6: Electronic Data
Interchange (E DI)
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New Ways of B2B Buying and Selling
• Private industrial networks
– Private exchanges
– Large firm using a secure website to link to suppliers and partners
• Net marketplaces (e-hubs)
– Single digital marketplace for many buyers and sellers
– May focus on direct or indirect goods
– May be vertical or horizontal marketplaces
• Exchanges
– Independently owned third-party Net marketplaces for spot
purchasing
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Figure 10.7 A Private Industrial Network
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Figure 10.8 A Net Marketplace
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What is the Role of M-commerce in
Business, and What are the Most
Important M-commerce Applications?
• M-commerce in 2020 is about 45 percent of all e-commerce
• Fastest growing form of e-commerce
– Growing at 20 percent or more per year
• Main areas of growth
– Mass market retailing (Amazon, eBay, etc.)
– Sales of digital content (music, TV, etc.)
– In-app sales to mobile devices
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Figure 10.9 Mobile Retail Commerce
Revenues
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Location-Based Services and
Applications
• Used by 74 percent of smartphone owners
• Based on GPS map services
• Geosocial services
– Where friends are
• Geo advertising
– What shops are nearby
• Geo information services
– Price of house you are passing
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Other Mobile Commerce Services
• Financial account management apps
– Banks, credit card companies
• Mobile advertising market
– Google and Facebook are largest markets
– Ads embedded in games, videos, and mobile apps
• Over 45 percent of top retailers have m-commerce
websites
• Virtually all large traditional and online retailers have m-
commerce apps.
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Mobile App Payment Systems
• Three main types
– Near Field Communication (NFC)
▪ Apple Pay, Google Pay, Samsung Pay
– QR Code
▪ Starbucks, Walmart, Target, Dunkin Donuts
– Peer-to-peer (P2P) payment systems
▪ Venmo, Zelle
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What Issues Must Be Addressed When
Building an E-commerce Presence?
• Most important management challenges
– Developing clear understanding of business objectives
– Knowing how to choose the right technology to achieve
those objectives
• Develop an e-commerce presence map
– Four areas: websites, e-mail, social media, offline media
• Develop a timeline: milestones
– Breaking a project into discrete phases
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Figure 10.10 E-commerce Presence
Map
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Management Information Systems:
Managing the Digital Firm
Seventeenth Edition, Global Edition
Chapter 12
Enhancing Decision Making
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Learning Objectives
12.1 What are the different types of decisions, and how does the decision-making
process work?
12.2 How do information systems support the activities of managers and
management decision making?
12.3 How do business intelligence and business analytics support decision
making?
12.4 How do different decision-making constituencies in an organization use
business intelligence?
12.5 How will MIS help my career?
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What Are the Different Types of Decisions,
and How Does the Decision-Making Process
Work? (1 of 2)
• Business value of improved decision making
– Improving hundreds of thousands of “small” decisions adds up to large annual
value for the business
• Types of decisions
– Unstructured: Decision maker must provide judgment, evaluation, and insight to
solve problem
– Structured: Repetitive and routine; involve definite procedure for handling so they
do not have to be treated each time as new
– Semistructured: Only part of problem has clear-cut answer provided by accepted
procedure
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What Are the Different Types of Decisions,
and How Does the Decision-Making Process
Work? (2 of 2)
• Senior managers
– Make many unstructured decisions
• Middle managers
– Make more structured decisions but these may include
unstructured components
• Operational managers and rank and file employees
– Make more structured decisions
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Figure 12.1 Information Requirements of
Key Decision-Making Groups in a Firm
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The Decision-Making Process
• Intelligence
– Discovering, identifying, and understanding the problems
occurring in the organization
• Design
– Identifying and exploring solutions to the problem
• Choice
– Choosing among solution alternatives
• Implementation
– Making chosen alternative work and continuing to monitor how
well solution is working
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Figure 12.2 Stages in Decision Making
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Managerial Roles
• Information systems can only assist in some of the roles played
by managers
• Classical model of management: five functions
– Planning, organizing, coordinating, deciding, and controlling
• More contemporary behavioral models
– Actual behavior of managers appears to be less systematic,
more informal, less reflective, more reactive, and less well
organized than in classical model
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Mintzberg’s 10 Managerial Roles (1 of 2)
• Interpersonal roles
– Figurehead
– Leader
– Liaison
• Informational roles
– Nerve center
– Disseminator
– Spokesperson
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Mintzberg’s 10 Managerial Roles (2 of 2)
• Decisional roles
– Entrepreneur
– Disturbance handler
– Resource allocator
– Negotiator
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Real-World Decision Making
• Three main reasons why investments in IT do not always produce
positive results
– Information quality
▪ High-quality decisions require high-quality information
– Management filters
▪ Managers have selective attention and have variety of biases
that reject information that does not conform to prior
conceptions
– Organizational inertia and politics
▪ Strong forces within organizations resist making decisions
calling for major change
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High-Velocity Automated Decision Making
• Made possible through computer algorithms precisely
defining steps for a highly structured decision
– Humans taken out of decision
• For example: High-speed computer trading programs
– Trades executed in nanoseconds
• Require safeguards to ensure proper operation and
regulation
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What is Business Intelligence?
• Business intelligence
– Infrastructure for collecting, storing, analyzing data produced by
business
– Databases, data warehouses, data marts, Hadoop, analytic
platforms
• Business analytics
– Tools and techniques for analyzing data
– OLAP, statistics, models, data mining
• Business intelligence vendors
– Create business intelligence and analytics purchased by firms
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The Business Intelligence Environment
• Six elements in the business intelligence environment
– Data from the business environment
– Business intelligence infrastructure
– Business analytics toolset
– Managerial users and methods
– Delivery platform—MIS, DSS, ESS
– User interface
▪ Data visualization tools
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Figure 12.3 Business Intelligence and
Analytics for Decision Support
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Business Intelligence and Analytics
Capabilities
• Goal is to deliver accurate real-time information to decision makers
• Main analytic functionalities of BI systems
– Production reports
– Parameterized reports
– Dashboards/scorecards
– Ad hoc query/search/report creation
– Drill down
– Forecasts, scenarios, models
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Table 12.4 Examples of Business Intelligence
Predefined Production Reports
Business Functional Area Production Reports
Sales Forecast sales; sales team performance; cross-selling; sales cycle times
Service/call center Customer satisfaction; service cost; resolution rates; churn rates
Marketing Campaign effectiveness; loyalty and attrition; market basket analysis
Procurement and support Direct and indirect spending; off-contract purchases; supplier performance
Supply chain Backlog; fulfillment status; order cycle time; bill of materials analysis
Financials General ledger; accounts receivable and payable; cash flow; profitability
Human resources Employee productivity; compensation; workforce demographics; retention
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Predictive Analytics
• Uses variety of data, techniques to predict future trends and behavior
patterns
– Statistical analysis
– Data mining
– Historical data
– Assumptions
• Incorporated into numerous BI applications for sales, marketing,
finance, fraud detection, health care
– Credit scoring
– Predicting responses to direct marketing campaigns
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Big Data Analytics
• Big data: Massive datasets collected from social media, online
and in-store customer data, and so on
• Help create real-time, personalized shopping experiences for
major online retailers
• Smart cities
– Public records
– Sensors, location data from smartphones
– Ability to evaluate effect of one service change on system
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Operational Intelligence and Analytics
• Operational intelligence: Business activity monitoring
• Collection and use of data generated by sensors
• Internet of Things (IoT)
– Creating huge streams of data from web activities,
sensors, and other monitoring devices
• Software for operational intelligence and analytics enable
companies to analyze their big data
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Interactive Session: Organizations:
Predictive Maintenance in the Oil and Gas
Industry
• Class discussion
– Why is predictive maintenance so important in the oil and gas
industry? What problems does it solve?
– What is the role of the Internet of Things (IoT) and Big Data
analytics in predictive maintenance?.
– How did BP and Royal Dutch Shell’s predictive maintenance
applications change business operations and decision making?
– Give an example of how predictive maintenance systems could be
used in another industry.
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Location Analytics and Geographic
Information Systems
• Location analytics
– Ability to gain business insight from the location (geographic) component
of data
▪ Mobile phones
▪ Sensors, scanning devices
▪ Map data
• Geographic information systems (GIS)
– Ties location-related data to maps
– Example: For helping local governments calculate response times to
disasters
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Interactive Session: Management:
GIS Helps Land O’Lakes Manage
Assets Strategically
• Class discussion
– Why is geographic location data so important to Land O’Lakes.
What categories of geographic information does Land O’Lakes
use?
– How did using GIS improve operations and decision making at
Land O’Lakes?
– Give examples of three decisions at Land O’Lakes that were
improved by using GIS.
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Decisional Support for Operational and
Middle Management
• Charged with monitoring key aspects of business
• Most decisions fairly structured
• Middle managers typically use MIS
– Increasingly online; can be queried interactively
– Exception reports
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Figure 12.4 Business Intelligence Users
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Support for Semistructured Decisions
• Decision-support systems
– Support for semistructured decisions
• Use mathematical or analytical models
• Allow varied types of analysis
– “What-if” analysis
– Sensitivity analysis
– Backward sensitivity analysis
– Multidimensional analysis / OLAP
▪ For example: pivot tables
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Figure 12.5 Sensitivity Analysis
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Figure 12.6 A Pivot Table That Examines Customer
Regional Distribution and Advertising Source
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Decision Support for Senior Management: Balanced
Scorecard and Enterprise Performance Management
Methods (1 of 2)
• ESS: decision support for senior management
– Help executives focus on important performance information
• Balanced scorecard method
– Measures outcomes on four dimensions
▪ Financial
▪ Business process
▪ Customer
▪ Learning and growth
– Key performance indicators (KPIs) measure each dimension
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Figure 12.7 The Balanced Scorecard
Framework
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Decision Support for Senior Management: Balanced
Scorecard and Enterprise Performance Management
Methods (2 of 2)
• Business performance management (BPM)
– Translates firm’s strategies (e.g., differentiation, low-cost producer,
scope of operation) into operational targets
– KPIs developed to measure progress toward targets
• Data for ESS
– Internal data from enterprise applications
– External data such as financial market databases
– Drill-down capabilities
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