E-commerce defined
It seems every document or text you read offers a different definition of electronic
commerce (EC). Some are extremely narrow, confining it to Internet based transactions
while others take a broader approach, including any form of transaction that takes place
using electronic media and all of the surrounding communications. For the purposes of this
series, I have adopted this fairly broad definition:
E-commerce is the buying and selling of information, goods and services
using electronic media such as the Internet. It includes supporting
processes such as communication, collaboration, marketing and
transaction processing.
Why e-commerce?
The reasons organizations are adopting EC have little to do with dot-com mania. Yes, the
media spurred some otherwise reluctant managers to seek out new technologies and apply
them to existing problems but, for the most part, the move toward EC began before the
Internet achieved critical mass, and it will continue far into the future.
Two key drivers, cost reduction and revenue enhancement, are making a move to EC
mandatory for all businesses that want to survive in the long term. These drivers will not
come as a surprise to any accounting professionals but it is important to recognize that the
underlying cause of the move to EC really is about business rather than technology. The
remainder of this section reviews these two drivers and some of the related issues.
Cost reduction
Between the dot-com meltdown and recent bankruptcies of corporate giants like Enron and
WorldCom, it’s easy to forget that doing business online can result in significant cost
savings. The truth is, there are plenty of savings to be had and they can be found in almost
every aspect of business operations. Some of the key areas for savings are:Procurement
I doubt that there are many businesses that could not cut their procurement costs by doing
business electronically. The savings aren’t just on the clerical side of things either. Cost
savings achieved by upstream suppliers are generally passed on in the form of lower prices,
and improved supply chain management results in reduced product storage and obsolescence
costs.
Sales and marketing
When it comes to sales and marketing, few can argue about the potential cost savings. Even a
basic web site costing just a few dollars per month has the potential to reach millions of
prospects. The Internet makes it easier to keep in touch with existing customers as well.
Compare the costs of printing and distributing a traditional catalogue or even a simple
newsletter to the amount you need to spend for an equally effective electronic version, and it
won’t be long before you start looking for ways to stop the presses.
Clerical
One of the best examples of reductions in clerical costs is found in use of automated billing
and payment systems. Consider a small utility billing 1 million customers twelve times per
year. If they can cut their revenue cycle processing costs by just $1.00 per invoice, 12 million
dollars in savings flow to the bottom line.
Outsourcing
Another area with great potential for cost savings is in outsourcing of processes that have
traditionally been performed in-house. Ironically, the IT department is often one of the first to
be considered for outsourcing. After all, why have several IT staffers on the payroll when you
can cut costs by contracting a service company to ensure your network is up and running 24
hours a day 7 days a week and leave all the headaches to them? IT is just the beginning
though; most in-house services will be put under the outsourcing microscope in the near
future.
Human resources
Using electronic media can reduce the cost of personnel management, including everything
from recruiting to retirement. Online recruiting has saved companies like Cisco and Microsoft
millions of dollars and that’s only the beginning. Training costs can be drastically reduced in
many organizations, as employees are able to participate in online programs rather than
attending expensive and often-disruptive group sessions.
Revenue enhancement
When you come right down to it, revenue enhancement is about two things: attracting more
customers and selling them more of your product. This is one of those good news/bad news
issues. The good news is that EC has the potential to do both of these. The bad news is that
the good news is no secret – chances are the competition knows all about it.
Like it or not, global markets work both ways. Just as you can access customers from around
the world, your customers can do the same with suppliers. This market expansion enables
them to select the suppliers who best meet all of their needs even if they happen to be outside
the country. It also turns local niche markets serving dozens of customers into global ones
with the potential to serve millions.
E-commerce for accounting professionals: Part 1 • 2 E-commerce for accounting professionals: Part 1 • 3
There are dozens of customer-related reasons for turning to EC. Some of the more pervasive
ones are:
Market expansion
The sheer size of the online market is enough motivation for most businesses to embrace EC.
The old real estate formula of location, location and location being the keys to success can be
tossed aside when an organization embraces EC. After all, when you are buying online, it
often makes little difference whether the supplier is next door or several thousand miles away.
Product offerings
When it comes to product selection, there is not a bricks and mortar operation on the planet
that can keep up with their online competitors. All it takes for an online reseller to put a
product into inventory is a digital image of the product and an available supply.
Consider your local office supply store. To put a laser printer on the shelf, they need to locate
a supplier, order a reasonable supply, make floor space available for a demo model and store
a reasonable quantity. Of course, not all customers are going to want the same make and
model of printer, so they need to carry a variety. Suddenly the laser printer that cost them
$400 has to sell for $500 just to break even.
Compare that to the online reseller outlet that puts a scanned image of the printer and a
description on their web site. They make arrangements with a supplier to have orders shipped
directly to the customer. The customer pays the shipping charges and receives their printer the
next business day by courier. The variety of products an online reseller can carry is limited
only by the availability of a reliable supply. There are virtually no carrying costs such as floor
space, warehousing or inventory financing involved.
Of course it’s not always that simple. You could fill a small library with marketing studies
proving that customers don’t choose a supplier or product based solely on price and selection.
The most successful online resellers, like their bricks and mortar counterparts don’t just sell
products, they sell solutions to problems.
Shortening the supply chain
This simple concept once caused a huge uproar in the business world as suppliers tried to cut
out the middleman in order to enhance their profitability. Now referred to as
disintermediation, it is commonplace as manufacturers follow the lead of computer giant Dell
and sell direct to the end-user instead of going through a variety of wholesalers and retailers.
Not every organization is doing it as successfully as Dell but this strategy can be effective if it
is done correctly.
Adding value
Many businesses could take a lesson or two in adding value to products from their local
Home Depot store. These giants of the do-it-yourselfer’s market don’t just sell nails; they also
tell you how to use them. They have extended this service to their web site as well, providing
detailed instructions on a wide variety of home improvement projects. This not only enables
them to charge just a little more for their products, it also builds customer loyalty.
The Internet puts this type of service within the reach of almost everyone. You don’t need to
hold “how to” sessions in your offices either, just add some educational information relating
to your products to your web site, and you may be surprised at the effect it has.
One-stop shopping
There’s a lot to be said for having everything under one roof. All you need to do is look at the
number of shopping malls and department stores that dot the landscape across North America. E-commerce for accounting professionals: Part 1 • 4
Let’s face it, people like convenience and as the saying goes, time is money. Customers want
to be able to go to a single location and find everything they are looking for. This is equally
true of online shoppers who would prefer to place a single order with one supplier rather than
two or three different ones.
Most people also want full service from the people they buy from. They don’t want to have to
go to one supplier to buy the product, another for service and yet another for training. The
web and EC can enable even the smallest organizations to at least appear to be full service
centres that sell service and support their products.
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