In our modern world dubbed as the digital age, there exist only two kinds of people, those connected to the Internet and those who are not”. This adage practically summarizes the rapid globalization effected by information and communications technology or ICT and how it pervasively permeated every aspect of our modern lives. (Koelsch 1995) It initiated fundamental changes not only on how we conduct business, education but on our very lives. Under these premises, businesses both big and small, in response to the emergence of the new trend towards digitalization are all cramming up to get to the bandwagon of information technology by way of automating their systems, establishing ecommerce or website or simply connecting to the Internet as the cheapest yet most effective channel of communication to the world. As such, the integration of information technology for business is not a matter of choice but a matter of necessity.
A principal hindrance to ICT development is its high investment cost. In many countries, affordability is the principal reason for the low use of ICT. Fortunately, the liberalization of the ICT industry that increase competition in the sector resulted to the proliferation of the companies engage in the research, manufacture and distribution of IT products and services, which in turn diffused cost that made IT relatively affordable. Nevertheless, the large capital investment involved in any IT endeavor would require prudent strategic planning before companies embark on it. (Strassmann 1985)
Secondly, the IT revolution may prove to be as fast its obsolescence. Information technology has permeated every hidey-hole of business that its embrace had become a sheer necessity. To emphasize this brutally is to compare it to electricity such that operations are paralyzed when the systems went down or computers conked out. IT is a black out. Most modern employees can attest to that. Massive dissipation in all human activities has made IT ordinary. To put it blunt and square, Information technology has become a fad and a convention. It has lost its strategic value. (Thompson 2006) As a fad, it initiated extravagant business spending in a frenzy of hype. As a convention, it became an essential commodity for business to survive.
Everybody else is into it and it no more rings something new. The advent of information technology has created a new realm where and how people would conduct business. In the modern market, it became an essential resource to compete but has lost the strategic value to lead. The advantages that it promised of bringing your business at the forefront had been nailed down. Competitive advantage is based on differentiation. You only gain an edge by having or doing something which others can’t have or do. Something affordable is common. Something common becomes a norm. Hence, the appeal of IT to businessmen as an enzyme of more lucrative returns seemed overrated. Most lavish spenders on IT get diminishing returns. In IT investment, the focus is no longer to seek advantages aggressively but to manage costs and risks meticulously. (Khosrow-Pour 2006)
Because of these challenges, a strategic planning for information system is essential not only reap the benefits of information technology in improving business operations in order to survive in the modern economy but to address the comprehensive management, operation and utility of information technology and systems of any organization.
The product or service of a business is the very essence of the company because it is what makes it what it is, thus on which rest the success of a business. With the advent of the Internet, a whole new world was created, which is the cyber world. And much like any other worlds, it has a market place through which commerce is channeled in an electronic way. In the same manner, it consists of buying, selling, marketing and distribution of products or services over the global network of computers or in closed networks (like AOL or Minitel) that have a gateway onto an open network. E-commerce “to the activities on your web site, including online shopping and online purchasing” (Rosen 2002) However, more than just putting up an online component of the business, our objective is to integrate ecommerce to the overall business operations, which is e-business. For a company to gain entry to this new competitive marketplace, it must embark on the computerization and integration of information technology in its products, services, systems or general operation.
The principal objective of the paper is to discuss the different elements needed by business to establish electronic business. To support the objective, this paper will explore the different products and services that evolved with the introduction of the Internet and prevalence of ecommerce in our modern society. It will include a brief history of the Internet focusing on its development from a research oriented network to a commercial network. It will explain the difference between the meanings of digitalization in comparison to the analogue process for clarification. A brief discussion of the digitized products and services that developed in response to the electronic commerce along with the different issues related with its introduction i.e. piracy and outsourcing will also be included in the research.
However, a company cannot simply establish an electronic business by putting up a website which is capable of online transactions. Ecommerce must be part of a comprehensive IT systems development plan that will synergize its external and internal processes and operations. (Hiebing & Cooper 2003) Hence, part of the literature review will therefore deal with information systems strategic planning and development, which will set the framework of the paper including a brief review of approaches and methodologies in IS Planning.
In the discussion for the establishment of ecommerce per se, the paper will start on the discussion of information systems planning for a small and big business. The IT systems development plan details the IT infrastructure, user requirements, system/ data requirements, analysis and design, system development and pilot testing, implementation and training and website development. E-commerce on the other hand is part of website development. In which case, details will tackle the IT requirements needed by business for ecommerce such as IT infrastructure, security, design, control and accounting issues as well as marketing strategies that many e commercial companies adopt in order to successfully implement an online business and compete in the cyber world.
Review of Related Literature
The Development of the Internet
The Internet evolved from the need to transfer information between distant sites by connecting far apart computers and its users. The connections of these computer terminals thru long distance lines (often phone lines) that facilitated the sending of information back and forth established the network. The first wide-area network facility developed was the ARPANET (Advanced Research Projects Agency) which connected governmental and academic computer systems in the US. (Reed 2007) Computers needed a standard language to facilitate communication between each other. This led to the development of the TCP/IP (transmission control protocol/ Internet protocol) network protocol, the language that computers connected to the network used to talk to each other. When all the interconnected research networks in the US were finally converted to the TCP/IP protocol, the Internet was born. (Vogelsang & Compaine 2002)
The Internet evolved from a command-line interface to a graphical user interface (GUI) with the introduction of the World Wide Web. Initially conceived by Tim Berners-Lee, the World Wide Web is an application in which all information in the Internet can be accessed in a uniform and simple manner through a standard set of naming and access conventions. Among the standard guidelines are as follows: All web sites are written in the same script called HTML (Hypertext Mark-up Language); All web sites use the same language or extensible transport mechanism called HTTP (hypertext transfer protocol) to communicate within the Web; and All web sites use URL (Universal Resource Locator) as its network-wide addressing scheme. (Poole et al 2005)
There are 2 basic qualities of the web which ultimately led to its popular adoption of the masses that initiated its potential to become a new channel for conducting business. The first most conspicuous quality is its providence of the graphical interface. With the web, the Internet can now support multimedia formats (sounds, videos, images), which made the presentation of information more interesting, pleasing and effective. Secondly, the web made the Internet as easy as ABC. Unlike before when commands were typed much like in DOS, all commands now are practically just a click of a mouse. From then on, the Internet expanded around the globe beyond the expectations of its pioneers. Furthermore, it has become a global resource of information covering diverse topics on just about anything anyone can think of. (Jamsa & Klander 2002)
History shows that no one can exactly pinpoint which company really conducted the first online business or electronic commerce. Although in the late 1960’s, ecommerce originally pertains to the facilitation of commercial transactions electronically or over a network such as electronic funds transfer (EFT) and electronic data interchange (EDI) because business companies and organizations were allowed to interact and to exchange business documentation electronically. (Reilly 2004) However, the pioneer to the modern concept of e commerce in which we purchase products and services online is usually attributed to Amazon.com, an online bookstore established by Jeffrey Bezos on July 1995. (Jones 2003) This was followed by Ebay, Dell, and Hewlett Packard until such time when every company had been prompted to join the bandwagon. Incidentally, the introduction of the Napster peer-to-peer sharing system in 1999 through which online users can exchange music files also played a significant role for the masses to embrace the new technological channel for commercial transaction. (Compaine &. Greenstein 2001)
Digital vs. Analogue. One the principal issues that need clarification in this paper are the term digital. While there are many technical differences and consequences of digital in comparison to analogue files, this paper focuses on the idea that digital files refer to files that can be modified and stored in a computer in as much as it can be transmitted electronically over a computer network or the Internet. Analogue on the other hand, pertains to the conventional and tangible substances that people traditionally use and exchange before especially before the advent of information technology.
In the technical sense, digital files are stored by means of binary digits (0 and 1 bits), which is ultimately the kind of language that computer machines can read, understand and absorb. (Doyle 1985) Digital files are computer files that can further be reduced to waves and frequencies for electronic transmission. Analogue files are stored using an infinite range that are not reduced to the language of machine and thus cannot be stored in computers. Thus, the delineation between digital and analogue can easily be discerned using computers. (Miller 2007) Traditional books and pictures can be considered as analogue files. On the other hand, a PDF file and a jpeg, the corresponding equivalents of the book and the picture are digital files.
Digitalization of Products. The Internet created a channel for distributing products and services electronically and conducting business online thus pushing companies to integrate information technology in their products and services by way of digitalization. The digitalization of products and services occurred across industries. In the publishing industry, Amazon being one of the pioneers in electronic commerce, electronic book publishing has become essential. Digitalization of books through electronic publishing will propel publishing companies to a high-tech industry and initiate for further expansion and diversification of products and services by responding the changing needs and trends of the market.
With E-book publishing, companies can further transform its website into an online resource of information or online library.(Fenner 2005) This online library can be offered to academic and research institutions, other similar information research providers i.e. congress library and national library or even to the general public through a subscription fee. It can also be integrated to the library systems of said institution clients for convenience their students and researchers. The e-book format generated other educational instruction materials delivered through some form of information technology such as computers, CD-ROMs, internet or even cellular phones. With the advancement of information technology, E-learning innovated CD ROM based materials that can accommodate auditory, visual, and kinaesthetic learning styles, or multimedia. Special innovations may be expertly crafted and incorporated in the CD-ROM based information materials to make it distinct from simply reading a book. Lessons identified as difficult to teach or hard to understand are reinforced through simulations, animations, games, and others.
The proliferation of books (PDF), picture (jpeg), music (mp3) and video (mp4) in digital format prompted the invention of gadgets or multimedia players in the market for the operation of the same. One of the major gadgets that made waves in the commercial market is the digital audio player particularly the flash-based and digital jukeboxes. Generally integrated into USB key drives of a computer, these devices behave like external data storages with the facility to play digital files (e.g. mp3 and .wma – Windows Media Audio). The handy flash players use memory cards while digital jukeboxes have hard drives with up to 100GB capacity.
Later, the Apple iPod specifically, the fifth-generation model can play videos. (Biersdorfer & Pogue 2006)Another modern device which found its avid market among professionals is the personal digital assistant (PDA) or palmtop. This electronic personal organizer usually includes an address book, schedule list, note pad, time keeper and calculator. (Crowe , 2001) Amidst these developments, a new technology promises to integrate the functions of a multi-media player, personal organizer, internet access, game console, photo, audio and video recorder aside from the fact that you can talk to people from anywhere on the world with them. This is the 4th generation of wireless digital access device or the 4G cellular phones, which poses as an all-in-one gizmo a person will ever need in the future. (Lu 2002)
Digitalization of Services. With the digitalization of products, service industries where also afforded to digitalize their provision of services to their clients. Educational institutions developed distance education programs to address the growing need for education and continuing education in the globalizing economy marked by a rapid exchange of people and culture between nations and economies and by rampant technological changes. (Ryan 2000) Education is necessary for the successful integration and operation between economies with cross cultural backgrounds, language barriers and different economic systems.
On the other hand, continuing education allows professionals to equip themselves with new skills demanded by modern society as well as to keep them abreast with trends. Distance education refers to any teaching and learning process where the teacher and student(s) are separated by physical distance or circumstance that forbids face to face interaction. (Moore and Anderson 2003) Information technology made it possible to bridge this gap by facilitating remote instruction and sustainable communication beyond space and time. With this, it afforded educational institutions to implement the Open University system, where students learn at the time, place and pace convenient and suitable to them considering their circumstances or limitations (time, distance or physical disability) to go to school to study.
The financial industry is one of the pioneers in digitalizing their services in response to the demands of the Internet, which at the moment serves as one of the pillars in expediting e commerce. Business technology allowed the facilitation of commercial transactions electronically through electronic funds transfer (EFT) and electronic data interchange (EDI). Today, digitalization of financial services extended to automated inventory management systems, and automated data collection systems, credit cards and automated teller machines (ATM) and lately enterprise resource planning systems (ERP), data mining and data warehousing. (Targowski 2003)
Information Systems Strategic Planning
Information technology is not the strategy per se. Critical in investing on information technology is to align and integrate its utility in the over all business plan or strategic vision of a company. Hence, before we embark on putting up a commercial website, it is important to contextualize this strategic plan within a comprehensive IT strategic plan of the business. Incidentally, operational planning of the business in achieving business goals is equally crucial. IS Strategic planning allows the organization to evaluate and obtain financial resources, capacity and manpower needs for the investment. (Cassidy 2003)
It also involves aligning the information system with the business, identifying the required processes and applications, and establishing targets, schedules and high points for monitoring progress. Planning also fosters seamless communication with top management and user management in order to bridge the disparity between outcomes and actual process and to develop a proactive system that will respond to anticipated changes. Systems’ planning is ultimately a process of preparing for a scientific prediction of the future of the business. (Greed 2004) Much like a strategic plan, it involves the establishment of a mission of the company or basically what the plan wants to achieve in pursuit of its vision; assess of both the internal environment (capacity, manpower requirements) and external environment (market, government policies); setting of goals and objectives that define milestones; generation of strategies and policies in line and in support of the objectives and plan execution and monitoring.
Approaches and Methodologies in IS Planning. One methodology used in planning of IS strategies is the Earl’s Approach Called Multiple Methodology that is principally premised on aligning information technology requirements on the plans and objectives of the business by matching the current system of the business and IT opportunities available for the business. Three separate activities are involved specifically the analytical top down process in which key success factors are identified and articulated, evaluation of the current system by consultants or the users that practically describe where the organization stands i.e. capacity, limitations and creativity in which IT opportunities are innovatively identified and techniques/ processes are developed. (Brown 1992) Another method for strategic planning is Porter’s Five Forces which involves evaluation of the dynamics of Five Forces in the industrial environment that are critical in assessing potential profitability and risk of a company namely: Suppliers, Buyers, Entry/Exit Barriers, Substitutes and Rivalry. (Joyce & Woods 2001)
The stage model approach to IS strategic planning evaluates the current stage of a company’s use of IT, and its future namely: small new users and mature users. The end objective is to become a mature user in which IT will be used as a strategic resource considering its ability to revolutionize competition structure and create a new realm of market i.e. the cyber world. The Nolan stage model categorized growth from initiation, contagion, control and maturity, in which a standard description of the management style, planning, organization and control are described in each stage. (Hinton 2005) On the other hand, the McFarlan &McKenney Grid proposes to evaluate organizations in terms of their strategic impact of future and existing systems using support, turn around, factory and strategic categories in a grid. (Etheridge and Simon, 1992)
Another approach to Strategic Information Systems Planning is categorized between impact and align methodologies. The former focus on innovative use of IT while the latter highlights the need to align IT in parallel with business objectives. Under impact methodology, the Value Chain Analysis by Michael Porter underscores the importance of information technology in the production, marketing, delivery and support of a product or service. (Curtis & Cobham 2004)
The Critical Success Factor Analysis on the other hand emphasize clear interpretation of the objective, techniques and action plan of an organization in comparison with other existing systems. Under the align methodologies, the Business Systems Planning (BSP) methodology is parallel to Earl’s Multiple Methodology that focus on business processes , developed by IBM, combines top down planning with bottom up implementation. The methodology focuses on the analysis of the business processes in determining needs and devising the information architecture and data to be used to address those needs. The Strategic Systems Planning (SSP) PROplanner by Robert Holland is similar to BSP except that its analysis focus on the principal functional operations of the organization. (Earl 1998)
After learning the evolution of internet from a communications tool to an online business channel, the digitalization of products and services, approaches to strategic information systems, this review of related literature have provided us the initial knowledge that can serve as our entry point to enhance our capacity to participate in the digital economy (e-readiness). At this point, our discussion of ecommerce will commence on how information technology is used not simply as a commodity but a driver towards economic progress and sustainability for both (SME’s) small and medium enterprises and large corporations.
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