Effects of Digitization on Companies : Part IV

This part is continuation of part III. The electronic value chain is an extension of the Porter’s value chain. Porter’s value chain divides the various processes in the company into separate processes. The value chain can be divided into two large groups. On the one hand the main activities and on the other hand the support activities. As the name implies, the main activities are directly necessary for day-to-day business. Porter names the following five activities:

• Inbound logistics
• Operations
• Outbound logistics
• Marketing and Sales
• Customer service

The support activities support the main activities. They do not take an active part in the value chain, but are necessary for the main activities. Support activities include Procurement, Technology Development, Human Resources and Corporate Infrastructure.

The value chain along these activities leads to profit. Because, more value is added with every step along the value chain, so the product becomes more valuable and ultimately more expensive with each of these production steps. This difference between the purchase price and the sales price is called the margin or profit. The higher the selling price, the higher the profit. Manufacturers therefore try to make their product even more valuable with the help of the value chain in order to be able to generate more profit.

But in the age of information technology, the described model was subsequently expanded. This new form of value chain is “the electronic value chain”. It is also structured in the form of a flow chart. The activities of the electronic value chain are composed as follows:

• Collect information
• Systematize information
• Select information
• Combine information
• Distribute information
• Exchange information
• Rate information
• Offer information

Similar to Porter’s value chain, the value of the information increases the further it is processed along the electronic value chain. However, this value chain is only present in electronic commerce.

The term e-shop stands for electronic shop and deals with the sale of products and services via digital networks. The basic idea of ​​the e-shop is to handle the sales-relevant processes and the relationship between customers and companies via the networked computers and the specified framework conditions.

More and more companies are deciding to sell their products via an e-shop. The following are some advantages that play a major role in this decision:

• e-shop has no opening times, ie products can be sold around the clock (24/7).
• Cost savings by eliminating the shop rent
• Increasing the radiance of regional companies that can also address customers from other cities and possibly other countries through the e-shop
• Reduction of personnel costs by eliminating staff in the business premises
• New sources of income from online advertising
• Furthermore, numerous problems in real trading have led to an increase in electronic information technology. These include the following aspects in particular :

1. Capacity limitations : Due to capacity problems caused by the limited sales area, the provider has to choose a small part of his product range, which he presents in his sales rooms.
2. Trade structures: Multi-level trade structures often prevent direct contact between a manufacturer and the end customer. This makes “unfiltered communication in both directions more difficult, so that the efficiency and speed of market development often suffer.”
3. Market anonymity: Due to market anonymity, there is no direct contact between manufacturer and end customer. This means that it is not possible to address individual customers individually and personally.

These problems are to be improved with the help of e-shops. Here it is necessary to observe the six most important system requirements for electronic sales :

• Online product catalog: Provision of online product catalogs with general information on the goods on offer including search functions
• Online product presentation: The products should be presented attractively using a combination of texts, images, music and animations. However, user-friendliness should not be lost here, so that inexperienced users can still orientate themselves.
• Online product shopping cart: If the customer decides on a product, these are stored in a product shopping cart. In this, quantities can be changed, products can be deleted again, all individual and total prices can be viewed or information about the products can be called up again before the actual payment process is accessed.
• Online product order: So that interested parties can complete their order, the route from the product shopping cart to the checkout must be as easy as possible. However, the customer should not lose their bearings and know at all times how far they are from the final conclusion of the process. Furthermore, customer data should only have to be provided when purchasing the first time and it should be saved in a user account and used again with the next purchase. The customer can use the user account to view previous orders, create wish lists and access them again and again
• Online product payment: The online product ordering process is only finally completed when the online product payment is made. An electronic payment system is selected as a sub-component of the e-shop, taking into account the aspects of usability, security, acceptance, availability and costs. For example, the transaction costs incurred should be in relation to the invoice amounts .
• Online product delivery: If the customer’s order was placed and completed via payment, the shop operator must take care of the product delivery. The product is then either sent directly from the warehouse, produced or, in the case of an electronic product, made available for download.

After all system requirements have been determined, the provider must decide on a system solution. In doing so, he has to choose one of the following three basic models, taking into account the degree of integration, administrative ability and profitability:

1. Operator model: Here the shop operator buys hardware and software himself and develops it according to his own ideas. The costs are relatively high due to the long-term care and maintenance.
2. Service provider model: The operator rents (partial) components of the software and accesses the provider’s data center, where the software is available, via a fixed data connection. Due to multiple customers, the software is not individually tailored to the customer. However, this is a much cheaper alternative in contrast to the operator model. A disadvantage, however, is that the system administrator has access to customer data. This must be checked very carefully with regard to data protection and data security.
3. Partner model: In contrast to the service provider model, the shop operator gives the entire e-shop operation to a service provider. The entire processing of the order, including the payment process, is carried out by the service provider, who normally receives a commission for successful implementation.

Before companies decide to sell via an e-shop, they should think about whether their products are suitable for it. The following three aspects in particular should be considered:

1. Digital writability: How well can the product be described for the customer?
2. Digital assessment: Can the customer assess whether the product is right for him without a real test?
3. Digital consulting effort: Can you convince the customer to buy without a lot of consulting effort?

 
Continued in next part.

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