E-Commerce and Business Redesign

The e-banking business faces many of the same roadblocks as the rest of the retail sector, when it comes to wide spread usage and acceptance of their e-banking systems. The focus of this research will be to explore the effect of the Internet on the traditional brick and mortar retail bank. E-banking still faces many roadblocks in the re-engineering of the banking system. The research in this study answers the question, “What changes to their business design will the retail banking industry have to make, in order to compete in the online banking industry?” It explores the issues of EDI, the challenges that they face, e-money, and discuss the measures that the banking industry must make to remain competitive.

E-Commerce and Business Redesign

The advent of the Internet has opened many new possibilities for businesses worldwide. Many companies only exist in cyberspace. It is no longer necessary to have a brick and mortar building to run a business. Some service related industries have developed that do not even require a warehouse or other such facilities. Other traditional brick and mortar businesses have been able to use the Internet to establish new product lines and to add another distribution channel for existing products. Yet another group of businesses does not have a web-presence, but uses the Internet or an Intranet to make their established business run more smoothly. They use it for inventory control, to speed communications, and to automate many processes that used to take time and money to accomplish. This is a typical scenario in manufacturers.

The Internet has become a necessity for many established businesses. There is one business, however, that was the backbone of it all, long before the invention of the Internet. The banking industry is the backbone of the economy and nothing else could exist without them, provided that we do not return to a barter system. The Internet has transformed the face of many business sectors, but nowhere else has this transformation been more evident than in the financial sector. Lin and associates [1] feel that e-banking will lead to stiffer competition in the banking industry and will help to bring more equality to banks. They will have to find new ways to compete. She discusses many technical issues such as liquidity and security that will have to be considered as a part of business re-design for the banking industry. Choi and Whinston [2] state that the newspapers and journalists are making more money in the Internet business than the businesses themselves.

There has been a wealth of information published in academic journals regarding this subject and the topic areas are wide spread. The e-banking business faces many of the same roadblocks as the rest of the retail sector, when it comes to wide spread usage and acceptance of their e-banking systems. The focus of this research will be to explore the effect of the Internet on the traditional brick and mortar retail bank. It will answer the question, “What changes to their business design have the retail banking industry had to make, in order to retain their marketshare since the advent of online banking?” It will explore the issues of EDI, the challenges that they face, e-money, and discuss the measures that the banking industry must make to remain competitive.

EDI and the Banking Industry

Electronic Date Interchange (EDI) means the exchange of data from one computer system to another computer system. This can take place between two different institutions or with in the same institution. It is the backbone of today’s banking industry. The term e-Commerce has not been limited to EDI, but also includes the business practices built around computer-to-computer transmissions including message forms, files many other items that have led to significant changes within an organization [3] and has led to many new ideas for marketing. EDI in the banking industry allows us to wire funds via the Internet, manage accounts and pay bills online. Many daily tasks can be done from a person’s own home, eliminating the need to drive, perhaps facing foul weather or other such inconveniences.

There are many barriers to e-banking and e-commerce that will mean security for the brick and mortar establishment at least for the time being. These barriers are summarized in the article “An E-Commerce State of the Union.” [4]. Solish criticizes the industry as a whole for not being able to develop into a cohesive industry. Everyone is going in different directions and there is no focus. Industry officials estimate that the industry will reach $327 billion in 2002 in transactions. Currently, they are generating $8 billion, therefore this estimate seems unreasonable [5]. He reviews the use of EDI and makes the point that it is gaining acceptance but is not growing as developers had expected. The systems are in place, but the process is too cost prohibitive in its current state. The roadblocks to implementing it are primarily the high cost and difficulty in implementation. Everyone runs on their own platform and uses their own language [6]. In order for EDI to become a reality a standard set of guidelines must e developed [7].

Up to this point everyone who wanted to go Internet with their business, this led to a billion different sites, all of then can stand alone, but many cannot talk to each other. In order for EDI to be implemented and become standard practice, every system in the chain must be able to communicate with the others.

Security Issues

One of the primary roadblocks facing both the retail industry and the retail banking industry in the wide-spread acceptance of e-banking is the issue of security. Some e-banks are trying a new model that no longer needs a brick and mortar facility. The acceptance of these banks has been less than enthusiastic. One of the key issues is security and privacy issues. People must feel that their personal information and account is safe from intrusion by those not authorized to view it. There have been many advancements in the area of Internet security that have helped to make the transfer of data more secure and build public confidence in the system.

The following features are necessary for secure messaging: confidentiality, message integrity, and authentication of both parties [8]. Banking transactions require additional attributes. The generation of electronic cash requires anonymity of the receiving party. There are many technologies available to help assure that these tasks are accomplished. such as encryption, secure servers, firewalls, secure keys, electronic signatures, and blinding factors that are embedded during encryption. There are literally thousands of academic and technical articles published on the subject of Internet security. Zwass [9] gives an overview of many subjects that relate to e-commerce, but does not go into exhaustive detail.

E-Money

E-money is subject of much excitement and controversy. There are many considerations in the development of an e-money system and all of them are not technical issues. The issues of security and the difficulties associated in establishing EDI between different banking systems using different platforms are major setbacks, but there are other issues that will hamper the business re-design to one that favors an e-banking model. Some refer the development and promotion of e-money as the re-engineering of the world money system and there are many pros and cons [10]. There are even some who think that e-money will someday replace traditional paper money systems altogether. Popular literature is filled with both sides of this issue, but none are conclusive and many are based solely on personal opinions [11]. There is a lot if literature on the future of e-banking, but there are few articles that are based on real empirical data, most must be discounted as an opinion, such as the well-written, yet unfounded article by Lori Enos [12] that appeared in a trade magazine E-commerce times. The problem with these articles is that they put out a lot of information that quickly becomes a part of popular culture. Anyone wishing to enter into the field of business re-designs for e-commerce must critically analyze these articles and be sure to base their re-design on fact, not popular opinion.

Keys to Success in E-Business

E-banking faces many challenges in its implementation and acceptance. The question in business re-design in the banking industry is where to place the most resources. Barua and associates [13] states that there are several key issues that must be addressed and that failure to address these issues will lead to failure and more expenditure down the road. Barua feels that a company should weight investments on system integration; customer orientation of supplier orientation of IT, internal orientation of IT; customer-related processes; supplier-related processes; customer e-business readiness; and supplier e-business readiness [14]. This is a comprehensive approach and will apply to any e-banking re-design or any other e-commerce design project.

There have been volumes of information related to how to succeed in business on the Internet, but as it has been pointed out, much of it is based on opinion and few actual marketing surveys have been done to back up the claims [15]. Customer loyalty is especially important to the banking business in general. Most people need a real reason to change banks. David Gefen [16] found that customer loyalty to a specific online vendor increased with perceived better service quality both directly and through increased trust.

In the beginning e-businesses were centered on using the latest technical bells and whistles to attract clients. But many learned a hard lesson and found that the same marketing principles that apply to a traditional brick and mortar business, also apply to an e-business. Sarker [17] emphasizes this point and reminds business to strive for a balanced approach between technical issues and social issues in their business process design. Kalalota and Whinston [18] stress the point that the same principles that apply to non-Internet marketing still apply to web-marketing. There is no difference and customers want more than flashing text and scrolling messages. They must have a perceived value from the products and services. The same marketing principles of product differentiation, target markets, brand equity, customer loyalty and security must be applied in the design of an e-business.

Tan and Teo [19] found that these same principles applied to the internet banking industry as well. The results of their study revealed that attitude and control factors had more influence than social issues when it cam to the willingness of a customer to adapt to online banking. The e-banking service must be perceived to be compatible, have a trial period to try it out, and risk were concerns for a customer. This study supported and integrated many of the past studies and made the result applicable to the Internet banking industry specifically.

Geissler and associates [20] explored the issues that are linked to the perception of ease of use to the customer. Web page complexity is linked to communication effectiveness as it is perceived by the customer and is an issue important to business design. Gefen and Straub [21] also explored this idea using a free simulation experiment to collect their data. They arrived at the same conclusion as Geissler and Associates.

Carter and associates discussed the effect of online trading and its effect on IPOs. They found that volumes of IPO participation increased as a result of online trading [22] It is not known whether the same increase in volume has bee noted for the e-banking business.

Conclusions and Recommendations

It would be possible to conduct a literature review on e-commerce and business re-design consisting of thousands of articles. The mass media has jumped on this topic with an unprecedented fervor. This difficulty in reviewing related material is that most of it is not based on, or does not even reference academic studies, not even a survey. Therefore, much of the literature on this subject can be placed in the round file, as it has no value in the design and implementation of an e-commerce business re-design. The focus of this literature review has been related to business re-design as it relates to the retail banking industry. This particular area was chosen for three reasons, the first being that this is one of the few areas where there is a sufficient amount of real academic work on the conversion to e-banking. The second is that many of the same principles that apply to e-banking also would apply to the retail industry in general. Much of the marketing research crosses over and is applicable in the ability of the e-bank to gain and retain customers. The third reason is that the banking industry is the backbone of the other industries. Everyone must have a bank account, whether they are brick and mortar or only exist in cyberspace.

The focus of this literature review centered on e-banking as it applies to business re-design. There is a wealth of technical information that can be used in resolving the technical issues involved in a re-design project. However, if the project is to be successful, the re-design engineer must understand what constitutes a successful re-design project. As was pointed out, the e-bank is dealing with real customers making real business decisions. They have come to expect certain things from a business. Research has shown that technical issues are only important as far as their ability to deliver that desired product to the customer. Customers are not impressed by fancy, complex websites, they want the same things that they expect from traditional brick and mortar bank.

A re-design engineer who fails to take into considerations the marketing information of what will bring customers and hold customers to the website, will design a technically correct project, but one that will fail. As the literature revealed, the customer must be the primary focus of the business process re-design, for the fate of the project is ultimately at the tip of their index finger. It is easy for an e-designer to get caught up in the technical aspects of the project and when this happens, one very important person gets lost, the customer. Many e-designers are not interested in the marketing research that involves the project, but as the research has pointed out, they should be.

The engineer should be concerned with developing a system that has fast, easy to understand EDI. They must be concerned with providing the best security, and they must bring the technology to the average customer’s level. They one thing that they must remember, is the business success or failure is just one click of the mouse away.

A literature review of e-business reveals the need for more empirical studies as there are many areas that have not been addressed and many popular opinions that have not been proven or disproven. Business process design cannot separate itself from marketing, especially in any business related to e-tailing. The two departments should work together and try to set goals common to both interests. In the e-business marketing and engineering must learn to work together for a common goal. The failure to do this will lead to ultimate failure.

There have been years of academic studies concerning customer behavior and motivation to remain loyal and make purchases. It has been shown that many of these same principles apply to e-business. E-businesses can rely on these marketing studies to help them achieve the same success as their brick and mortar predecessors. It is difficult to eliminate confounding variables from studies on e-business. However, the survey is still a powerful instrument in determining and customer behavior.

It would be nice to see more real experiments conducted on marketing techniques and measure the results in real sales. In other words, is what the customer says they will purchase and what they actually purchase a different thing? This could be done easily by designing two websites with varying factors that are different, such as easier to navigate, faster load times etc., but that offer identical products at identical prices. The differences could be measured in real sales figures. More real studies such as these need to be performed if we are truly get to know the customer and be able to design business systems that will attract and retain a customer base. This research would be applicable to e-businesses in many specialties.

The e-banking industry suffers from the same woes as other retail industries. As the literature points out, the entire industry has suffered from a lack of direction and planning. E-business design has focused on the individual business and has not considered the direction that the industry is expected to take. A prudent designer not only considers the customer’s current needs and the desire to be on the web, but also considers where the industry is going and designs a system that will work for them in the future.

The buss word now is “connectivity” and the ability to communicate on different platforms. Many business were designed to operate quite well on their own, but lack the ability to communicate with other systems. If the e-banking industry could solve this issue they could go to new heights. However, as Zwass pointed out, this has been the failure of the industry to this point. It suffers from this lack of planning and must develop standards to be able to have more interconnectivity in the future.

The novelty of the Internet has worn off and now businesses and designer must get back to the basics of business. Research has shown that e-business is no different that any other business and that in order to remain competitive, they must not forget this. It is the job of the designer to make a system that will serve the client’s needs and be able to adapt to changes in the marketplace and new technology, without re-inventing the wheel everytime. E-business designers are the key to achieving connectivity and adaptability in the future and must get their heads out of the chips and back into the basics of business.

Endnotes

1] Lin, L. Geng, X. And Whinston1. A. (1995) “A new perspective to finance and competition and challenges for financial institutions in the internet era.” BIS Papers (17) 7: 14-24. In “The Frontiers of Electronic Commerce” Addison-Wesley in Spring 1995

2] Choi, S. And Whinston, A. 1997. Electronic Payments and the Future of Electronic Commerce.” Center for Electronic Commerce. University of Texas at Austin.

3] Zwass, V. (1996). “Electronic commerce: structures and issues.” International Journal of Electronic Commerce, 1(1), 3-23.

4] Solish, F. (Ed). 2002. An E-Commerce State of the Union. Array Development. September 8, 2002. http://www.arraydev.com/commerce/JIP/9802-ed1.htm. Accessed November 2002.

5] Ibid.

6] Ibid.

7] Khazanchi, D. And Sutton, S. 2001. “Assurance Services for Business-to- Business Electronic Commerce: A Framework and Implications.”JAIS. January 2001. (1) 11. http://jais.aisnet.org/articles/1-11/. Accessed November, 2002

8] Zwass, 1996, Ibid.

9] Zwass, 1996, Ibid.

10] Zwass, 1996, Ibid.

11] Shu, W. 2002. “Will the New Economy Emerge as Information Technology Pays Off?” JAIS. January 2002. (2) 1. http://jais.aisnet.org/articles/2-1/. Accessed November, 2002.

12] Enos, L.. “E-tailers Realize Money Can’t Buy Loyalty.” E-Commerce Times. October 19, 2001. http://www.ecommercetimes.com/perl/story/14241.html. Accessed November, 2002.

13] Barua, A. Konana, P. Whinston, A. And Yi n, F..2000. “Making E-Business Pay: Eight Key Drivers for Operational Success.” IT Pro. November/December 2000. http://cism.bus.utexas.edu/. Accessed November, 2002.

14] Ibid.

15] Shim, J. Shin, Y. And Nottingham, L. (2002). “Retailer Web Site Influence On Customer Shopping: Exploratory Study on Key Factors of Customer Satisfaction.” JAIS. September 2002. (3) 3 http://jais.aisnet.org/articles/3-3/. Accessed November, 2002.

16] Gefen, D.. 2002. “Customer Loyalty in E-Commerce.” JAIS. September 2002. (3) 2 http://jais.aisnet.org/articles/3-2/. Accessed November, 2002.

17] Sarker, S. 2002. “Using A Positivist Case Research Methodology To Test Three Competing Theories-In-Use Of Business Process Redesign.” JAIS. January, 2002. (2) 7. http://jais.aisnet.org/articles/2-7/. Accessed November, 2002.

18] Kalakota, R. And Whinston, A. 1995. “Do or Die: Market Segmentation and Product Positioning on the Internet.” The Frontiers of Electronic Commerce. Addison-Wesley Publishers.

19] Tan, M. And Teo, T. 2000. “Factors Influencing the Adoption of Internet Banking.” Journal of the AIS. July 2000. (1) 5.

20] Geissler, G. Zinkhan, G. And Watson, R. 2002. “Web Home Page Complexity and Communication Effectiveness.” JAIS. January 2002. http://jais.aisnet.org/articles/2-2/. Accessed November, 2002.

21] Gefen, D. And Straub, D.. 2000. “The Relative Importance of Perceived Ease of Use in IS Adoption: A Study of E-Commerce Adoption.” JAIS. October, 2000. (1) 8. http://jais.aisnet.org/articles/1-8/. Accessed November, 2002.

22] Carter, R. Strader, T. And Nilakanta, S..2000. “Online Investment Banking Phase I: Distribution via the Internet and Its Impact on IPO Performance.” August, 2000. (1) 6.

Works Cited

Barua, A. Konana, P. Whinston, A. And Yi n, F..2000. “Making E-Business Pay: Eight Key Drivers for Operational Success.” IT Pro. November/December 2000. http://cism.bus.utexas.edu/. Accessed November, 2002.

Carter, R. Strader, T. And Nilakanta, S..2000. “Online Investment Banking Phase I: Distribution via the Internet and Its Impact on IPO Performance.” August, 2000. (1) 6.

Choi, S. And Whinston, A. 1997. Electronic Payments and the Future of Electronic Commerce.” Center for Electronic Commerce. University of Texas at Austin.

Enos, L.. “E-tailers Realize Money Can’t Buy Loyalty.” E-Commerce Times. October 19, 2001. http://www.ecommercetimes.com/perl/story/14241.html. Accessed November, 2002.

Gefen, D.. 2002. “Customer Loyalty in E-Commerce.” JAIS. September 2002. (3) 2 http://jais.aisnet.org/articles/3-2/. Accessed November, 2002.

Gefen, D. And Straub, D.. 2000. “The Relative Importance of Perceived Ease of Use in IS Adoption: A Study of E-Commerce Adoption.” JAIS. October, 2000. (1) 8. http://jais.aisnet.org/articles/1-8/. Accessed November, 2002.

Geissler, G. Zinkhan, G. And Watson, R. 2002. “Web Home Page Complexity and Communication Effectiveness.” JAIS. January 2002. http://jais.aisnet.org/articles/2-2/. Accessed November, 2002.

Kalakota, R. And Whinston, A. 1995. “Do or Die: Market Segmentation and Product Positioning on the Internet.” The Frontiers of Electronic Commerce. Addison-Wesley Publishers.

Khazanchi, D. And Sutton, S. 2001. “Assurance Services for Business-to- Business Electronic Commerce: A Framework and Implications.”JAIS. January 2001. (1) 11. http://jais.aisnet.org/articles/1-11/. Accessed November, 2002

Lin, L. Geng, X. And Whinston1. A. (1995) “A new perspective to finance and competition and challenges for financial institutions in the internet era.” BIS Papers (17) 7: 14-24. In “The Frontiers of Electronic Commerce” Addison-Wesley in Spring 1995

Shim, J. Shin, Y. And Nottingham, L. (2002). “Retailer Web Site Influence On Customer Shopping: Exploratory Study on Key Factors of Customer Satisfaction.” JAIS. September 2002. (3) 3 http://jais.aisnet.org/articles/3-3/. Accessed November, 2002.

Sarker, S. 2002. “Using A Positivist Case Research Methodology To Test Three Competing Theories-In-Use Of Business Process Redesign.” JAIS. January, 2002. (2) 7. http://jais.aisnet.org/articles/2-7/. Accessed November, 2002.

Shu, W. 2002. “Will the New Economy Emerge as Information Technology Pays Off?” JAIS. January 2002. (2) 1. http://jais.aisnet.org/articles/2-1/. Accessed November, 2002.

Solish, F. (Ed). 2002. An E-Commerce State of the Union. Array Development. September 8, 2002. http://www.arraydev.com/commerce/JIP/9802-ed1.htm. Accessed November 2002.

Tan, M. And Teo, T. 2000. “Factors Influencing the Adoption of Internet Banking.” Journal of the AIS. July 2000. (1) 5.

Zwass, V. (1996). “Electronic commerce: structures and issues.” International Journal of Electronic Commerce, 1(1), 3-23.