BUS303: Strategic Information Technology

There are three types of communication networks used for electronic commerce (see Exhibit 8), depending on whether the intent is to support cooperation with a range of stakeholders, cooperation among employees, or cooperation with a business partner. Each of these topologies is briefly described, and we discuss how they can be used to support electronic commerce.

Exhibit 8. Electronic commerce topologies

The Internet is a global network of networks. Any computer connected to the Internet can communicate with any server in the system (see Exhibit 5). Thus, the Internet is well-suited to communicating with a wide variety of stakeholders. Adobe, for example, uses its Web site to distribute software changes to customers and provide financial and other reports to investors.

Exhibit 9.: The Internet

Many organizations have realized that Internet technology can also be used to establish an intra-organizational network that enables people within the organization to communicate and cooperate with each other. This so-called intranet (see Exhibit 10) is essentially a fenced-off mini-Internet within an organization. A firewall (see See Firewall) is used to restrict access so that people outside the organization cannot access the intranet. While an intranet may not directly facilitate cooperation with external stakeholders, its ultimate goal is to improve an organization's ability to serve these stakeholders.

Exhibit 11.: An extranet

The Internet and intranet, as the names imply, are networks. That is, an array of computers can connect to each other. In some situations, however, an organization may want to restrict connection capabilities. An extranet (see Exhibit 11) is designed to link a buyer and supplier to facilitate greater coordination of common activities. The idea of an extranet derives from the notion that each business has a value chain and the end-point of one firm's chain links to the beginning of another's. Internet technology can be used to support communication and data transfer between two value chains. Communication is confined to the computers linking the two organizations. An organization can have multiple extranets to link it with many other organizations, but each extranet is specialized to support partnership coordination.

The economies gained from low-cost Internet software and infrastructure mean many more buyers and supplier pairs can now cooperate electronically. The cost of linking using Internet technology is an order of magnitude lower than using commercial communication networks for electronic data interchange (EDI) , the traditional approach for electronic cooperation between business partners.

EDI

EDI, which has been used for some 20 years, describes the electronic exchange of standard business documents between firms. A structured, standardized data format is used to exchange common business documents (e.g., invoices and shipping orders) between trading partners. In contrast to the free form of e-mail messages, EDI supports the exchange of repetitive, routine business transactions. Standards mean that routine electronic transactions can be concise and precise. The main standard used in the U.S. and Canada is known as ANSI X.12, and the major international standard is EDIFACT. Firms following the same standard can electronically share data. Before EDI, many standard messages between partners were generated by computer, printed, and mailed to the other party, that then manually entered the data into its computer. The main advantages of EDI are:

Despite these advantages, for most companies EDI is still the exception, not the rule. A recent survey in the United States showed that almost 80 percent of the information flow between firms is on paper. Paper should be the exception, not the rule. Most EDI traffic has been handled by value-added networks (VANs) or private networks. VANs add communication services to those provided by common carriers (e.g., AT&T in the U.S. and Telstra in Australia). However, these networks are too expensive for all but the largest 100,000 of the 6 million businesses in existence today in the United States. As a result, many businesses have not been able to participate in the benefits associated with EDI. However, the Internet will enable these smaller companies to take advantage of EDI.

Internet communication costs are typically less than with traditional EDI. In addition, the Internet is a global network potentially accessible by nearly every firm. Consequently, the Internet is displacing VANs as the electronic transport path between trading partners.

The simplest approach is to use the Internet as a means of replacing a VAN by using a commercially available Internet EDI package. EDI, with its roots in the 1960s, is a system for exchanging text, and the opportunity to use the multimedia capabilities of the Web is missed if a pure replacement strategy is applied. The multimedia capability of the Internet creates an opportunity for new applications that spawn a qualitatively different type of information exchange within a partnership. Once multimedia capability is added to the information exchange equation, then a new class of applications can be developed (e.g., educating the other partner about a firm's purchasing procedures).