E-Business and e-Commerce: what

E-business and e-commerce are terms that are sometimes used interchangeably, and sometimes they’re used to differentiate one vendor’s product from another. But the terms are different, and that difference matters to today’s companies.

In both cases, the e stands for “electronic networks” and describes the application of electronic network technology – including Internet and electronic data interchange (EDI) – to improve and change business processes.

E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for production and procurement of indirect operating-expense items, such as office supplies. It involves new business models and the potential to gain new revenue or lose some existing revenue to new competitors.

It’s ambitious but relatively easy to implement because it involves only three types of integration: vertical integration of front-end Web site applications to existing transaction systems; cross-business integration of a company with Web sites of customers, suppliers or intermediaries such as Web-based marketplaces; and integration of technology with modestly redesigned processes for order handling, purchasing or customer service.

E-business includes e-commerce but also covers internal processes such as production, inventory management, product development, risk management, finance, knowledge management and human resources. E-business strategy is more complex, more focused on internal processes, and aimed at cost savings and improvements in efficiency, productivity and cost savings.

An e-business strategy is also more difficult to execute, with four directions of integration: vertically, between Web front- and back-end systems; laterally, between a company and its customers, business partners, suppliers or intermediaries; horizontally, among e-commerce, enterprise resource planning (ERP), customer relationship management (CRM), knowledge management and supply-chain management systems; and downward through the enterprise, for integration of new technologies with radically redesigned business processes. But e-business has a higher payoff in the form of more efficient processes, lower costs and potentially greater profits.

E-commerce and e-business both address these processes, as well as a technology infrastructure of databases, application servers, security tools, systems management and legacy systems. And both involve the creation of new value chains between a company and its customers and suppliers, as well as within the company itself.

All companies should have an e-commerce strategy. (Governments should have an e-public service strategy.) Electronic networks in general and the Internet in particular are too important for firms to ignore if they want to interact with customers, suppliers or distribution partners.

But some companies need to move beyond e-commerce and form e-business strategies – especially large companies that already have links to EDI networks or have completed major ERP implementations. These companies have already reaped some of the biggest benefits from e-commerce strategies. They’re also likely to experience organizational pain as conflicts develop among their ERP, EDI, supply-chain management and e-commerce strategies. And last, they have enough experience and knowledge in electronic-network technologies – and in process redesign and integration – that they have a chance of being successful in an e-business strategy.

Still, the coordination and organizational obstacles to developing an e-business strategy are formidable. It involves major and potentially disruptive organizational change. The risks of failure and the consequences from limited success are higher in an e-business strategy than in an e-commerce strategy. Being a leader in e-business can contribute to long-term success, but the stresses and strains of business transformation can cause near-term damage.

A wise company may decide to consolidate its gains and complete the work involved in its existing and largely separate e-commerce, ERP, CRM or supply-chain initiatives before making the big leap to becoming an e-business. Jumping too soon can be as disastrous as moving too late.

Andrew Bartels is vice-president and research leader covering e-commerce trends and technologies at Giga Information Group Inc. in Norwell, Mass. Contact him at [email protected].

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