EVALUATION OF THE ROLE OF E-COMMERCE IN REDUCING OPERATIONAL COST IN AN ORGANIZATION

CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND TO THE STUDY
E-Commerce is the process of conducting business electronically among various entities in order to satisfy an organizational or individual objective. A key ingredient of E-Commerce, sometimes referred to as electronic trading, is the advertisement and procurement of goods and services over the Internet (Rhodes & Carter, 1998). The success and volume of E-Commerce on the web has been widely reported. With success in establishing an environment in which E-Commerce can grow and flourish, every computer can become a window open to every business, large and small, around the globe.

The electronic medium we call the Internet has the potential to reduce actual transaction time, processing time and operational cost dramatically, while at the same time making information available globally. Internet-based E-Commerce has been embraced as a means of reducing operational cost and as a high potential means of generating revenue (Levis, 1996). The ubiquity of the web and the availability of browsers across different platforms provide a common base upon which E-Commerce applications can be built, especially in the enterprise. This common platform has reduced the significance of issues pertaining to software distribution and software installation, thus encouraging the expansion of E-Commerce via Intranets, Extranets and the Internet.

E-Commerce provides new channels for the global marketing of tangible goods and presents opportunities to create new businesses providing information and other knowledge-based intangible products (Rhodes & Carter, 1998). Although most E-Commerce is currently at the inter-corporate and inter-organizational level, services targeted at individual customers are evolving rapidly. The Internet is the most obvious example of this and is a major catalyst in the diffusion of E-Commerce, helping to foster a common environment for electronic transactions of all kinds. E-Commerce encompasses all forms of interactive business transactions, which are facilitated by networks of computers. E-Commerce is expanding because of the greater number of businesses and individuals who are able to use these networks and the growing number of ways in which businesses can conduct transactions electronically with other organizations and directly with consumers at a reduced cost (Bartell et al, 1999). At present, business-to-business E-Commerce seems still to be of greater volume than business-to-consumer E-Commerce with the primary motive of operational cost reduction, but this may change in the future. These trends are important to the global economy and to the economy of individual countries because E-Commerce contributes to economic efficiency. E-Commerce contributes to economic efficiency in five important ways. They includes shrinking distances and timescale, lowering distribution and operational costs, speeding product development, providing more information to buyers and sellers and enlarging customer choice and supplier reach (Turban et al, 2000). However, this study is focused on the role of E-Commerce in reducing operational cost in an organization.
Furthermore, when offline stores calculate operational costs, they have to factor in countless business expenditures along with the actual number of transactions. When there are fewer transactions, the cost of per transaction is higher. On the flipside, transactions arriving in high quantity can overwhelm the personnel and distributors. In an E-Commerce business, the operational cost is the same across the board, whether one order or thousands come in.