Critical Success Factors in Integration of E- Commerce and Financial

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Critical Success Factors in Integration of E- Commerce and Financial Information Systems Case: Elisa ShopIt - Virtual Store Juha Huuhtanen M.Sc Thesis in Accounting The Swedish School of Economics and Business Administration 2004 2 The Swedish School of Economics and Business Administration Department: Accounting Type of Document: Thesis Title: Critical Success Factors in Integration of E-Commerce and Financial Information Systems. Case: Elisa ShopIt - Virtual Store Instructor: Anders Tallberg Author: Juha Huuhtanen Abstract: Efficient integration of financial and e-commerce systems has fundamentally changed the way modern companies operate. Companies with integrated information systems gain substantial competitive advantage by reducing the operating costs, adding value to their operations and providing their customers with new and innovative products in much faster pace.

Since information system integration is relatively new field and only little scientific literature can be found on this subject, the data sources for this thesis consists mainly of e-commerce books, articles and company homepages. Also, as the fast pace of information technology innovations and new products are overwhelming, only the fundamental information of technologies is provided within this thesis. The empirical part of the research was conducted in Elisa Corporation virtual store called Elisa ShopIt.

The objective was to evaluate, identify and ... more. less.

analyze the critical success factors affecting the integration solution of the selling side e-commerce and financial information systems within the company. The conclusion of the thesis provides the management of the organization an evaluation of the current situation and suggestions for further development of the company's information system. The identified critical success factors can also be in used to evaluate other organizations 9 solutions as well. Search Words: E-commerce, E-Business, Financial Information System, Enterprise Application Integration (EAI), Elisa Corporation 3 1. BACKGROUND.................................................................................................................. .............6 1.2 R ESEARCH OBJECTIVE ...................................................................................................................8 1.3 T HE S TRUCTURE OF THE T HESIS ....................................................................................................8 2. E-COMMERCE SYSTEMS.......................................................................................................... 10 2.1. O BJECTIVE AND S TRUCTURE ......................................................................................................10 2.2 E- COMMERCE SYSTEMS ...............................................................................................................10 2.3 D EFINITION OF E- COMMERCE S YSTEMS ......................................................................................10 2.3.1 Customer's Perspective................................................................................................... ....10 2.3.2 Seller 9s Perspective..................................................................................................... ........11 2.4 E-C OMMERCE A RCHITECTURE ....................................................................................................11 2.5 B ASIC C OMPONENTS OF E-C OMMERCE S YSTEM .........................................................................13 2.5.1 Hardware................................................................................................................. ...........14 2.5.2 Software................................................................................................................. ..............15 2.5.2.1. Web Server Software................................................................................................... ................15 2.5.2.2. Online Transaction Sever.............................................................................................. ...............15 2.5.2.3. Browsers.............................................................................................................. ........................16 2.5.2.4. Payment Systems....................................................................................................... ..................17 2.6. F ULL F UNCTION E-C OMMERCE S YSTEM ....................................................................................17 2.6.1 Security and Access Control.............................................................................................. ..18 2.6.1.1. Security.............................................................................................................. ..........................18 2.6.1.2. Access Control........................................................................................................ .....................19 2.6.2. Personalization......................................................................................................... ..........20 2.6.3. Catalog................................................................................................................. ..............21 2.6.4. Merchandising and Sales Aids...........................................................................................2 3 2.6.5. Shopping Cart........................................................................................................... .........23 2.6.6. Order Processing........................................................................................................ .......24 3. FINANCIAL INFORMATION SYSTEMS.................................................................................25 3.1. O BJECTIVE AND S TRUCTURE ......................................................................................................25 3.2. D EFINITION OF F INANCIAL I NFORMATION S YSTEM ....................................................................25 3.3. T YPES OF FIS............................................................................................................................ .26 3.3.1. Low-end................................................................................................................. .............27 3.3.2. Middle-range............................................................................................................ ..........27 3.3.3. Enterprise-wide......................................................................................................... .........28 3.3.4. Custom Designed......................................................................................................... .......30 3.3.5. Application Service Provider (ASP)...................................................................................30 3.4. F EATURES OF A CCOUNTING I NFORMATION S YSTEM ..................................................................30 3.5. T ECHNOLOGY BEHIND FIS.........................................................................................................31 4. ENTERPRISE APPLICATION INTEGRATION (EAI)...........................................................32 4.1 O BJECTIVE AND S TRUCTURE .......................................................................................................32 4.2 D EFINITION OF EAI.....................................................................................................................32 4.3. EAI LEVELS ............................................................................................................................... 33 4.3.1. Data Level.............................................................................................................. ............33 4.3.2. Application Interface Level............................................................................................. ...34 4.3.3. Method Level............................................................................................................ ..........34 4.3.4. User Interface Level.................................................................................................... .......35 4.4. A PPLICATION I NTEGRATION T OOLS ............................................................................................36 4.4.1. Application Adapter..................................................................................................... ......37 4.4.2. Middleware.............................................................................................................. ...........37 4.4.3. Messaging............................................................................................................... ............37 4.4.4. Message Queuing......................................................................................................... ......38 4.4.5. Interfaces.............................................................................................................. ..............38 4.4.6. J2EE.................................................................................................................... ...............38 4.4.7. XML..................................................................................................................... ...............39 4.4.8. Web services............................................................................................................ ...........39 4 4.4.9. Discussion.............................................................................................................. ............40 5. INTEGRATION OF E-COMMERCE AND FINANCIAL INFORMATION SYSTEMS......40 5.1 O BJECTIVE AND S TRUCTURE .......................................................................................................41 5.2. I NTEGRATION A LTERNATIVES ....................................................................................................41 5.2.1. Totally Integrated Solution............................................................................................. ....41 5.2.2. Unintegrated Solution................................................................................................... .....42 5.2.3. Semi-Integrated Solution................................................................................................ ....43 5.3. P OINTS OF I NTEGRATION ............................................................................................................43 5.4. A DVANTAGES OF S YSTEM I NTEGRATION ....................................................................................44 5.4.1. Cost Reductions......................................................................................................... .........44 5.4.2. Supply Chain Optimization and Automation......................................................................45 5.4.3. Internal Value Chain Efficiencies....................................................................................... 47 5.4.4. Add Value to the Customers.............................................................................................. .47 5.4.5. Other Advantages........................................................................................................ .......48 6. KEY FACTORS IN SUCCESSFUL INTEGRATION...............................................................51 6.1 O BJECTIVE AND S TRUCTURE .......................................................................................................51 6.2 I NTRODUCTION ............................................................................................................................51 6.3 C RITICAL FACTORS FOR SUCCESSFUL SYSTEMS INTEGRATION .....................................................52 6.3.1 Connected Corporation.................................................................................................... ...52 6.3.2 Reengineered Business Processes.......................................................................................53 6.3.3 Optimized Processes...................................................................................................... ......53 6.3.4 Automated Processes...................................................................................................... .....54 6.3.5 Cut Overhead Costs....................................................................................................... ......54 6.3.6 Added Value to the Organization........................................................................................54 6.3.7 Added Value to the Customers............................................................................................5 5 6.3.8 Efficiently Utilized Middleware.......................................................................................... .55 6.3.9. Integrated Services..................................................................................................... ........56 6.4. D ISCUSSION ............................................................................................................................... .56 7. CASE STUDY: ELISA SHOPIT VIRTUAL STORE.................................................................57 7.1. O BJECTIVE AND S TRUCTURE ................................................ E RROR ! B OOKMARK NOT DEFINED . 7.2. M ETHOD ............................................................................... E RROR ! B OOKMARK NOT DEFINED . 7.3. T HE C OMPANY ..................................................................... E RROR ! B OOKMARK NOT DEFINED . 7.4. E LISA S HOP I T ....................................................................... E RROR ! B OOKMARK NOT DEFINED . 7.4.1. Customers............................................................................. Error! Bookmark not defined. 7.4.2. Business................................................................................ Error! Bookmark not defined. 7.4.3. Products............................................................................... Error! Bookmark not defined. 7.4.4. The Sale Channels................................................................ Error! Bookmark not defined. 7.4.4.1. Stores............................................................................................ Error! Bookmark not defined. 7.4.4.2. Call Center.................................................................................... Error! Bookmark not defined. 7.4.4.3. Virtual Store................................................................................. Error! Bookmark not defined. 7.4.5. Costs Structure..................................................................... Error! Bookmark not defined. 7.5. I NFORMATION S YSTEMS ....................................................... E RROR ! B OOKMARK NOT DEFINED . 7.5.1. E-Commerce System............................................................. Error! Bookmark not defined. 7.5.1.1. History.......................................................................................... Error! Bookmark not defined. 5.5.1.2. Technology................................................................................... Error! Bookmark not defined. 5.5.1.3. Catalogue...................................................................................... Error! Bookmark not defined. 5.5.1.4. Billing Methods............................................................................ Error! Bookmark not defined. 5.5.1.5. System Maintenance and Development........................................ Error! Bookmark not defined. 5.5.1.6. Content Management.................................................................... Error! Bookmark not defined. 5.5.1.7. The Complicated Processes.......................................................... Error! Bookmark not defined. 7.5.2. Operating system.................................................................. Error! Bookmark not defined. 7.5.3. Financial Information Systems............................................. Error! Bookmark not defined. 7.5.3.1. Customer Service Systems............................................................ Error! Bookmark not defined. 7.5.3.2. Call Center Information Systems.................................................. Error! Bookmark not defined. 7.5.3.3. Ordering Systems.......................................................................... Error! Bookmark not defined. 7.5.3.4. Accounting Information Systems................................................. Error! Bookmark not defined. 7.6. B USINESS P ROCESSES ........................................................... E RROR ! B OOKMARK NOT DEFINED . 5 7.6.1. Customer to Business........................................................... Error! Bookmark not defined. 7.6.1.1. Internet Contracts.......................................................................... Error! Bookmark not defined. 7.6.1.2. Fixed phone line contracts / services............................................ Error! Bookmark not defined. 7.6.1.3. Mobile Phone Devices.................................................................. Error! Bookmark not defined. 7.6.1.4. Fixed Phone Line Devices............................................................ Error! Bookmark not defined. 7.6.2. Financial Processes............................................................. Error! Bookmark not defined. 7.6.2.1. Heltel Oy...................................................................................... Error! Bookmark not defined. 7.6.2.2. Witem and GNT Finland.............................................................. Error! Bookmark not defined. 7.6.2.3. Services and Internet Contracts.................................................... Error! Bookmark not defined. 7.6.2.4. Radiolinja..................................................................................... Error! Bookmark not defined. 7.6.3. Income to HYMY.................................................................. Error! Bookmark not defined. 7.7. I NTEGRATION OF I NFORMATION S YSTEMS ............................ E RROR ! B OOKMARK NOT DEFINED . 7.7.1 Integration of the MIPA Product Family.............................. Error! Bookmark not defined. 7.7.2. Integration of E-commerce and ordering systems................ Error! Bookmark not defined. 7.7.3. Integration of ordering systems and FIS.............................. Error! Bookmark not defined. 7.7.3.1. Fixed Line Services and Contracts............................................... Error! Bookmark not defined. 7.7.3.2. Internet Contracts (ADSL)............................................................ Error! Bookmark not defined. 7.7.3.3. Witem Oy..................................................................................... Error! Bookmark not defined. 7.7.3.4. Oy Heltel Ab................................................................................. Error! Bookmark not defined. 7.7.4. Information Flow in FIS....................................................... Error! Bookmark not defined. 7.7.4.1. Information Flow 1....................................................................... Error! Bookmark not defined. 7.7.4.2. Information flow 2........................................................................ Error! Bookmark not defined. 7.8. D ISCUSSION .......................................................................... E RROR ! B OOKMARK NOT DEFINED . 7.8.1. E-commerce vs. Ordering systems....................................... Error! Bookmark not defined. 7.8.1.1. Service ordering............................................................................ Error! Bookmark not defined. 7.8.1.2. Device ordering............................................................................ Error! Bookmark not defined. 7.8.1.3. Inventory Link.............................................................................. Error! Bookmark not defined. 7.8.1.4. Complicated processes.................................................................. Error! Bookmark not defined. 7.8.2. Ordering systems vs. FIS...................................................... Error! Bookmark not defined. 7.8.3 FIS vs. FIS............................................................................. Error! Bookmark not defined. 7.8.3.1. Internal vs. External Accounting.................................................. Error! Bookmark not defined. 7.8.3.2. SAP project................................................................................... Error! Bookmark not defined. 7.9. A NALYSIS ............................................................................. E RROR ! B OOKMARK NOT DEFINED . 7.9.1. Business processes............................................................... Error! Bookmark not defined. 7.9.2. The Costs.............................................................................. Error! Bookmark not defined. 7.9.3. Service.................................................................................. Error! Bookmark not defined. 8. DISCUSSION.................................................................. ERROR! BOOKMARK NOT DEFINED. 8.2 D ISCUSSION ON THE C RITICAL S UCCESS F ACTORS TROUGH THE E LISA C ASE E RROR ! B OOKMARK NOT DEFINED . 8.2.1 Connected Corporation......................................................... Error! Bookmark not defined. 8.2.2 Reengineered Business Processes......................................... Error! Bookmark not defined. 8.2.3 Optimized Processes.............................................................. Error! Bookmark not defined. 8.2.4 Automated Processes............................................................. Error! Bookmark not defined. 8.2.5 Cut Overhead Costs............................................................... Error! Bookmark not defined. 8.2.6 Added Value to the Organization.......................................... Error! Bookmark not defined. 8.2.7 Added Value to the Customers.............................................. Error! Bookmark not defined. 8.2.8 Efficiently Utilized Middleware............................................. Error! Bookmark not defined. 8.2.9 Integrated Services................................................................ Error! Bookmark not defined. 8.3 C ONCLUSION ......................................................................... E RROR ! B OOKMARK NOT DEFINED . 9. CONCLUSION.................................................................................................................. .............58 9.2. C ONCLUDING THE T HESIS ..........................................................................................................58 9.3. S UGGESTIONS FOR F URTHER R ESEARCH ....................................................................................59 10. REFERENCES:................................................................................................................ ............60 6 1. Background Electronic commerce is fundamentally changing the way business is conducted. The impact of e-commerce to businesses can be and has been huge. E-commerce can transform the way products and services are created, sold and delivered to the customer, as well as the way in which companies work with their partners. With effective use of e-commerce tools and techniques organizations can add value for their customers and significantly facilitate and improve their business processes. As the term delectronic commerce d is still an emerging concept, the definition varies between different contexts. Generally electronic commerce (e-commerce, eCommerce, EC) refers to the replacement of physical economic processes with electronic ones and the creation of new models for collaboration among trading partners. According to Tuunainen (1999) e-commerce consists of transaction- oriented Internet base functions (e.g. on-line catalogs, purchasing and payment). For online retail selling, the term e-tailing is sometimes used. Electronic Commerce can provide the following benefits over non-electronic communication: " Reduced Costs - Reduced labor, reduced paper, reduced errors in keying in data, etc. " Reduced Time - Shorter lead times, faster delivery of product. " Flexibility with Efficiency - The ability to handle complex situations, product ranges and customer profiles without the situation becoming unmanageable. " Enhanced Long Term Trading Partner Relationships - Improved communication between trading partners leads to enhanced long-term relationships. " Lock in Customers - The closer you are to your customer and the more you work with them to change from normal business practices to best practice Electronic Commerce, the harder it is for a competitor to upset your customer relationship. " New Markets - The Internet has the potential to expand your business into wider geographical locations. However, it is necessary to develop the 7 appropriate production capacity and distribution channels to support market demands generated by promoting your business to a larger marketplace. (Kalakota, 1997, p.50) In some contexts the terms e-commerce and e-business are strictly separated from each other, and e-commerce is often defined as a subset of e-business. However, some authors use these two terms interchangeably. In general e-business is defined in a broader sense than e-commerce. E-commerce is often defined as doing simple and independent transactions electronically, whereas the term e-business is used to refer to the whole way of thinking or doing business, and the overall business strategy of a company. E-business, in addition to encompassing e-commerce, includes both front- and back-office applications. (Kalakota & Robinson,1999, p.4) Figure 2 : E-business vs. E-commerce As e-commerce systems, the effective use of financial information systems (or accounting information systems as they are sometimes called) is nowadays critical to organizational success. To become a complete enterprise resource-planning system with optimizing capabilities, all modules in the financial information system should be integrated, also with the e-commerce system. By integrating the systems, organization can attain dthe whole picture d of the business, and thus, provide better service with their customers as the information from the back-end, front-end, logistics, manufacturing and etc. can be used seamlessly and towards a common goal. E-business Improving business performance through low cost and open connectivity: - New technologies in the value chain - Connecting value chain across businesses In order to: - improve service/reduce costs - open new channels - transform competitive landscapes E-commerce - Marketing selling and buying of products and services on the Internet 8 Integration of various information systems has been one of the hardest tasks information systems professionals have faced in recent years. While many vendors claim to have a "comprehensive end-to-end solution for integration", in reality most offer functionality and specialization in specific areas. Thus, for many organizations e-business infrastructure will commonly formulate into a multi- vendor solution. To create such an infrastructure, the integration of diverse technologies, applications and business semantics is needed. 1.2 Research objective The research objective of this research is to study which are the critical factors in identifying the successful integration of e-commerce and financial information systems using Elisa ShopIt virtual store as a case study. 1.3 The Structure of the Thesis Before going into empirical research, the theory part of the thesis explains some factors concerning e-commerce systems in general; why e-commerce systems have been such a hot topic in recent years, what these systems try to accomplish, what is the value added for the companies, and how all of this is done in practice. However, as the topic of e-commerce and e-commerce systems is enormous 3 and practically impossible subject to extensively cover in this thesis, I have had to limit the subject only to selling-side e-commerce systems. Financial information systems are covered in the 3rd chapter. Like with e- commerce systems, I will explain in this chapter how financial information systems work, why companies need such systems and what can be accomplished with such a system. Chapter 4 describes tools and techniques in the field of enterprise application integration. In chapter 5 I have put these two systems 3 e-commerce selling-side system and financial information system 3 together by defining the need for and benefits of 9 integrating different systems with each other. I also explain the points of integration and how integration is done. Again, I can not cover all possible integration alternatives as there are hundreds or even thousands of different systems, but I will give a good overview of the subject on a logical and theoretical level. In chapter 6, I will present my hopotises for the key factors in successful integration, and explain theses factors further. Chapter 7 studies the integration solution in Elisa ShopIt and gives analysis of the integration solution and suggestions for further development of the system. Chapter 8 discusses the critical success factors identified in the chapter 6, by reflecting them to the Elisa case, and gives results of the thesis by explaining whether these factors can be used to identify the, if the integration of e-commerce and financial information systems is successful. The last chapter gives concluding remarks, and suggests possibilities for further studies. 10 2. E-Commerce Systems 2.1. Objective and Structure This chapter firstly introduces e-commerce systems as a concept. More detailed overview of the technologies and architectures behind effective e-commerce sites are also presented. 2.2 E-commerce systems Internet-based electronic commerce is still an uncertain and rapidly changing environment. There are already many success stories that point to great promise for Internet e-commerce solutions, but it is still early in the game to identify easy formulas for creating a winning Internet e-commerce strategy with reasonable costs and minimal risks. The nature of the markets, which can be reached effectively through Internet e-commerce, is still unclear and there is still uncertainty about where the major sources of revenue will come from (e.g. direct sales, advertising, subscription fees for access to services, or something else). 2.3 Definition of E-commerce Systems There are many definitions of e-commerce systems according to the perspective from which the system is studied from. This chapter gives a comprehensive view of selling side e-commerce systems according to the needs that different parties have. 2.3.1 Customer's Perspective From a customer's perspective, the purpose of an e-commerce system is to enable the customer to locate and purchase a desired good or service over the Internet when the customer is interested in making the purchase. Its function is no more or less than providing a virtual store. 11 2.3.2 Seller 9s Perspective From a seller's perspective, the key function of an e-commerce system is to generate higher revenues than the merchant would achieve without the system. In order for this to happen, the e-commerce system must recreate or utilize existing data and business processes. All of the same processes the merchant must have in place to support an in-store or catalog purchase must also be in place for an electronic purchase: e.g. product information, inventory systems, customer service, and transaction capabilities (including credit authorization, tax computation, financial settlement, and shipping) Additional functions of an e-commerce system, related to revenue generation, are to help redefine and enhance an enterprise's brand strength, customer-service capability, and supply-chain effectiveness. An electronic-commerce system is one of the areas of an enterprise's infrastructure that is open to the customer via the Internet, but it should be linked with other systems within the organization that affect customer service, i.e., inventory and billing, among others. 2.4 E-Commerce Architecture The fundamental architecture of e-commerce is rapidly changing. The complexity of business systems and the difficulty of building connections between the business systems of individual companies have led to a variety of intermediaries and hybrid solutions in the world of e-commerce. Additionally, a number of new buy-sell methodologies (e.g. auctions and reverse auctions) that were previously considered impractical are now carried out easily over the Internet. The main certainty of the next few years in the e-commerce area is that things will continue to change. The Internet has represented a sales distribution channel that is different from the traditional distribution channels that have existed. Even in some cases where 12 customers are the same, the way of doing business has changed so much that the Web has to be thought as a new sales channel. Many companies make the mistake of thinking about the web as a way of simply automating sales transactions between existing trading partners. However, Internet is much more than that, and is rapidly evolving further away from traditional trading models every day. In general, there are two main methods of selling products over the internet. Naturally, there are many variations and permutations of these methods. 1. A company can sell products and services from its own web site. With this method, the company can exercise a high degree of control regarding system design and features. In this case, an e-commerce environment composed of interconnected systems and features can be gradually developed and improved over time. The company also has complete control of the design, merchandising, layout, and transaction processing. This model is presented in figure 3. Figure 3. E-commerce model 2. Another method of selling on the Internet involves the use of an intermediary, such as a B2B caggregator. d Aggregators (also known as vertical or horizontal marketplaces, portals, exchanges, e-business intermediaries, or various other things) collect product data from many suppliers to produce one large, aggregated, catalog. In this case, the aggregator normally provides the transaction processing and defines the systems and processes by which sales are made. The role of the seller is restricted to two main functions: the supply Internal Corporate Systems E-commerce Web site Internet Firewall 13 of data for the aggregated catalog, and order fulfillment on orders passed from the aggregator. The intermediary handles all hardware and software issues related to the cselling d web site and its functionality. This approach presented in figure 4. Figure 4. E-commerce model In all likelihood, most industrial companies in the future will need to utilize both of these business models (and many variants thereof), using the Internet as a complete distribution channel for their products. The typical company will, therefore, be maintaining a variety of Internet selling presence. An example of this method is presented in figure 5. Figure 3. E-commerce model 2.5 Basic Components of E-Commerce System Provision of the basic system requires Internet access and an access device at the location of the shopper, a Web-application server and e-commerce software (enabling catalog creation and transaction processing), security gateways to limit Seller Seller Seller Seller Aggregator Internet Internal Corporate Systems Firewall Aggregator Aggregator Customer Company e-commerce web site Internet 14 external access to internal data systems, and integration software to pull data from the appropriate support systems into the commerce environment. Even in its simplest architectural form many pieces of hardware and software need to work, both inside and outside the organization, to enable exchange of e- commerce transaction data. Before the organization can extend its nervous system beyond its own walls, it must first make sure that its own systems are linked together, so that stable, accurate and flawless data- and transaction capabilities are ensured. (Tepper, 2000, p.108-109) 2.5.1 Hardware There are countless combinations of computer hardware products to enable the implementation of an e-commerce system. However, most of this hardware performs one or more of the following tasks. 1. Store Data 2. Process Data 3. Communicate/Transmit Data 4. Route Data (Some routing devices might also transmit data) Generally, servers are used for storing a processing data. Routers, bridges, gateways, hubs and switches communicate and/or route data. The organization can either purchase the hardware and store it in its own premises or alternatively use services provided by Internet service providers (ISPs) and Web hosting providers (WHPs). In addition to hardware these service providers provide also software, making it possible for the merchant to perform all four tasks remotely with minimal hardware and software required at the organization's physical site. 15 2.5.2 Software In an electronic commerce configuration each piece of hardware requires software to run it. Web servers, transaction servers, and security devices all require software. 2.5.2.1. Web Server Software The Web server makes possible for clients to request information and serves up the pages as requested. Server software runs a server and it can be compared to operating system that runs a PC. Web server software allows the Web server to communicate with both internal computer resources and the Internet. Web server software controls the storage and retrieval of documents and their transfer. It is also responsible of providing encryption and authentication and often allows integrating dynamic documents. Because the administrative functions of the Web server software are of paramount importance in ensuring the smooth operation and maintenance of Web business service, it must be simple to configure, administer, and manage on a daily basis. The most important consideration in the area of web server management is performance. The Web site can receive hundred of thousands of hits per day, which makes the number of users who access the system simultaneously a factor in the selection of high-performance server software. 2.5.2.2. Online Transaction Sever Online transaction processing plays a vital role in E-commerce. Transaction processing involves the basic activities of (1) data entry, (2) transaction processing, (3) database maintenance, (4) document and report generation, and (5) inquiry processing. 16 Transaction server is the application program that processes the information request, order/purchase, or other business transaction. Transaction server software processes transactions as they are received over the Web. Also called online or real-time systems, transaction servers update master files and databases as soon as transactions are received over communication lines. They also send confirmation to the senders. The transaction server also handles credit- and debit-card transactions (using secure electronic standards technology) on behalf of the merchant and the end customer. In an e-commerce system, the transaction server must contain a common payment application programming interface (API) that is used for all payment types and functions: receive, approve, deposit, and refund. The transaction server handles the authorization requests and recording of the transaction and settlement of the transaction information with the merchant, the credit-card company, and the customer. It also manages the payment process, from communicating with the consumer to drafts with the merchant's financial institution. Records of transactions must be maintained to facilitate reconciliation and reporting later. The transaction server should contain a component to process digital certificates from an organization using certificate-authority software or follow-on security technologies. Multiple merchants can operate on a single transaction server. 2.5.2.3. Browsers A browser is the software that acts as an interface between the user and the information stored on the Web servers (both internal and external) connected by the Internet. A browser is a client-side program that communicates with a web server using formalized protocols that provide access to various types of information. A Web server together with a browser program constitutes a client- server system. The browser contacts a Web server and sends a request for 17 information or for Web pages. It then receives the information usually in the form of a page, and displays it on the user's computer. Browsers are also becoming preferred interface for transaction processing systems accessed trough the Web. Organizations are using browser to access legacy systems and ERP software to provide standardized interface for both internal and external customers. Software vendors such as SAP and Oracle are using browser- based interfaces for their applications. 2.5.2.4. Payment Systems Payment systems require components placed at the end customer's location, the merchant's transaction-system location (whether on merchant premises or service provider environment), and the financial institution's location. Customers 9 financial information has to be kept confidential; this is accomplished with electronic wallets or credit-card software at the customers 9 end point. The customer's credit information is sent to a transaction server that can accept a variety of electronic payments. The transaction server also needs to manage the payment process, from communicating with the consumer to drafts with the financial institution. The transaction server maintains detailed transaction payment information enabling companies to handle disputes, charge backs, or adjustments easily. 2.6. Full Function E-Commerce System However way the e-commerce system is operated, in order it to be fully functional there will be similar features and capabilities. An e-commerce system does not need to be implemented at once. Commonly, e-commerce systems are developed over time as business systems are built and integrated with one another. The diagram shows components that might be included in basic, typical, and advanced e-commerce systems. Each of these components can, in turn, be implemented in 18 versions ranging from very simple to richly complex. Following is a more detailed discussion of the subsystems. Figure 6, Building blocks of e-commerce system 2.6.1 Security and Access Control 2.6.1.1. Security Because of the open nature of the web, web sites are targets for hackers. Most web sites are typically separated from internal company systems by means of a firewall or other barrier to prevent external users from penetrating beyond cpublic d web site. The firewall acts as the primary barrier to intrusion and corruption of internal company systems. The effectiveness of the firewall is proportional to the degree of separation that can be maintained between the web site and internal data. INTERNET Security and Access Control Personalization Layer Order Acknowledgement CATALOG Selection Aids Merchandising Shopping Cart/ Product Selector Pricing Order Processing Product Information Management System Sales Reporting Legacy Systems (Order fulfilment, ERP, etc.) Basic Typical Advanced 19 The e-commerce site should be cde-coupled d from other company systems to maintain good security. This means, for example, that live database connections should be maintained only to databases not connected to other company systems. 2.6.1.2. Access Control In general, for companies exercising e-commerce there is no sense to restrict access to the selling site. However, some companies control access so that only distributors or authorized resellers are allowed into the buying area of a web site. This kind of approach works for companies that wish to restrict sales to pre- determined distribution channels but it shuts out all of the people who might use your catalog for information. An alternative strategy is to consider the partial access control, which restricts access to certain parts of the web site or certain types of information (like prices), if necessary. A company should consider carefully before implementing access controls because prospective customers might be turned off by the lack of information or lack of access Access control is used for three reasons: 1. To restrict information to authorized individuals. 2. To obtain identification of the individual (or computer) accessing your site so that, for example, the information presented can be tailored to that individual (personalized). 3. To require that users pay for access 3 either with money or with personal information. For example, a common method of obtaining information about users is to require them to complete a personal information form before they are allowed access to the web site. Access control for site visitors is typically accomplished through the use of passwords, digital certificates, encryption keys, or address verification (where access is restricted to certain IP addresses). 20 2.6.2. Personalization Personalization involves customizing the presentation of the web site, or certain information therein, for the individual or class of individual accessing the site. Personalization is normally considered an expensive and complicated undertaking, but with the use of latest advanced software products in the market it does not have to be either. The simplest forms of personalization can include detecting which Internet browser is being used and adjusting the presentation of the web site by using that information. Likewise, in some sites there are button, for example, that allow users to turn off images, Flash graphics, sounds, etc. According to polyphasic.com (http://www.polyphasic.com, 24.9.2002), personalization can be implemented at various levels of granularity. (Granularity is the size of the group for which cpersonalization d occurs). In general, finer levels of granularity cost more than broader levels. Examples include: 1. Very broad classes of users (such as those with 4.0 browsers and newer). 2. Functional classes of users (such as cregistered users d, cdistributors d, cguests d, etc.). 3. Individual company/customer (i.e. all users from one corporate IP address or from one named business). 4. Individual computers (can be detected through use of cookies). 5. Known individuals. There are essentially two types of personalization: c look and feel d versus c content . d The two can also be combined. Typically, this clook and feel d customization simply changes the format of data presented to users. When using access control it is possible to limit or permit access to certain information. Therefore, personalization of the content presented to a user is sometimes easier than personalizing the clook and feel d. Content personalization can be used for 21 specific items, such as price. In the price example, different prices are presented to buyers, depending on the identity of the buyer. Issues to consider when evaluating personalization include according to polyphasic.com: " The intrusiveness of the authentication mechanism. The earlier in the process that a user is presented with an authentication form the greater likelihood that they will leave the site. After a purchase decision has been made, a user is normally more willing to provide information for authentication. " The type of personalization being provided. Obviously, if the entire site presentation is to be customized for individual users there will need to be authentication at the start of a session. " The use of cookies to provide personalization information can accomplish personalization in a non-intrusive manner. This is especially appropriate if users tend to be repeat visitors. Cookies are normally non-secure, therefore, they should not be use to authenticate, say, price discounts. " Personalization drives web site operating costs for back room operations, connectivity, and processing power. " A well-personalized site should sell more goods or services if the buyer has individual buying autonomy. To the extent that buyers are, for example, purchasing agents placing routine requisitions for pre-defined products, it might not make much sense to invest in personalization. 2.6.3. Catalog One of the most important parts of the e-commerce selling site is the catalog, which is said to be the heart of an e-commerce system. Catalog contains the data from where buyers make selections. However, it is still often the most misunderstood component of the web based system and is frequently designed poorly. Just as paper catalogs, web catalogs should be well designed, attractive to 22 look at, and rich source of information. The three important things have to be considered when outlining the web catalog. 1. The prospective catalog users. 2. The information content to be displayed in the catalog 3. The catalog organization and navigation The typical users of the web catalog are for example: " Customers look up product information and make purchase decisions " Customer engineers use it to cspec out d parts for new models. " Customer service and other internal personnel use it to look up product information while dealing with customers. " Sales people use it as a sales aid during sales calls. " All of the above mentioned use it to look up part numbers, prices, cross- reference lists, etc. " In addition to these basic uses, the catalog is normally designed to enhance cup-selling d and ccross-selling d by presenting other products to the customer while they are making a product selection. The information contained in the catalog should be cfine grained d and detailed. Like paper catalogs, web catalogs should contain photos or drawings of products, detailed product descriptions, information intended to help customers choose the appropriate product, and maybe references to related items. Points to consider when designing the web catalog according to www.selectica.com (26.9.2002) include the following: 1. Users have the discretion to turn off images on their browsers. The catalog should look good even with images turned off. 2. Increasingly, catalog may be accessed on a cell phone or a PDA. Depending on the product offering, WebTV may also be an important viewer medium. An alternative-viewing format for each of these devices should be provided. 23 3. Ordering items should be made easy by including a cpurchase d button prominently. 4. Collecting items in a cshopping cart d and viewing and modifying it should be made easy. 2.6.4. Merchandising and Sales Aids These two categories are quite distinct. Sales caids d help the customers make the correct purchase decision. cMerchandising d is anything that might encourage the customer to purchase additional items that might not have been contemplated originally. Sales aids include such things as parametric search options and product cconfigurators. d Merchandising can be accomplished in a number of ways. There can be crelated item d buttons and caccessory d lists in the catalog. In some e- commerce systems, there is the capability to develop lists of items that might be a logical cup sell d or ccross sell d. These kinds of functions can be beneficial to consider if their minimal additional cost to the system is low. 2.6.5. Shopping Cart The shopping cart is a place for the customers to collect items they want to purchase. The shopping cart method used in e-commerce site resembles the ones used in a real world grocery store. There might be an added feature in the cart that it can be configured to maintain a running total of items purchased, assuming that the prices are available to the shopping cart. With the help of personalization tools the shopping cart may use different prices from a separate price database for different users, for example: it can get cdistributor d prices or cretail d prices or, it can get prices for a specific company or individual. 24 2.6.6. Order Processing There are several ways to implement order processing and order fulfillment in e- commerce systems. In order to do this efficiently, some system integration will be needed. Chapters 4, 5 and 6 will go through the needs for system integration in more detail. 25 3. Financial Information Systems 3.1. Objective and Structure In this chapter, I will give the definition of Financial Information System (FIS) and describe different types of FIS in use. As there are hundreds of financial information systems (FIS) in the market for various different purposes, I will focus on only those related for accounting and e-commerce related functions. 3.2. Definition of Financial Information System According to Moscove et al (p.7) financial information system (FIS), or sometimes called accounting information system (AIS), is the information subsystem within an organization that accumulates information from the entity 9s various subsystems and communicates it to the organization 9s information processing subsystem. The FIS has traditionally focused on collecting, processing and communicating financial-oriented information to a company 9s external parties (e.g. investors, creditors, and tax agencies) and internal parties (mainly management). Today the FIS is concerned with non-financial information as well as financial data and information. Under the traditional view of an FIS, each organization 9s functional areas, such as marketing, production, finance and human resources, maintain a separate information system. However, organizations have found the need to integrate these separate systems into one seamless database or to enterprise-wide information system. According to Moscove et al (p.8), the FIS of today should be an enterprise-wide information system, focused on business processes . Thus, the better definition of Financial information system according to the authors is: FIS is an information system that capture, record and communicate all relevant financial and non- financial information about important business activities. This perspective leads to 26 the FIS 9s creation of more useful and timely information for planning, decision- making and control purposes. 3.3. Types of FIS For accounting and financial planning there is a large amount of products available on the market ranging from simple one-man-company bookkeeping software to multi-million Euro enterprise-wide resource planning systems with optimizing capabilities. I will give brief introduction to all of these. In addition I will describe the basics behind application service providers (ASP). In most cases, the more unsophisticated the application is, the less functions the software is able to process. The FIS can be built from applications from various vendors, but the integration of these separate modules will become harder as the amount of vendor increase. Integrated accounting software programs process all types of accounting transactions, including transactions affecting in both general and special journals. Integrated accounting software programs organize transaction processing in modules and provide links among these modules. Integrated accounting software is a must if an enterprise wishes to integrate its e- commerce function seamlessly into the financial information system. In order to build an integrated e-commerce and financial information solution, the subsystems in the accounting information system must be integrated in itself. Table 1 provides a summary of the various types of accounting software. Software Category Cost Range Examples Low-end Free 3 500¬ Passeli, Business Works Middle-range 501¬ - ¬100,000 Great Plains, Dynamics Enterprise-wide 100,001¬ - 100,000,000¬ Oracle, SAP, PeopleSoft Custom Designed 5,000¬ - no limit Specific to the organozation Application Service Provider 50 ¬ - no limit Specific to the organization Figure 7, Categories of FIS 27 3.3.1. Low-end This category includes the most inexpensive bookkeeping packages. At the low- end, commercial programs are available for less than 50 euros. The products in this category primarily help individuals to organize their personal finances. However, the bill-paying capabilities these program packages often include, makes them popular tools for small businesses as well. There are products in this category targeted for businesses as well. More sophisticated and integrated accounting software packages for small businesses usually include chart of accounts, and processes general ledger transactions, accounts receivable transactions, and accounts payable transactions. They may provide Internet connectivity, which allow business to process electronic commerce transactions as well as job cost and payroll capabilities. These programs produce various accounting reports including e.g. basic financial statements and budget reports as well as bar graphs and pie charts. Low-end accounting software is generally considered a good FIS solution for businesses with 1,000,000¬ - 5,000,000¬ in revenue and few employees. 3.3.2. Middle-range The number of transactions processes monthly also affects the choice between low-end and middle-range accounting software with more capabilities. Middle- range accounting software is usually sold in modules, separately. These modules offer capabilities needed by middle sized companies and cost several hundred euros or more a piece. An example of a feature offered by middle-range accounting software include a capability for international business where there may be a need to handle transactions in multiple companies. Some midrange software can convert transactions from one currency to another and write checks in foreign currencies. 28 3.3.3. Enterprise-wide Figure 8, displays the most of the functional areas an financial information systems could or should be capable to process. This kind of system can be considered as an enterprise resource planning system. Figure 8. Examples of modules in financial information system ( http://www.softwaremag.com/L.cfm?Doc=archive/2000feb/EAI.html) Enterprise resource planning (ERP) systems are powerful software packages that enable business to integrate variety of disparate functions. ERP systems can provide the foundation for wide range of e-commerce 3 based processes, including web-based ordering and order tracing, inventory management, and built-to-order goods. ERP systems will be assumed to have the following characteristics: " ERP systems are packaged software designed for a client server environment, whether traditional or web-based. 29 " ERP systems integrate the majority of a business 9s processes. " ERP systems process a large majority of an organization 9s transactions. " ERP systems use an enterprise-wide database that typically stores each piece of data once. " ERP systems allow access to the data in real time. " In some cases, ERP allows an integration of transaction processing and planning activities (e.g. production planning). As a result, ERP systems have led to improved decision-making capabilities that manifest themselves in a wide range of metrics, such as decreased inventory, personnel reductions, speeding up the financial close process, and others. Thus ERP can be used to help firms create value. According to O 9leary (2000, p.7) there are several ways ERP facilitates value creation: " ERP Integrates Firm Activities " ERP employs use of dbest practices d " ERP enables organizational standardization " ERP eliminates information asymmetries " ERP provides on-line and real-time information " ERP allows simultaneous access to the same data for planning and control " ERP Facilitates intra-organization and inter-organization communication and collaboration Enterprise resource planning provides information backbone that can provide a basis for building electronic commerce applications. Ultimately, ERP systems must integrate with other systems, or ERP vendors must generate their own solutions to electronic commerce. In either case, ERP systems can facilitate electronic commerce. 30 3.3.4. Custom Designed Some large organizations with specialized accounting information needs may have to build a customized financial information system from a scratch. Although custom systems are difficult and expensive to design and implement, they are becoming less so with advances in object-oriented programming, client/server computing and database technology. Still, custom designed systems are likely to be costly and take longer than management anticipated. Custom designed FIS is a good choice only if there are no other. Studies have shown that packaged software can handle approximately 80% of a client 9s processing needs. Management should carefully consider how to handle the remaining 20%, and is the custom designed FIS a feasible solution. 3.3.5. Application Service Provider (ASP) The application service provider (ASP) hosts the software and provides companies with access to it for a fee. This is a good solution if the enterprise does not want to purchase the accounting software itself. However, enterprise has to rely on outsider with its inside information. On the other hand it does not have to keep up with the software updates and take care of the running of the system. 3.4. Features of Accounting Information System The modules typically found in the accounting software program may include general ledger account receivable, accounts payable, inventory and payroll. Depending on the level of sophistication of the accounting software, it may include additional modules such as job costing, purchasing, billing, invoicing, and fixed assets. Below are listed some features commonly found in integrated accounting software programs. Moscove et al p.154 31 " Cash-based versus accrual accounting " Ability to handle multiple companies " Sample chart of accounts " Recurring journal entries " Variance analysis (budget to actual) " User-defined financial statements " Product and service data " Check printing (mostly in US versions) " Graphic reports " Ratios " Audit Trails " Budgeting capability " Internet connectivity According to CPA journal, modern accounting software should be able to provide web-ready reports formatted in HTML. More advanced XML and XBRL capabilities are becoming more popular. Accounting software should also support ad hoc report generation via web queries. Useful features include support for global tax requirements, multiple exchange rates and conversion methods, and the ability to translate into other languages. ( http://www.nysscpa.org/cpajournal/2002/1102/ dept/d115202.htm) 3.5. Technology behind FIS Although financial information systems are mostly based on software, technology related to them is somewhat similar to other information technology systems. A brief overview of technologies related to electronic commerce is given in chapter 5. That subsection is applicable for FIS technology as well. 32 4. Enterprise Application Integration (EAI) 4.1 Objective and Structure This chapter introduces the definition of enterprise application integration. Afterwards some fundamental methodologies and technologies behind EAI are introduced. 4.2 Definition of EAI Enterprise Application Integration (EAI) is at the core of today's business strategies, including Web enablement, supply chain management, customer relationship management, multichannel and mobile computing, and self-service applications. An or

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