Strategic cost analysis on e-Businesss management: a brief note

There are two closely related perspectives on e-business (EB) cost analysis. They are the economic and management accounting perspectives. I briefly present them here:

Perspective 1: economic perspective
a. Transaction cost economics (TCE) perspective: By studying the impacts of EB on the transaction costs via marketplaces as compared with administrative costs as what enterprises incurr internally, TCE sheds light on why ebusinesses increasingly rely on business process outsourcing to operate.
b. Using classical micro-economic theories, Grover and Ramanlal (2004) explain why eBusinesses are facing higher intensity of rivalry in the marketplaces as a result of much lower marginal cost with the adoption of a more digital business model in EB. Moreover, Internet promotes cost transparency in supply chains, resulting in higher customer bargaining power. This puts pressure on the gross margins of EB in general (Sinha, 2000). It has also been pointed out EB is able to shift outward the EB rich-reach trade-off curve, which can change the "rules of the game", thus disruptive to the marketplace.


Perspective 2: strategic management accounting (SMA) perspective
Michael Porter's models of Value Chain and 5-Force Model are very influential in SMA; these two models, while grounded on economic logic, offer major theoretical insights for SMA to develop more specific and practical SMA practices, see Ward (1993). For a discussion of how to apply Porter's models in EB, you are referred to Porter (2001).

In short, to conduct strategic cost analysis of EB, you need to study these two related literatures.

References

1. e-Business basics and transaction costs: http://tutor2u.net/ebusiness/ebusiness-law-cybercrime.html
2. Singha, I. (2000) "Cost Transparency: The Net's Real Threat to Prices and Brands", Harvard Business Review, March-April, 43-50.
3. e-Business environment and strategic cost management - an article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1079725
4. Grover, V. and Ramanlal, P. (2004) "Digital economics and the e-business dilemma", Business Horizon, 47/4, July-August, pp. 71-80.
5. On outsourcing - a transaction cost view: http://eight2late.wordpress.com/2009/10/29/to-outsource-or-not-to-outsource-a-transaction-cost-view/
6. Porter, M.E. (2001) "Strategy and the Internet", Harvard Business Review, March, 63-78.
7. Strategic cost management and e-supply chain article: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1079725
8. Ward, K. (1993) Strategic Management Accounting, Butterworth Heinemann.