Ec2009 ch15 e commerce strategy

Chapter 15 E-Commerce Strategy and Global EC

Learning Objectives Describe the strategic planning process. Understand how e-commerce impacts the strategic planning process. Understand how EC applications are formulated, justified, and prioritized. Describe strategy implementation and assessment, including the use of metrics.

Learning Objectives (cont.) Understand the causes of EC failures and lessons for success. Evaluate the issues involved in global EC. Analyze the impact of EC on small businesses.

Lonely Planet Travels from Place to Space The Problem Independent travelers depend on a Lonely Planet guidebook to: Help them get to their destination Where to sleep The best places to eat What to see and do At a price they can afford

Lonely Planet Travels from Place to Space (cont.) LP’s principal assets are: global brand name dedication of its writers and editorial staff vast library of text, maps, photos, and images community of global travelers who buy LP products and contribute to the company’s knowledge base

Lonely Planet Travels from Place to Space (cont.) LP has been successful in the physical marketplace and is now migrating to the electronic marketspace, it must: Apply electronic technologies to its vast library of travel information to reinvent the travel guide

Lonely Planet Travels from Place to Space (cont.) Sell its content electronically and not create channel conflicts Make changes in the way it collects information, stores it, and uses it to publish travel guides

Lonely Planet Travels from Place to Space (cont.) The Solution LP’s current combination of business models that make up value proposition and revenue model: Content provider Virtual community Direct to consumer

Lonely Planet Travels from Place to Space (cont.) Online LP launched these initiatives: online store (LP shop), access to brief destination overviews free updates to currently published guides various forms of travel news a traveler’s bulletin board links to related sites

Lonely Planet Travels from Place to Space (cont.) eKno ( ekno.lonelyplanet.com ) is a joint venture with eKit.com to provide an interactive communications service for international travelers CitySyn ( citysync.com ) is branded “the personal digital guide to urban adventure.” It allows owners of handheld computers to load their devices with LP city guides

Lonely Planet Travels from Place to Space (cont.) Knowledge Bank is an internal knowledge management project that aims to transfer all of LP’s intellectual property into a standardized and centralized digital database knowledge

Lonely Planet Travels from Place to Space (cont.) The Results Lonely Planet seeks to use the Internet to “reinvent the travel guide” Award-winning Web site offers a successful sales and information distribution channel to its customer base

Lonely Planet Travels from Place to Space (cont.) LP must decide how to generate revenue and further promote its branded products, but at the same time avoid channel conflict and ally anxiety Knowledge Bank increased internal efficiencies in information handling offers numerous long-term business possibilities

Lonely Planet Travels from Place to Space (cont.) What we can learn… Marketplace-to-marketspace strategies Takes the company’s core business and envisions its future in Cyberspace LP avoided schemes outside its scope

Lonely Planet Travels from Place to Space (cont.) Initiatives are incremental steps into the marketspace Strategic experiments that have not distracted the company from its core business Leadership from the top is essential Successfully avoided channel conflict and ally alienation

Organizational Strategy Strategy: A broad-based formula for how a business is going to compete, what its goals should be, and what plans and policies will be needed to carry out those goals Strategy is also about making tough decisions about what not to do

Organizational Strategy (cont.) Profitability and economic value is determined by establishing a unique value proposition Strategy is focused on questions about: organizational fit trade-offs profitability value

Organizational Strategy (cont.) E-commerce strategy (e-strategy): The formulation and execution of a vision for how a new or existing company intends to do business electronically

Organizational Strategy (cont.) The process of strategy: Initiation Formulation Implementation Assessment

Organizational Strategy (cont.)

Organizational Strategy (cont.) Strategic planning process Strategy initiation: The initial phase of strategic planning in which the organization examines itself and its environment Value proposition: The benefit that a company’s products or services provide to customers; the consumer need that is being fulfilled

Organizational Strategy (cont.) Outcomes from strategy initiation phase Company analysis (including value proposition) Core competencies Forecasts Competitor (industry) analysis

Organizational Strategy (cont.) Strategy formulation: The development of strategies to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses

Organizational Strategy (cont.) Specific activities and outcomes from strategy formulation phase: Business opportunities Cost-benefit analysis Risk analysis, assessment, and management

Organizational Strategy (cont.) Strategy implementation: The development of detailed, short-term plans for carrying out the projects agreed on in strategy formulation

Organizational Strategy (cont.) Specific activities and outcomes from strategy implementation phase: Business planning Resource allocation Project management

Organizational Strategy (cont.) Strategy assessment: The continuous evaluation of progress toward the organization’s strategic goals, resulting in corrective action and, if necessary, strategy reformulation Specific measures called metrics are used to assess the progress of the strategy

Organizational Strategy (cont.) Strategic planning tools SWOT analysis: A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses

Organizational Strategy (cont.) S W O T Weaknesses Opportunities Threats Strengths

Organizational Strategy (cont.) Competitor analysis grid : A strategic planning tool that highlights points of differentiation between competitors and the target firm Scenario planning: A strategic planning methodology that generates plausible alternative futures to help decision makers identify actions that can be taken today to ensure success in the future

Organizational Strategy (cont.) Return on investment (ROI): A ratio of required costs and perceived benefits of a project or an application Balanced scorecard: An adaptive tool that assesses organizational progress toward strategic goals by measuring performance in a number of different areas

Return on investment (ROI): 1 Measuring rate of return 1.1 Cash flow (income stream) 1.2 Annual returns 1.3 Arithmetic return 1.4 Yield 1.5 Logarithmic or continuously compounded return 1.6 ROI calculations for various uses 1.7 After-tax returns

Return on investment (ROI): 2 Cash or potential cash returns 2.1 Time value of money 2.2 Compounding or reinvesting 3 Returns when capital is at risk 3.1 Average returns 3.2 Capital gains and losses 3.2.1 Holding period return 3.3 Reinvestment when capital is at risk: rate of return and yield 3.4 Mutual fund returns 3.4.1 Total returns 3.4.2 Average annual return (geometric)

EC Strategy: Concepts and Overview The e-difference Reach and richness are possible Barriers to entry are reduced Virtual partnerships multiply Interaction costs: The time and money expended when people and companies exchange goods, services, and idea Market niches abound

EC Strategy (cont.) Organizational difference Born-on-the-Net and move-to-the-Net firms both start with substantial assets and liabilities that influence their ability to formulate and execute an e-commerce strategy The difference between success and failure is the company’s ability to utilize its strengths effectively

EC Strategy Initiation Issues in e-strategy initiation Be a first mover or a follower? Size of the opportunity Commodity products Be the best Go Global?

EC Strategy Initiation Issues Have a Separate Online Company? Advantages of creating a separate company reduction or elimination of internal conflicts more freedom for the online company’s management in pricing, advertising, etc. ability to create a new brand quickly opportunity to build new, efficient information systems that are not burdened by the legacy systems of the old company influx of outside funding if the market likes the e-business idea and buys the IPO of stock

EC Strategy Initiation Issues (cont.) Disadvantages of creating an independent division may be very costly and/or risky expertise vital to the existing company may be lost to the new firm new company will not benefit from the expertise and spare capacity in the business functions unless it gets superb collaboration from the parent company

EC Strategy Initiation Issues (cont.) Have a separate online brand? Companies with strong, mature, international brands will want to retain and promote that brand online Firms with a weak brand or a brand that does not reflect the intent of the online effort may decide to create a new brand

EC Strategy Formulation Common mistakes made in selecting EC projects: Let a thousand flowers bloom—funding many projects indiscriminately Bet it all—bets everything on a single high-stakes initiative

EC Strategy Formulation (cont.) Trend-surf—follow the crowd toward the most fashionable new idea Being fear- or greed-driven—thinking they can make lots of money by rushing into EC

EC Strategy Formulation (cont.) Approaches that have propelled strategy formulation: Problem driven Technology driven Market driven

EC Strategy Formulation (cont.) The e-business maturity model evaluates online initiatives within the context of established business criteria designed to help companies think of what’s necessary to implement an e-business solution

EC Strategy Formulation (cont.) Determining an appropriate EC application portfolio Internet portfolio map—b ased on company fit and project viability

EC Strategy Formulation (cont.) Viability is assessed by: market value potential time to positive cash flow time to implementation funding requirements

EC Strategy Formulation (cont.) Fit is evaluated by metrics: alignment with core capabilities alignment with other company initiatives fit with organizational structure ease of technical implementation

EC Strategy Formulation (cont.) If both viability and fit are low—the project is rejected If both are high—the project is adopted If fit is high but viability is low—the project is redesigned If the fit is low but the viability is high—the project is sold

EC Strategy Formulation (cont.) Making a business case Business case: A written document that is used by managers to garner funding for specific applications or projects by providing justification for investment of resources

EC Strategy Formulation (cont.) Making a business case The purpose of a business case is to capture the reasoning for initiating a project or task. It is often presented in a well-structured written document, but may also sometimes come in the form of a short verbal argumentation. The logic of the business case is that any time resources such as money or effort are consumed, they should be in support of the business. An example could be that a software upgrade might improve system performance but the "business case" is that better performance would improve customer satisfaction.

EC Strategy Formulation (cont.) Formal business case the investment has value and importance the project will be properly managed the firm has the capability to deliver the benefits the firm’s dedicated resources are working on the highest value opportunities projects with inter-dependencies are undertaken in the optimum sequence.

EC Strategy Formulation (cont.)

Cost-Benefit Analysis Cost-benefit analysis A valuable planning tool and assists in the development of metric measures that later will be used in strategy assessment Many of the costs of an EC project can be clearly identified and estimated costs of hardware, software, new staff, and facilities

Cost-Benefit Analysis (cont.) Most benefits of an EC project are quite intangible—it is difficult to estimate: Increased sales from an expanded customer base Savings from streamlined purchasing procedures Reduced telecommunications costs

Cost-Benefit Analysis (cont.) One of the most difficult factors in accurate benefit estimation, especially for start-up companies, is to properly plan the revenue model revenues from advertising may not materialize revenue models based on sales depend on large and rapid customer acquisition

Cost-Benefit Analysis (cont.) Theory Cost Benefit Analysis is typically used by governments to evaluate the desirability of a given intervention in markets. The aim is to gauge the efficiency of the intervention relative to the status quo. The costs and benefits of the impacts of an intervention are evaluated in terms of the public's willingness to pay for them (benefits) or willingness to pay to avoid them (costs). Inputs are typically measured in terms of opportunity costs - the value in their best alternative use. The guiding principle is to list all of the parties affected by an intervention, and place a monetary value of the effect it has on their welfare as it would be valued by them.

Risk Analysis Risk analysis and management E-commerce risk: The likelihood that a negative outcome will occur in the course of developing and operating an electronic commerce strategy The first step in any risk assessment is risk analysis—identifying and evaluating the sources of risk

Risk Analysis Risk analysis is a technique to identify and assess factors that may jeopardize the success of a project or achieving a goal. This technique also helps to define preventive measures to reduce the probability of these factors from occurring and identify countermeasures to successfully deal with these constraints when they develop to avert possible negative effects on the competitiveness of the company.

Risk Analysis (cont.) Four sources of business risk in an e-commerce strategy: Competitive risk Transition risk Customer-induced risk Business partner risk

Risk Analysis (cont.) The next step is risk management —to put in place a plan that reduces the threat posed by the risk Taking steps to: reduce the probability that the threat will occur minimizing the consequences if it occurs anyway both

Issues in Strategy Formulation Issues in strategy formulation How to handle channel conflict Let the established distributors handle e-business fulfillment Provide online services to intermediaries Sell some products only online, other products may be advertised online but sold exclusively off-line Not selling online

Issues in Strategy Formulation (cont.) How to handle conflict between the off-line and online businesses The allocation of resources between off-line and online activities can create difficulties It is essential that top management support both off-line and online operations a clear strategy of “what and how” each unit will operate are essential

Issues in Strategy Formulation (cont.) Pricing strategy Price comparison is easier Buyers sometimes set the price Online and off-line goods are priced differently Differentiated pricing can be a pricing strategy versioning: Selling the same good, but with different selection and delivery characteristics

EC Strategy Implementation Creating a Web team Project champion: The person who insures the EC project gets the time, attention, and resources required, as well as defending the project from detractors at all times

EC Strategy Implementation (cont.) Starting a pilot project Implementing EC often requires significant investments in infrastructure a good way to start is to undertake one or a few small EC pilot projects pilot projects help uncover problems early, when the plan can be easily modified before significant investments are made

EC Strategy Implementation (cont.) Allocating resources The resources required for the EC projects depend on information requirements and capabilities of each project Some resources will be new and unique to the project or application Even more critical for the project’s success is effective allocation of infrastructure resources that are shared by many applications

Application Development Application development Should site development be done internally, externally, or in combination? Should the software application be built or will commercially-available software be satisfactory?

Application Development (cont.) If a commercial package will suit, should it be purchased from the vendor or rented from an ASP? Will the company or an external ISP host the Web site? If hosted externally, who will be responsible for monitoring and maintaining the information and system?

EC Strategy Implementation Issues Partners’ strategy Outsourcing: The use of a third-party vendor to provide all or part of the products and services that could be provided internally

EC Strategy Implementation Issues (cont.) Virtual corporation Virtual corporation: An organization composed of several business partners sharing costs and resources for the production or utilization of a product or service

EC Strategy Implementation Issues (cont.) Major attributes of a VC: Excellence Utilization Trust Lack of borders Opportunism Adaptability to change Technology

EC Strategy Implementation Issues (cont.) Alliances in e-commerce Partners in different locations communicate and collaborate online When EC initiatives are too large and complex for one company to undertake A strategic partner should be one that has the ability to deliver and is willing to collaborate to provide a service

EC Strategy Implementation Issues (cont.) Redesigning business processes Organizational transformation: the process of changing an organization to a new mode of operation Business process reengineering (BPR): A methodology for conducting a comprehensive redesign of an enterprise’s processes

EC Strategy Implementation Issues (cont.) BPR may be needed: To fix poorly designed processes To change processes so that they will fit commercially available software To produce a fit between systems and processes of different partner companies To align procedures and processes with e-services

E-Strategy and Project Assessment Objectives of assessment Measure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliver Determine if the EC strategy and projects are still viable in the current environment

Project Assessment Objectives Reassess the initial strategy in order to learn from mistakes and improve future planning Identify failing projects as soon as possible and determine why they failed to avoid the same problems on subsequent projects

E-Strategy and Project Assessment (cont.) Measuring results and using metrics Metric: A specific, measurable standard against which actual performance is compared

E-Strategy and Project Assessment (cont.) Metrics can: Define the value proposition of the business model Communicate the strategy to the workforce through performance targets Increase accountability when metrics are linked to performance-appraisal programs Align the objectives of individuals, departments, and divisions to the enterprise’s strategic objectives actual performance is compared

E-Strategy and Project Assessment (cont.) Axon metrics implementation obtained results in: Revenue growth Cost reduction—selling costs and expenditures Cost avoidance Customer fulfillment Customer service Customer communications

E-Strategy and Project Assessment (cont.)

Keys to EC Success E-commerce failures Macro economic level: The technological revolution posed by the Internet should be expected to go through a boom-and-bust-and-consolidation cycle like the automobile and railroad industries

Keys to EC Success (cont.) Mid-economic level, the bursting of the dot-com bubble in mid-2000 is consistent with economic downturns that have occurred in property, precious metals, currency, and stock markets

Keys to EC Success (cont.) Micro-economic level, the “Web rush” reflected an over allocation of scarce resources venture capital technical personnel advertising-driven business models

Keys to EC Success (cont.) Financial reasons are lack of funding and incorrect revenue models Lack of funding Incorrect revenue model

Keys to EC Success (cont.) E-commerce successes Brick-and-mortar companies are adding online channels using use organizational knowledge, brand, infrastructure, and other strategic assets Move to higher quality customers Change products or services in existing market Establish an off-line presence

Keys to EC Success (cont.) CSFs (as per Asian CEOs): select robust business models understand the dot-com future foster e-innovation carefully evaluate a spin-off strategy co-brand employ ex-dot-com staffers focus on the e-generation

Keys to EC Success (cont.) The top three factors for successful B2C e-commerce: effective marketing management attractive Web site building strong connections to customers

Keys to EC Success (cont.) The top three factors for successful B2B e-commerce: readiness of trading partners information integration inside the company and in the supply chain completeness of the application

Keys to EC Success (cont.) The top three factors for overall, successful e-business: proper business model readiness of the firm to become an e-business internal enterprise integration

Going Global Benefits and extent of operations The major advantage of EC is the ability to do business at any time from anywhere at a reasonable cost

Going Global (cont.) Barriers to global EC authentication of buyers and sellers generating and retaining trust order fulfillment and delivery security domain names

Going Global (cont.) Barriers to global EC C A G E culture administration geography economics

Going Global (cont.) Cultural issues cultural attributes determine how people interact with companies, agencies, and each other based on: social norms local standards religious beliefs language

Going Global (cont.) Administrative issues National governments and international organizations are working together to find ways to avoid uncoordinated actions and encourage uniform legal standards

Going Global (cont.) International trade organizations are attempting to reduce EC trade barriers like: pricing regulations customs import/export restrictions tax issues product specification regulations Privacy protection

Going Global (cont.) Geographical issues Government tariffs Customs Taxation Major US tax issue imposition by states and local authorities of sales taxes on goods purchased by their residents from out-of-state EC companies

Going Global (cont.) A major key financial barrier to global EC is electronic payment systems Although credit cards are widely used in the U.S., many European and Asian customers prefer to complete online transactions with off-line payments

Going Global (cont.) Breaking down the barriers Be strategic Know your audience Localize Think globally, act consistently Value the human touch Clarify, document, explain Offer services that reduce barriers

EC in Small- and Medium-Sized Enterprises SMEs moved onto the Web because they realized there were opportunities in: marketing business expansion business launches cost cutting tighter partner alliances

EC in Small- and Medium-Sized Enterprises (cont.) CSFs for SMEs: Product is critical Payment methods must be flexible Electronic payments must be secure Capital investment should be kept to a minimum

EC in Small- and Medium-Sized Enterprises (cont.) Inventory control is crucial Logistical services must be quick and reliable High visibility on the Internet Join an online community A Web site should provide all the services needed by consumers

EC in Small- and Medium-Sized Enterprises (cont.) Supporting SMEs Most countries have a government agency devoted to helping SMEs become more aware of and able to participate in EC sba.gov business.gov.au

EC in Small- and Medium-Sized Enterprises (cont.) Vendors have set up a variety of service centers that typically offer a combination of free information and fee-based support ibm.com/businesscenter Microsoft’s bcentral.com Professional associations, Web resource services smallbusiness.yahoo.com workz.com

Managerial Issues What is the strategic value of EC to the organization? What are the benefits and risks of EC? What metrics should we use? What staffing is required?

Managerial Issues (cont.) How can we go global? Can we learn to love smallness? Is e-business is always beneficial?

Summary The strategic planning process. The EC strategic process. E-strategy initiation and formulation. E-strategy implementation and assessment.

Summary (cont.) Understanding failures and learning from them. Issues in global EC. Small businesses and EC.

Ec2009 ch15 e commerce strategy

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Ec2009 ch15 e commerce strategy