1. E-Strategy, Internet Communities, and Global EC

2. IBM’s E-Business Strategy
The Problem
Need to capture new business opportunities and technologies (like EC)
Develop a business strategy for that purpose
IBM’s current strategy is to transform itself into an e-business in order to provide business value to the corporation and its shareholders
IBM views e-business as being much broader than EC because it:
Serves a broader constituency
Offers a variety of Web-based processes and transactions

3. IBM’s E-Business Strategy (cont.)
The Solution is based on four goals:
Lead IBM’s strategy to transform itself into e-business
Act as a catalyst to help facilitate that transformation
Help business units become more effective in their use of the Internet/intranet
Internally
With their customers

4. IBM’s E-Business’s Strategy (cont.)
Establish a strategy for the corporate Internet site
Including definition of how it should look, “feel” and be navigated
Create an online environment most conducive to customers doing business with IBM
Leverage the wealth of e-business transformational case studies within IBM to highlight the potential of e-business to IBM’s customers

5. IBM’s E-Business Strategy (cont.)
IBM focused on seven key initiatives:
E-care for influencers
E-care for employees
E-procurement
E-marketing communications
E-commerce
E-care for customers
E-care for business partners

6. IBM’s E-Business Strategy (cont.)
The Results
Implementation of an e-procurement system that spans IBM globally
Saved IBM almost $5 billion over a 3-year period
Electronic invoicing:
Reduces the number of paper invoices
Enables fast, competitive tendering from its suppliers

7. IBM’s E-Business Strategy (cont.)
IBM’s evaluation of the procurement process determined where the use of the Web adds value
Identification of more than 20 initiatives to reduce costs and improve purchasing including:
Collaboration with suppliers
Online purchasing
Knowledge-management-based applications

8. E-Strategy: Concepts & Overview
Strategy—search for revolutionary actions that will significantly change the current position of a company, shaping its future
Finding the position in a marketplace that best fits the firm’s skills
Company’s choice of new position that must be driven by its ability to find new trade-offs and leverage a new system of complementary activities into sustainable advantage

9. Elements of Strategy Elements of a strategy Forecasting
Resource allocation
Core competency
Environmental analysis
Company analysis
Business planning

10. Types of E-Strategies
EC strategy (e-strategy)—an organization’s strategy for use of e-commerce or e-business
Click-and-mortar companies that use many EC applications
Click-and-mortar companies that use only one or two EC applications
Click-and-mortar companies that use one EC application that fundamentally changes all their business
Pure-play EC companies

11. Need for a Strategy Why does a company need an e-strategy?
Fast changes in business and technology means that opportunities and threats can change in a minute
Company must consider EC strategy that includes contingency plans to deal with changes
May be too costly not to have one

12. Charles Schwab’s EC Strategy
In 1998 Schwab launched schwab.com—one of the first click-and-mortar stockbrokers
Changed the company pricing structure radically
Took a short-term revenue loss
Looking toward a long-term strategic gain
EC strategy fit well with company’s overall strategy emphasizing a one-to-one relationship with its customers

13. Charles Schwab (cont.)
Schwab had first-mover advantage in securing key partnerships
Schwab and Nextel agreed to build an infrastructure allowing investment opportunities over mobile phones or wireless handheld devices
Initial target was existing off-line customers with incomes over $150,000 a year and who buy and hold
Key benefits:
Innovative products Superior service
Low fees Cutting-edge technology

14. Charles Schwab (cont.)
Partnered with content providers and technology companies to offer:
Large number of financial services online
Community and personalized services
Financial model composed of three parts:
The revenue model
The value model
The growth model

15. Charles Schwab (cont.)
CyberTrader's services are designed for online, self-directed active traders who use short-term trading strategies to generate current income
Cybertrader features include:
Nasdaq Level II quotes
Direct Access trading capabilities
Risk management tools
Graphical decision support modules
Streaming News
Intelligent order routing
Direct options routing

16. E-Strategy Landscape
Strategy initiation: organization prepares information about its vision,mission,purpose,and the contribution that EC could make to the business
Strategy formulation:
Identification of EC applications
Cost-benefit analysis
Risk analysis

17. E-Strategy Landscape (cont.)
Strategy implementation:
Organization’s resources are analyzed
A plan is developed for attaining the goals
Strategy assessment:
Organization periodically assesses progress toward the strategic goals
Involves the development of EC metrics

18. Exhibit 11.1 The Landscape of EC Strategy

19. Strategy Initiation
Strategy initiation—the initial phase of e-strategy in which an organization prepares information about its vision, mission, purpose, and the contribution that EC could make
Review the organization’s business and IT vision and mission
Generate vision and mission for EC
Begin with industry and competitive analysis

20. Industry Assessment What industry is the EC initiative related to?
Who are the customers?
What are the current practices of selling and buying?
Who are the major competitors? (How intense is the competition?)
What e-strategies are used, by whom?
How is value added throughout the value chain?
What are the major opportunities and threats?
Are there any metrics or best practices in place?
What are the existing and potential partnerships for EC?

21. Company Assessment The organization investigates its own:
Business strategy
Performance
Customers
Partners
It looks at everything that has an impact on its operations
Processes
People
Information flows
Technology support

22. Industry, Company, and Competitive Analysis
SWOT analysis—a methodology that surveys the opportunities and threats in the external environment and relates them to the organization’s particular strengths and weaknesses
SWOT Analysis
Strengths
Opportunities
Weaknesses
Threats
SWOT

23. Exhibit 11.2 SWOT Matrix

24. Competitive Intelligence on the Internet
Internet can play a major role as a source of competitive information (competitive intelligence)
Review competitors’ Web sites
Examine publicly available financial documents
Ask the customers—award prizes to those who best describe your competitors’ strengths and weaknesses

25. Competitive Intelligence on the Internet (cont.)
Analyze related discussion groups
Find out what people think about a company and its products and competitor's products
Reaction to new ideas and products
Use information delivery services
Find out what it published on the Internet
Known as push technologies
Corporate research companies provide information about your competitors:
Examine chat rooms

26. Issues in Strategy Initiation
To be a first mover or a follower?
Advantages
Chance to capture large markets
Establishing a brand name
Exclusive strategic alliances
Disadvantages
Cost of developing EC initiative is usually very high
Chance of failure is high
System may be obsolete as compared to second wave arrivals
No support services are available at the beginning

27. Should You Have a Separate Online Company?
Advantages
Reducing or eliminating internal conflicts
Providing more freedom to management in pricing, advertising, etc.
Can create new brands quickly
Take the e-business to an IPO and make a fortune
Disadvantages
May be very costly and risky
Collaboration with off-line business may be difficult
Lose expertise of business functions unless you use close collaboration

28. Strategy Formulation Strategy formulation
Development of long-range and strategic plans to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses
Includes examining or redefining EC mission
Specifying achievable objectives
Developing strategies
Setting implementation guidelines

29. Discovering EC Opportunities
3 common mistakes in allocating EC investment
Let a thousand flowers bloom—fund many projects indiscriminately
Bet it all—put everything on a single high-stake initiative
Trend-surf—follow the crowd toward the next “big thing”
Any of the above can be risky and costly

30. Discovering EC Opportunities (cont.)
Approaches to identifying EC opportunities
Problem-driven
Technology-driven
Market-driven—waiting to see what the competitors will do
Fear or greed-driven
Afraid if they do not practice EC they will be big losers
Think they can make lots of money going into EC

31. Determining an Appropriate EC Application Portfolio
Find the most appropriate portfolio in order to share limited resources
Combine long-term speculative investments in new potentially high-growth business
With short-term investments in existing, profit-making businesses
Boston Consulting Group’s matrix
Cash cows Questionable projects
Starts Dogs

32. EC Application Portfolio
Tjan’s portfolio strategy—Internet portfolio map
Strategy based on company fit (assessed by five levels from high to low)
Alignment with core capabilities
Alignment with other company initiatives
Fit with organizational structure
Fit with company’s culture and values
Ease of technical implementation
Project’s viability—assessed by 4 criteria
Market value potential
Time to positive cash flow
Personal requirements
Funding requirements

33. Exhibit 11.4 Tjan Application Portfolio Map

34. Strategic Directions at Chubb
Typical choice of EC model at Chubb Corp.
Create a new business model with EC as a major driver—discarded because they had a successful business model with products matching distribution systems
Spawn a secondary business model around EC; go directly to consumers—did not want to interrupt their relationships with agents and brokers

35. Chubb Corp. (cont.)
Use EC as a tool within the existing business model (the selected model)
Helped Chubb further differentiate products and services by providing superb customer service over the Internet
Opened several Web sites—one for each specialty group (e.g., for wine collectors)
Enables superb communication with agents and business partners
Allows business expansion into 20 countries

36. Making the Business Case for EC
Business case—written document that is used by managers to garner funding for specific applications or projects by providing justification for investments
Provides foundation for tactical decision making and technology by management
Helps clarify the company’s use of its resources to accomplish the e-strategy

37. Content of an E-Business Case
Business case for EC approach for garnering funding for projects used to:
Provide justification for investments
Provides bridge between EC plan and the execution
Provides foundation for tactical decision making and technology risk management
Clarifies how the organization will use resources to accomplish the e-strategy

38. Content of an E-Business Case (cont.)
Strategic justification—”where are we going?”
Generational justification—”how will we get there?”
Technical justification—”when will we get there?”
Financial justification—”why will we win?”

39. Cost-Benefit and Risk Analysis
How to conduct an
e-business case
Develop goal statement
Set measurable goals
Develop short- and long-term action plans
Gain approval and support
Revenue model
Properly planned revenue model is a critical success factor
Revenues from sales depend on customer acquisition cost and advertisement
Must be figured into the analysis

40. Cost-Benefit and Risk Analysis (cont.)
It is difficult to justify EC investment due to many intangible variables
Return on investment (ROI)
Discounted cash flow
Two common methods
Value proposition
Risk analysis
Variables

41. Value Proposition Service
Value proposition—the benefit a company can derive from implementing a new project, such as EC, usually by increasing its competitiveness and by providing better service to its customers
Service

42. Risk Analysis Risk Risk analysis program should E-business risks
Identify all potential risks
Assess potential damage
Evaluate possibility of protection (insurance)
Evaluate cost of protection vs. benefits
E-business risks
Strategic risks
Financial risks
Operational risks
Risk

43. Issues in Strategy Formulation
How to handle channel conflicts
Let established old-economy-type dealers handle e-business fulfillment
Sell some products only online
Help your intermediaries (e.g., build portals)
Sell online and off-line
Do not sell online

44. Issues in Strategy Formulation (cont.)
How to handle conflict between off-line and online businesses
Clear support of top management
Use of innovative processes that support collaboration
Clear strategy of “what and how”

45. Issues in Strategy Formulation (cont.)
Pricing strategy
Setting prices lower than off-line business may lead to internal conflict
Setting prices at the same level may hurt competitiveness
Should you get financing from big venture capital firms?
Venture capital financing causes loss of control over business
Benefit: access to various VC experts and get the cash you need

46. Strategy Implementation
Strategy implementation--The execution of the e-strategy plan, in which detailed, short-term plans are developed for attaining strategic goals
Establish a Web team that continues the execution of the plan
Start with a pilot project
Planning for resources

47. Strategy Implementation (cont.)
Strategy implementation issues
Evaluating outsourcing
Build an in-house EC infrastructure
Purchase a commercial EC software package or EC suite
Use a Web hosting company
Partners’ strategy
How to coordinate B2B and B2C

48. Strategy and Project Assessment
Strategy assessment—the periodic formal evaluation of progress toward the organization's strategic goals; may include needed actions and strategy reformulation
Objectives of assessment
Find out if EC project delivers what it was supposed to deliver
Adjust plans if necessary
Determine if EC project is still viable
Reassess initial strategy in order to learn from mistakes and improve future planning
Identify failing projects as soon as possible and determine reasons for failure

49. Measuring Results & Using Metrics
Metric—a measurable standard or a target against which actual performance is compared
Response time to customers’ enquiries
Response quality
Security/trust level
Download time,
Timeliness of fulfillment
How up-to-date information
Availability
Site effectiveness, ease of use, and navigability

50. Measuring Results & Using Metrics (cont.)
Balanced scorecard—a structured methodology for measuring performance in organizations, using metrics in four areas
Finance
Customers’ assessments
Internal business processes
Learning and growth

51. Measuring Results & Using Metrics (cont.)
Performance dashboard—a structured methodology proposed by Rayport and Jaworski (2001) for measuring EC performance using:
Desired outcomes
Corresponding metrics
Leading and lagging indicators of performance

52. EC Failures & Lessons Learned
E-Tailing failures
Lack of funding
Incorrect revenue model
Exchange failures
Revenue growth too slow
Need to move to new business model
EC initiatives failures
Levi Strauss stopped online direct sales of its apparel (levistrauss.com) when major distributors and retailers put pressure on the company not to compete with their brick-and-mortar outlets

53. Success Stories & Lessons Learned
Reasons for success:
Brick-and-mortar companies add online channels
Mergers and acquisitions
Peter Drucker:
Analyze the opportunities
Go out to look
keep it focused
Start small (one thing at a time)
Aim at market leadership

54. Success Stories & Lessons Learned (cont.)
Asian CEOs CSFs:
Select robust business models
Understand dot-com future
Foster e-innovation
Evaluate a spin-off strategy
Co-brand
Employ ex-dot-com staffers
Focus on the e-generation as your market
Get the technology right, avoid expensive technology and technology malfunctions

55. Virtual Communities
Virtual community—a group of people with similar interests who interact with one another using the Internet
Elements of interaction:
Communication—bulletin boards, chat rooms/threaded discussions, and instant messaging
Information—directories and yellow pages, search engine, member-generated content
EC elements—e-catalogs, shopping carts, ads, auctions of all types

56. Virtual Communities (cont.)
Communities of transactions—facilitate buying and selling
Communities of interest—people interact with each other on a specific topic
Communities of relations (practice)—organized around certain life experiences
Communities of fantasy—share imaginary environments

57. Virtual Communities (cont.)
Commercial aspects of community:
Understand a particular niche industry
Build a site that provides valuable information
Site should mirror the steps a user goes through in the information-gathering and decision-making process
Build a community that relies on the site for decision support
Start selling products and services that fit into the decision-support process

58. Exhibit 11.9 Value Creation in E-Communities

59. Virtual Communities (cont.)
Financial viability of communities
Based on sponsorship and advertisement
Expenses are very high because of the need to provide:
Fresh content
Free services
Free membership
This model did not work well, many companies sustained heavy losses in ; too few members, too few purchases

60. Virtual Communities (cont.)
Key strategies for successful online communities
Increase traffic and participation
Focus on the needs of the members (facilitators and coordinators)
Encourage free sharing of opinions and information
Financial sponsorship is a must
Consider the cultural environment
Provide tools and activities for member use
Community members involved in activities and recruiting
Guide discussions, provoke controversy, and raise sticky issues

61. Going Global Decision to go global is a strategic one
Geographical borders are falling
Artificial borders are being erected through
Local language preferences,
Local regulations
Access limitations

62. Benefits and Extent of Operations
Major advantage of EC—ability to do business any time, anywhere, rapidly at a reasonable cost
Success stories
E*TRADE or boom.com as your broker for stock trading
Amazon.com
Small companies sell to hundreds of customers worldwide (virtualvine.com)
Increasing number of out-of-the-country vendors participate in electronic requests for quotes
Successful employees recruitment
Successful collaboration in B2B exchanges

63. Barriers to Global Electronic Commerce
Legal Issues
Uncoordinated actions must be avoided and an international policy of cooperation should be encouraged
Market Access Issues
Companies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations
Financial Issues
Customs and taxation
Electronic payment systems

64. Small Business Goes Global
Cardiac Science—trying to break into the international market for years
Within 2 years after Internet inception in the company, it was shipping its products to 46 countries
Today, 85 percent of the company’s revenue is international, much of this is executed at (cardiacscience.com)

65. Small Business Goes Global (cont.)
Advice for small businesses going global at:
Universal Business Exchange (unibex.com)
Several government agencies (stat-usa.gov)
Cardiac’s CEO “crafting a solid export strategy takes a lot more commitment than putting up a snazzy Web site and waiting for the world to show up at our door. It’s all about building relationships.”

66. Barriers to Global Electronic Commerce (cont.)
Other Issues
Language and translation
Primary problems are cost, speed, inaccuracy
Localization
Adapt local business practices
Culture
Multiple cultures warrant different marketing approaches

67. Attracting Japanese Customers to Your Site
English-Japanese Promotion (ajpr.com)
Helps clients avoid the mistakes often made when they selling to the Japanese customers
Target audience uses Japanese-only Web search engines
Alert companies when logos or themes are likely to strike a sour chord with Japanese sensibilities

68. Japanese Customers (cont.)
Japanese respond well to symbols or characters
Product should be geared to Japanese males in their twenties and thirties
Ajpr.com also provides help to Japanese companies develop English versions of their sites
Provides localization advice
Advertising
Document translation
Consulting services

69. Breaking down the Global EC Barriers
Value the human touch
Be strategic
Know your audience
Be a perfectionist
Remember, it’s the Web
Integrate properly
Keep the site flexible and up-to-date
Synchronize content
OECD (oecd.org) read
“Dismantling the Barriers to Global EC”

70. EC in SMEs Advantages/benefits of EC in SMEs Inexpensive
Source of information
Advertising
Conducting market research
Build (or rent) a storefront
Low transaction costs
Niche markets are best
Provide catalogs
Way to reach worldwide customers

71. EC in SMEs (cont.) Disadvantages/risks
Inability to use EDI, unless it is EDI/Internet
Lack of resources to fully exploit the Web
Lack of expertise in legal issues, advertisement
Less risk tolerance than a large company
Disadvantage when a commodity is the product (for example, CDs)
No more personal contact, which is a strong point of a small business
No advantage to being in a local community

72. Critical Success Factors for SMEs
Capital investment must be small
Inventory should be minimal or non-existent
Electronic payments scheme
Payment methods must be flexible
Logistical services must be quick and reliable
The Web site should be submitted to directory-based search engine services
Join an online service or mall and do banner exchange
Design a Web site that is functional and provides all needed services to consumers

73. Supporting Small Business
Technical support from IBM (for a fee of only $25 per month) at ibm.com.search:businesscenter
Digital’s virtual stores
Microsoft’s Personal Web Server (PWS)
U.S. government at ecommerce.gov
Gartner Group provides access to online research material at gartner.com

74. Business Process Reengineering (BPR)
Organizational transformation—the process of completely or drastically transforming an entire organization to a new mode of operation
Business process reengineering (BPR)—a methodology for comprehensive redesign of an enterprise’s processes

75. BPR (cont.) Redesign of the enterprise process and BPR
Does not make sense to automate poorly designed process—so restructure
Necessary to change processes to fit commercially available software
Fit is required between systems and processes of different companies
Change processes to fit procedures and standards of public e-marketplaces
Adjust procedures and processes to align with available services (logistics, payments, security)
Changes to assure flexibility and scalability

76. Workflow Technologies
Workflow system—software programs that manage all the steps in a business process from start to finish, including all exception conditions
Two categories:
Collaborative workflow—products address project-oriented and collaborative processes
Production workflow—tools address mission-critical, transaction-oriented processes

77. Virtual Corporations
Virtual corporation—an organization composed of several business partners (some of whom may be pure-play EC players) sharing costs and resources for the production or purchasing of a product or service
Major attributes of VCs:
Utilization Excellence
Opportunism Lack of borders
Trust Adaptability to change
Technology

78. The Future of EC Internet usage Opportunities for buying M-commerce
Purchasing incentives
Increased security and trust
Efficient information handing
Innovative organizations
Virtual Communities
Payment systems
Business-to-business
B2B exchanges
Auctions
Going global
E-government--comprehensive
Intrabusiness EC
E-learning

79. EC Technology Trends EC software and services Clients Embedded clients
Search engines
P2P technology
Integration
Wearable devices
Clients
Embedded clients
Servers
Networks
Wireless communications

80. The Digital Divide Digital Divide
Digital divide—the gap between those who have and those who do not have the ability to access electronic technology in general, and the Internet and EC in particular
Digital Divide

81. Integrating Marketplace and Marketspace
Click-and-mortar organization
How to cooperate in planning, advertising, logistics, resource allocation
How to align the strategic plans
B2C ordering systems
The impact of EC on our lives may be as much as, or more than that of the Industrial Revolution

82. 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?
Can we do a pilot project?
Do we have a community?
How can we go global?
Can we learn to love smallness?
Is restructuring needed?

83. Summary Importance of strategic planning for EC
The strategy planning and formulation process
Application discovery, justification, and prioritization
EC strategy implementation and assessment

84. Summary (cont.) Understanding failures and learning from them
The role and impact of virtual communities
Issues in global EC
Small businesses and EC
Restructuring and virtual organizations
The future of EC