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E-Strategy, Internet Communities, and Global EC

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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—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 ( 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 as your broker for stock trading Small companies sell to hundreds of customers worldwide ( 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 (

65 Small Business Goes Global (cont.)
Advice for small businesses going global at: Universal Business Exchange ( Several government agencies ( 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 ( 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 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 ( 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 Digital’s virtual stores Microsoft’s Personal Web Server (PWS) U.S. government at Gartner Group provides access to online research material at

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

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