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S643: Digital Entrepreneurship Spring ‘13 Assessing ebusiness readiness I. What are the signs that a firm is ready? Questions to ask II. What is needed.

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Presentation on theme: "S643: Digital Entrepreneurship Spring ‘13 Assessing ebusiness readiness I. What are the signs that a firm is ready? Questions to ask II. What is needed."— Presentation transcript:

1 S643: Digital Entrepreneurship Spring ‘13 Assessing ebusiness readiness I. What are the signs that a firm is ready? Questions to ask II. What is needed to begin an ebusiness initiative? Estimating costs III. The importance of strategic orientation Conceptions of strategy IV. Measuring ebusiness activity Return on investment

2 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Although, e-business may help an organization gain competitive advantages over … competitors, it unfortunately incurs high level of implementation risk. Companies … need to know whether they are really ready for implementing e-business before they jump ontothe … bandwagon. If they are not ready, they may want to know where they should improve themselves so that they will be ready for implementing e-business later on. Huang, J.H., Huang, W.W., Zhao, C.J., and Huang, H. (2004). An E-Readiness Assessment Framework and Two Field Studies. Communications of the IS. 14 Article 19, p2

3 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Key members of the organization have expressed interest in an ebusiness initiative They have noticed that their main competitors have web sites that are selling goods and/or services Market research tells them that a significant % of their customers (and potential customers) are online Presupposes an awareness of IT, the net, the web, and their impacts on business practices Also knowledge of part of business that will be affected by ebusiness

4 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? An e-readiness assessment framework Internal need for ebusiness Are the goals of the ebusiness initiative suitable and effective? Do the products and services of the firm meet the requirements of ebusiness? Can the firm benefit from implementing ebusiness? How and how quickly? Huang and Huang (2004), 368

5 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? An e-readiness assessment framework External environment Does the firm’s ebusiness initiative fit well with trends in the industry? Does the firm’s value chain fit with the initiative? IT diffusion and change management Is the firm’s change management aligned with the initiative? Is IT adoption and diffusion being resolved in the firm?

6 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? First 3 levels of the readiness assessment framework Huang and Huang (2004) 369

7 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Internal needs for e-business Are the goals of the e-business initiative are suitable and effective? Do the products or services of a company meet the requirements of e-business? Can a company really benefit from implementing ebusiness? Is the overall e-business plan appropriate?

8 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? External environment Does the company’s e-business initiative fit well with the whole industry’s development? Does the a company’s value chain fits with the ebusiness initiative? IT diffusion and change management Is the change management of a company ready for and aligned with e-business implementation? Is the IT adoption and diffusion issue is being resolved within a company?

9 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Tasks: Identify ebusiness opportunities and drivers Business processes, IT apps (customer, supplier and internal orientations), systems integration Uncover weaknesses in current IS applications Work out an effective e-business budget Analyze e-business trends in the industry Monitor a sample e-business project Evaluate e-business investment (ROI) Identify e-business skills training and development

10 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Early questions to ask: Why do you want to do this? Do you have a plan to do this? Is the firm ready to do this? What will you be selling and who are your buyers? What is the business model for this initiative? What are the goals for this initiative? How will it address market needs?

11 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? What will you be selling? Why it is a good idea to sell the product or service online? What is it about this product that makes it feasible to use this channel? What will your customers gain by being able to buy it online? What are the potential benefits and costs of selling it online?

12 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? What % of your market sector’s business is online? Who will be your main competitors online? What are the main characteristics (architectural, functional, usability) of their sites? Business processes How will the business have to change to integrate this marketing and distribution channel? How will people’s work be affected by the ebusiness initiative?

13 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Why firms get involved External: marketplace factors (32.3%) Internal: revenue generation (25.8%) Process improvement (22.5%) 67.7% Cost containment (19.4%) Internal factors seem to be more important in the decision to implement ebusiness Saban, K.A. (2001). Strategic Preparedness: A Critical Requirement to Maximize E-commerce Investments. Electronic Markets. 11(1)

14 S643: Digital Entrepreneurship Spring ‘13 I. What are the signs that a firm is ready? Perceived barriers External: marketplace factors (18%) Internal: lack of strategy (55%) Leadership (18%) 82% Organizational factors (9%) Perceived barriers to strategy Lack of vision Lack of business plan Lack of perceived benefits

15 S643: Digital Entrepreneurship Spring ‘13 Assessing ebusiness readiness I. What are the signs that a firm is ready? Questions to ask II. What is needed to begin an ebusiness initiative? Estimating costs III. The importance of strategic orientation Conceptions of strategy IV. Measuring ebusiness activity Return on investment

16 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? Do you have the personnel and infrastructure to to this? Do you have the distribution and logistical system in place to handle this? What organizational resources will be devoted to this? How many people will be working on it? Who are they? Will there be adequate budgetary and technical resources made available for this project? What is this venture going to cost? How will you measure success?

17 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative?

18 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? What’s involved in estimating costs? Page design: industry standard $1,000-$10,000 and up Site hosting: industry standard $100-$100,000 and up It’s more expensive if you have your own domain name Advantage: the host worries about the servers, firewalls, and data backup Maintenance: industry standard $20-$200/hour, 10 hours minimum a month This consists of content updates, changes to the pages, performance reports, and monthly link and image checks

19 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? Other costs Software and personnel: industry standard $0-$350,000 Staffing grows depending the volume of business (web server admin, programmer and…) Merchant-level software helps manage orders, invoices, customer contact info, inventory and shipments Some may be done in house, some outsourced Databases: industry standard $1,000-$100,000 and up What is the range of appropriate solutions? How will this database be integrated into the legacy databases in the organization?

20 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? Security: industry standard $0-$40,000 and up What types of payment options will you offer? What protections should be in place for customers? What protection should be in place for your site? Backups, redundancy, mirrors Advertising and marketing: industry standard $ ,000 Online: search engine registration, meta-tags, keywords, and reciprocal links with other companies Offline: billboards, phone book, media ads (newspaper, radio, television), stationary, business cards…

21 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? Electronic payment systems This system should offer alternative means of payment Relationships with credit card companies The company needs secure real time processing of credit card numbers Relationships with banks The company needs a merchant account that can accept electronic funds transfer

22 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? Technical infrastructure Either in-house or with a hosting solution Reasonable availability of computing Technical expertise Someone in the organization should be able to understand the basics of the ebusiness initiative Web-business expertise Someone should be able to understand what goes on in ebusiness in the relevant market sector

23 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? The organization also needs Business planning and strategizing The ebusiness initiative should be closely linked to the organization’s core business Managerial infrastructure People who can manage a digital enterprise High-level buy-in Decision makers should agree that this initiative is worth the time and effort needed succeed

24 S643: Digital Entrepreneurship Spring ‘13 II. What is needed to begin an ebusiness initiative? This leads to a integration plan Project management Set out roles, responsibilities, timeline, benchmarks, and deliverables Change control Testing and evaluation, metrics for assessing performance Ownership and rights, confidentiality agreements, dispute resolution

25 S643: Digital Entrepreneurship Spring ‘13 Assessing ebusiness readiness I. What are the signs that a firm is ready? Questions to ask II. What is needed to begin an ebusiness initiative? Estimating costs III. The importance of strategic orientation Conceptions of strategy IV. Measuring ebusiness activity Return on investment

26 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation In the information sector, 20% fail in first year, 35% in second year, 50% in third year, 60% in fourth year Professional and business services, 15% in first year, 32% in second year, 45% in third year, 55% in fourth year Many had high cash burn rates and could not raise more capital They did not maintain high growth rates and were not profitable Some had problems with CRM and order fulfillment Problem: not understanding the importance of strategy Grover, V. and Saeed, K.A. (2004). Strategic orientation and performance of Internet-based businesses. Information Systems Journal

27 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Two important conceptions of strategy It is an ongoing process of evaluating the firm’s purpose (Miles and Snow) Evaluating, questioning, verifying and redefining the firm’s interactions with its environment Assumes organizational adaptation to environments Strategy allows the firm to adapt to dynamic, competitive, and uncertain environments Strategic orientations differ in risk disposition, innovativeness and operational efficiencies Types: defenders, prospectors, analyzers, reactors

28 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Porter's five forces model defines the relevant components of the environment These competitive forces work at the industry level Existing companies Potential new companies Substitutes for products offered Suppliers and customers Two adaptations are low cost and differentiation The goal is to alter the firm’s position in the industry in relation to competitors and suppliers

29 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Porter’s 5 forces

30 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation There is also a view of strategy as resource based (Barney) This involves gathering and making use of resources and developing capabilities that competitors can’t easily imitate The goal is superior market position It links the firm closely to its suppliers and customers Strategic orientation can be an issue of how firms position themselves with respect to competitors It focuses on the exploitation of firm-specific assets and capabilities

31 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Saban, K.A. (2001). Strategic Preparedness: A Critical Requirement to Maximize E-commerce Investments. Electronic Markets. 11(1)

32 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Realistic view of strategy Firms are simultaneously acquiring and making use of assets and are repositioning themselves with suppliers and customers Some groups of firms share strategic orientations Strategic decisions cover Market segmentation, product characteristics, cost diversification, geographic reach Resource commitments How resources are deployed to maintain competitive advantage

33 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Strategic orientation and ebusiness Three key issues in e-business implementation: e- operations,e-marketing, and e-services A firm should know how to develop in these opportunity domains before implementing e-business. An e-business framework has four crucial strategic quadrants TechnologyBrand Service Market

34 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Strategic orientation and ebusiness There are differences between ebusiness and offline business that matter The number of customers that can visit the store The range of products that are available The nature of the interaction with customers Higher costs of acquiring customers The nature of the interaction with suppliers Different form of inventory management

35 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Other differences that matter Economics of information and other digital services High fixed costs in compiling the product or service Low marginal costs value-based pricing strategies, such as bundling information products and providing personalized services Many ebusinesses could not create adequate ‘value’ They had to invest large amounts of cash to acquire customers and attempt to become profitable Customization and personalization are expensive ongoing costs

36 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Goal of ebusiness strategy To leverage net infrastructure and digital economics in order to gain strategic positioning in the marketplace Key factors in developing a strategic orientation Risk disposition Management’s willingness to invest in projects to stimulate growth Financial resources are used to pursue risky projects Risks can be short or long term Continuum: aggressive aversive

37 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Dimension of strategic orientation Innovation The firm’s commitment to support new initiatives This includes the ability to generate slack resources and allocate funds to support innovative initiatives Technological changes (disruptive or incremental) Marketing innovations (targeted or pervasive) Developing reliable and consistent customer relationship management Continuum: innovative conservative

38 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Another dimension Operational efficiency Managerial control over routine operations and assets Efficiency and effectiveness of organizational processes Extent of system integration with the web front-end Also efficient co-ordination of the firm with its suppliers Continuum: efficient inefficient

39 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Another dimension Marketing intensity The aggressiveness of the firm in pursuing customers Investing in customer-facing processes Marketing and advertising Efficiency in customer acquisition and order fulfillment Continuum: innovative conservative

40 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Developing a strategic orientation for ebusiness Firms make multifaceted resource deployment decisions that shape their strategies A key decision deals with the management of ICT Recent research indicates that ICT do contribute indirectly to productivity How are ICT resources used along with other resources to generate superior performance?

41 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Mature orientations Larger, older, with large customer bases, brand equity and reasonable performance This can mean lower marketing and customer acquisition costs Reasonable cash flow with low short term risk and high slack resources Risky orientations Efficient at co-ordination, advertising, order fulfillment Low cost to sales ratios High levels of short term risk/debt, low cash reserves

42 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Moderate orientations Smaller, with low costs and low levels of advertising, coordination and marketing efficiency Low short and long term risk, moderate innovation Moderate cash flow allows marketing expenditures but these tend not to be effective Novice orientations Smaller, with low advertising, coordination, and order fulfillment efficiency Moderate short term risk Negative cash flow, high R&D expenses

43 S643: Digital Entrepreneurship Spring ‘13 III. The importance of strategic orientation Benefits of an integrated ebusiness strategy Enables management to close any performance gaps before the processes are implemented Creates a unified plan of action that all operations, departments and employees can endorse Reinforces that ebusiness is a means to improve the value chain, not an end in itself Six managerial implications of launching an integrated e- business plan: Leadership; innovation; organizational learning; structure; support; and resources

44 S643: Digital Entrepreneurship Spring ‘13 Assessing ebusiness readiness I. What are the signs that a firm is ready? Questions to ask II. What is needed to begin an ebusiness initiative? Estimating costs III. The importance of strategic orientation Conceptions of strategy IV. Measuring ebusiness activity Return on investment

45 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity It’s important to be able to explain to management the return on investment for any major ICT project in a firm This is especially the case for ebusiness Numbers of unique visitors does not work anymore ROI helps determine the metrics that matter Once ROI is calculated, it is easier to do it for similar projects It provides a sense of which ebusiness applications produce the best and fastest results Mogollon, M. and Raisinghani,M. (2003). Measuring ROI in e-business: a practical approach. Information Systems Management. Spring

46 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity Measuring ROI of projects Investment is measured as the total cost in time, dollars, or other unit needed to plan, execute, and complete the project Return is the savings in time, dollars, or any other measurable unit generated by the project ROI is the ratio of the total return divided by the total cost of the project The difficulty in calculating ROI is determining what is the total cost and what is total return of the project

47 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity Tangible benefits for ROI Sales increases Production increases Increases in leads and higher conversion rate Shorter time to market Reduction in operating costs Reduced network downtime Increased mean time before failure Reduced time to configure the network

48 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity Intangible benefits for ROI Improved customer satisfaction Increased customer retention Increased customer base Improved managerial knowledge Increased employee retention Improved employee morale Stronger channel ties

49 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity ROI measures the performance of one investment relative to another The ratio of money gained or lost on an investment relative to the amount of money invested It is expressed as a percentage and is based on returns over an associated time period, usually one year For example, a 25 % annual ROI means that a $100 investment returns $25 in one year After one year, the total investment becomes $125

50 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity Example: are ads worth it? Data: Ad cost: the amount you are spending on your ads on a site Clicks: the number of visits from paid listings Number of sales: the number of completed orders from product searches Revenue: the dollar amount generated from paid listings for that product

51 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity ROI: determine the profitability of each listing and how much it costs to generate each sale Subtract the ad cost from the revenue generated: spend $500 on a one month ad and sell $1,500 during that time -> $1,000 ad profit Cost per acquisition: divide the ad cost by the number of sales: the ad costs $500 and you made 20 sales, CPA is $25 Determine ROI percentage by dividing ad profit by the ad cost and multiply by 100 Ad profit is $1,000 and ad cost is $500, so ROI would be 200%

52 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity Measuring ROI 1. Determine internal and external costs of implementing and maintaining current and new ebusiness application processes 2. Calculate cost savings between the current and new process (all should be measurable) Add the benefits in productivity and efficiency It may be easier in some cases to measure value in $ 3. Calculate the ebusiness app’s risk and determine company’s cost of capital for that specific application

53 S643: Digital Entrepreneurship Spring ‘13 IV. Measuring ebusiness activity 4. Calculate net present value 5. Compare present value of expected cash flow with required outlay If present value of the ebusiness app cash flow exceeds cost, the project should be implemented Otherwise, it should be rejected So ROI = Current process cost - new process cost + expected benefits Cost to implement the project + operation and maintenance costs


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