1. TOPIC 5: EC Strategy and Global EC
5.1 Strategic planning process
5.2 Impact of EC on the strategic planning process
5.3 Formulation and justification of EC applications
5.4 Strategy implementation and assessment
5.5 E-strategy and project assessment
5.6 Global EC
5.7 Impact of EC on small and medium-sized enterprises

2. C.S.: Lonely Planet Travels from Place to Space
Independent travelers use 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
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

3. C.S.: Lonely Planet Travels from Place to Space
The Problem
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
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

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

5. C.S.: Lonely Planet Travels from Place to Space
Online LP launched these initiatives:
Online LP store, 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
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

6. knowledge C.S.: Lonely Planet Travels from Place to Space
Knowledge Bank is an internal knowledge management project that aims to transfer all of LP’s intellectual property into a standardised and centralised digital database
knowledge

7. C.S.: Lonely Planet Travels from Place to Space
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
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

8. C.S.: Lonely Planet Travels from Place to Space
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
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

9. Strategy: 5.1: Organisational Strategy: Concepts & Overview
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.
E-Commerce strategy (e-strategy):
The formulation and execution of a vision for how a new or existing company intends to do business electronically.

10. 5.1: Organisational Strategy: Concepts & Overview
Profitability and economic value is determined by establishing a unique value proposition that enables a company to offer unique value to its customers
Therefore strategy is focused on questions about:
organisational fit
trade-offs
profitability
value
Value proposition:
The benefit that a company’s products or services provide to customers; the consumer need that is being fulfilled

11. 5.1: Organisational Strategy
Exhibit 14.2:
The Strategic Planning Process
The process of strategy
according to Tjan (2001):
Initiation
Formulation
Implementation
Assessment

12. 5.1: Organisational Strategy
Strategy initiation:
The initial phase of strategic planning in which the organisation examines itself and its environment
Outcomes from strategy initiation
Company analysis (including value proposition, vision, mission, strengths, weaknesses, etc)
Core competencies (the unique combination of resources and experience of a firm)
Forecasts (identifying business, technological, political, economic, etc that are currently affecting or likely to affect the business)
Competitor (direct, indirect, and potential) analysis

13. 5.1: Organisational Strategy
Strategy formulation:
The development of strategies to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses
Specific activities & outcomes from strategy formulation
Business opportunities
Cost-benefit analysis
Risk analysis, assessment, and management
Business plan (identifies the company’s goals and outlines how it intends to achieve the goals).
Question: How is an e-business plan different from a traditional business plan? What is a business case?

14. 5.1: Organisational Strategy
Strategy implementation:
The development of detailed, short-term plans for carrying out the projects agreed on in strategy formulation.
Specific activities and outcomes from strategy implementation phase:
Project planning
Resource allocation
Project management

15. 5.1: Organisational Strategy
Strategy assessment:
The continuous evaluation of progress toward the organisation’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

16. Strengths S W O T Weaknesses Opportunities
5.1: Organisational Strategy
Strategic planning tools
1. SWOT analysis:
A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses
Strengths
Weaknesses
S W O T
Opportunities
Threats

17. 5.1: Organisational Strategy
Strategic planning tools
2. Competitor analysis grid:
A strategic planning tool that highlights points of differentiation between competitors and the target firm
3. 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

18. 5.1: Organisational Strategy
Strategic planning tools
4. Return on investment (ROI):
A ratio of required costs and perceived benefits of a project or an application
5. Balanced scorecard:
An adaptive tool that assesses organisational progress toward strategic goals by measuring performance in a number of different areas

19. 5.2: EC Strategy: Concepts and Overview
Role of Internet in setting organisational strategy
According to Ward and Peppard (2002), strategy setting begins with the business strategy
Then the information systems (IS) strategy is set, primarily by determining what information and associated information systems are required to carry out the business strategy.
Business strategic planners, IS strategists and ICT planners treatment of the Internet and EC
IS strategists need to consider the Internet as a tool for collecting and distributing information to where it is required. ICT planners will need to plan the integration of the Internet-based technologies into the existing ICT infrastructure. Thinking about and planning for the Internet should be subsumed into each of the three strategy levels (McKay and Marshall 2004).

20. 5.2: EC Strategy Initiation
Issues in e-strategy initiation
1. Be a first mover or a follower?
Size of the opportunity
Commodity products
Be the best
Is there a real advantage to being the first mover in an industry or market segment?
In e-commerce, does “the early bird get the worm”? Or does the old saying about pioneers— “they are the ones with arrows in their backs”—apply to EC?
The answers to these questions are far from clear.

21. 5.2: EC Strategy Initiation
Issues in e-strategy initiation
2. 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 utilise its strengths effectively
Example: LP is a move-to-the-Net firm that is using its strengths - a superb reputation, a community of independent travelers, an immense database of maps and travel information - to find new opportunities on the Internet.

22. 5.2: EC Strategy Initiation
Issues in e-strategy initiation
3. Determining scope
When determining scope, the organisation considers the number of products or services it sells
The most efficient way to expand an organisation’s scope is to introduce new products or services into new or existing markets without increasing production facilities or staff.
This strategy is usually most effective when the expanded scope is consistent with the firm’s existing core competencies and value proposition to its customers.
Example: Almost all of Google’s expanding scope is based on its core competency in search technology unlike Sears’ failure (see EC Application Case 14.2)

23. 5.2: EC Strategy Initiation Issues
Issues in e-strategy initiation
4. 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

24. 5.2: EC Strategy Initiation Issues
Issues in e-strategy initiation
4. Have a Separate Online Company?
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

25. 5.2: EC Strategy Initiation Issues
Issues in e-strategy initiation
5. 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

26. 5.3: EC Strategy Formulation
Based on the results of the company and competitive analyses, the company is ready to evaluate potential EC strategies and select a small number for implementation.
Strategy formulation activities include evaluating specific EC opportunities and conducting cost-benefit and risk analyses associated with those opportunities.

27. 5.3: EC Strategy Formulation
Common mistakes made in selecting EC projects (Tjan, 2001):
Let a thousand flowers bloom—funding many projects indiscriminately
Bet it all—bets everything on a single high-stakes initiative
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

28. 5.3: EC Strategy Formulation
Selecting EC opportunities
Approaches that have propelled strategy formulation:
Problem driven (best when an organisation has a specific problem that can be solved with an EC application)
Technology driven
Market driven
e-business maturity model (PWC and Carneige-Mellon)
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

29. 5.3: EC Strategy Formulation
Determining an appropriate EC application portfolio
Internet portfolio map: Based on company fit and project viability (Tjan, 2001)
Viability is assessed by:
market value potential
time to positive cash flow
time to implementation
funding requirements
Fit is evaluated by metrics:
alignment with core capabilities
alignment with other company initiatives
fit with organisational structure
ease of technical implementation

30. Exhibit 14.7 Internet Portfolio Map
5.3: EC Strategy Formulation
Internet portfolio map:
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
Exhibit 14.7 Internet Portfolio Map

31. 5.3: EC Strategy Formulation: Risk Analysis
E-commerce (EC) risk:
The likelihood that a negative outcome will occur in the course of developing and operating an EC strategy
The first step in any risk assessment is risk analysis
Identifying and evaluating the sources of risk
Four sources of business risk in an EC strategy:
Competitive risk
Transition risk
Customer-induced risk
Business partner risk

32. 5.3: EC Strategy Formulation: Risk Analysis
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
Minimising the consequences if it occurs anyway
Both

33. 5.3: EC Strategy Formulation: Issues
How to handle channel conflict?
Let the established distributors handle e-business fulfillment
Provide online services to intermediaries (e.g., by building portals for them) and encourage them to reintermediate themselves in other ways
Sell some products only online
Avoid channel conflict entirely by not selling online.

34. 5.3: EC Strategy Formulation: Issues
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

35. 5.3: EC Strategy Formulation: Issues
Traditional methods for determining price:
Cost plus means adding up all the costs involved—material, labor, rent, overheads, and so forth—and adding a percentage mark-up as profit.
The competitor model determines price based on what competitors are charging for similar products in the marketplace
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

36. 5.4: EC Strategy Implementation: 4 steps
1. Create a Web team
In creating a Web (project) team, the organisation should carefully define the roles and responsibilities of the team leader, team members, Web master, and technical staff.
The purpose of the Web team is to align business goals and technology goals to implement a sound EC plan with available resources.
[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
Ideally a senior executive]

37. 5.4: EC Strategy Implementation: 4 steps
2. Start with 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

38. 5.4: EC Strategy Implementation: 4 steps
3. Allocate resources
The resources required for 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
4. Manage the project

39. 5.4: EC Strategy Implementation: Issues
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?
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?

40. 5.4: 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
Many potential business partners with different organisational cultures and their own EC strategies and profit motives, such as:
ASPs
ERP vendors and consultants
ISPs
A key criterion in choosing an EC partner is finding one whose strategy aligns with or complements the company’s own

41. 5.4: EC Strategy Implementation: Issues
Business Alliances
Virtual corporation (VC)
An organisation composed of several business partners sharing costs and resources for the production or utilisation of a product or service
Co-opetition
Two or more companies cooperate together on some activities for their mutual benefit, even while competing against each other in the marketplace

42. 5.4: Example Partnership and Alliances
Bank
payment
MasterCard
Clearance Credit card
Sales
Information Systems
coordination
contents
Shipping
transport
tracking
order
Distributor
inventory
deliver
deliver
DHL
INGRAM
BOOK GROUP
returns
order
sales
Customer
buy
content
Affiliate
sales
sales
critics
Author
marketing
JoinAssociates

43. 5.4: EC Strategy Implementation: Issues
Redesigning business processes
Business process reengineering (BPR):
A methodology for conducting a comprehensive redesign of an enterprise’s processes
Decisions in Redesigning Business Processes
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 companies that are partnering in e-commerce
To align procedures and processes with e-services such as logistics, payments, or security

44. 5.5: E-Strategy and Project Assessment
The Objectives of Assessment
Measure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliver
If they are not delivering, apply corrective actions to ensure that the projects are able to meet their objectives
Determine if the EC strategy and projects are still viable in the current environment
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.

45. 5.5: E-Strategy and Project Assessment
The need for assessment
Strategy assessment includes both the continual assessment of EC metrics and the periodic formal evaluation of progress toward the organisation’s strategic goals.
Measuring results and using metrics
Metric: A specific, measurable standard against which actual performance is compared
Each company measures success or failure by a different set of standards. Some companies may find that their goals were unrealistic, that their Web server was inadequate to handle demand, or that expected cost savings were not realised.

46. 5.5: E-Strategy and Project Assessment
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

47. 5.5: E-Strategy and Project Assessment
Axon Computertime metrics implementation obtained results in:
Revenue growth
Cost reduction—selling costs and expenditures
Cost avoidance
Customer fulfillment
Customer service
Customer communications
Web analytics
The analysis of click-stream data to understand visitor behavior on a Web site.

48. Benefits and extent of operations
5.6: Global E-Commerce
Benefits and extent of operations
The drivers behind global EC are the ability to do business at any time, from anywhere, and at a reasonable cost.
Globalisation provides the opportunity for EC businesses to grow and to serve potentially the entire world
Barriers to global EC
Authentication of buyers and sellers (Ch. 11)
Generating and retaining trust (Ch. 4 & 7)
Order fulfillment and delivery (Ch. 13)
Security (Ch. 11)
Domain names (Ch. 16)

49. C A G E 5.6: Global E-Commerce
Barriers to global EC in the CAGE framework
ultural – language and cultural differences, preferences
dministrative – legal issues, trade barriers, privacy protection
eographical – logistics, bandwidth
conomic – taxation, regulation, payment systems
C A G E

50. Breaking down the barriers to global EC
5.6: Global E-Commerce
Breaking down the barriers to global EC
Be strategic
Know your audience
Localise
Think globally, act consistently
Value the human touch
Clarify, document, explain
Offer services that reduce barriers

51. 5.7: EC in Small and Medium-Sized Enterprises
SMEs moved onto the Web because they realised there were opportunities in:
marketing
business expansion
business launches
cost cutting
tighter partner alliances
Disadvantages/risks of EC for small businesses
There are several potential disadvantages, the largest being the inability to compete at a large scale, and potential high entry costs.

52. 5.7: EC in Small and Medium-Sized Enterprises
Critical Success Factors for SMEs:
Product is critical
Appropriate capital investment
Low inventory levels
Secure electronic payments
Flexible payment methods
Appropriate logistical services
Search engine placement
Membership in online mall
Proper web site design

53. 5.7: EC in Small and Medium-Sized Enterprises
Supporting SMEs
Most countries have a government agency devoted to helping SMEs become more aware of and able to participate in EC
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

54. Managerial Issues
1. What is the strategic value of EC to the organisation?
2. What are the benefits and risks of EC?
3. What metrics should we use?
4. What staffing is required?
5. How can we go global?
6. Can we learn to love smallness?
7. Is e-business is always beneficial?