Presentation on theme: "TOPIC 5: EC Strategy and Global EC"— Presentation transcript:
1 TOPIC 5: EC Strategy and Global EC 5.1 Strategic planning process5.2 Impact of EC on the strategic planning process5.3 Formulation and justification of EC applications5.4 Strategy implementation and assessment5.5 E-strategy and project assessment5.6 Global EC5.7 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 toHelp them get to their destinationWhere to sleepThe best places to eatWhat to see and doAt a price they can affordLP’s principal assets are:Global brand nameDedication of its writers and editorial staffVast library of text, maps, photos, and imagesCommunity 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 ProblemLP 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 guideSell its content electronically and not create channel conflictsMake 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 SolutionLP’s current combination of business models that make up value proposition and revenue model:Content providerVirtual communityDirect to consumer
5 C.S.: Lonely Planet Travels from Place to Space Online LP launched these initiatives:Online LP store, access to brief destination overviewsFree updates to currently published guidesVarious forms of travel newsA traveler’s bulletin boardLinks to related siteseKno (ekno.lonelyplanet.com) is a joint venture with eKit.com to provide an interactive communications service for international travelersCitySyn (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 databaseknowledge
7 C.S.: Lonely Planet Travels from Place to Space The ResultsLonely 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 baseLP must decide how to generate revenue and further promote its branded products, but at the same time avoid channel conflict and ally anxietyKnowledge Bankincreased internal efficiencies in information handlingoffers numerous long-term business possibilities
8 C.S.: Lonely Planet Travels from Place to Space What we can learn…Marketplace-to-marketspace strategiesTakes the company’s core business and envisions its future in CyberspaceLP avoided schemes outside its scopeInitiatives are incremental steps into the marketspaceStrategic experiments that have not distracted the company from its core businessLeadership from the top is essentialSuccessfully 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 goalsStrategy 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 customersTherefore strategy is focused on questions about:organisational fittrade-offsprofitabilityvalueValue 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 ProcessThe process of strategyaccording to Tjan (2001):InitiationFormulationImplementationAssessment
12 5.1: Organisational Strategy Strategy initiation:The initial phase of strategic planning in which the organisation examines itself and its environmentOutcomes from strategy initiationCompany 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 weaknessesSpecific activities & outcomes from strategy formulationBusiness opportunitiesCost-benefit analysisRisk analysis, assessment, and managementBusiness 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 planningResource allocationProject 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 reformulationSpecific measures called metrics are used to assess the progress of the strategy
16 Strengths S W O T Weaknesses Opportunities 5.1: Organisational StrategyStrategic planning tools1. SWOT analysis:A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknessesStrengthsWeaknessesS W O TOpportunitiesThreats
17 5.1: Organisational Strategy Strategic planning tools2. Competitor analysis grid:A strategic planning tool that highlights points of differentiation between competitors and the target firm3. 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 tools4. Return on investment (ROI):A ratio of required costs and perceived benefits of a project or an application5. 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 strategyAccording to Ward and Peppard (2002), strategy setting begins with the business strategyThen 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 ECIS 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 initiation1. Be a first mover or a follower?Size of the opportunityCommodity productsBe the bestIs 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 initiation2. Born-on-the-Net and move-to-the-Net firmsBoth start with substantial assets and liabilities that influence their ability to formulate and execute an e-commerce strategyThe difference between success and failure is the company’s ability to utilise its strengths effectivelyExample: 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 initiation3. Determining scopeWhen determining scope, the organisation considers the number of products or services it sellsThe 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 initiation4. Have a Separate Online Company?Advantages of creating a separate companyReduction or elimination of internal conflictsMore freedom for the online company’s management in pricing, advertising, etc.Ability to create a new brand quicklyOpportunity to build new, efficient information systems that are not burdened by the legacy systems of the old companyInflux 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 initiation4. Have a Separate Online Company?Disadvantages of creating an independent divisionMay be very costly and/or riskyExpertise vital to the existing company may be lost to the new firmNew 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 initiation5. Have a separate online brand?Companies with strong, mature, international brands will want to retain and promote that brand onlineFirms 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 indiscriminatelyBet it all—bets everything on a single high-stakes initiativeTrend-surf—follow the crowd toward the most fashionable new ideaBeing fear- or greed-driven—thinking they can make lots of money by rushing into EC
28 5.3: EC Strategy Formulation Selecting EC opportunitiesApproaches that have propelled strategy formulation:Problem driven (best when an organisation has a specific problem that can be solved with an EC application)Technology drivenMarket drivene-business maturity model (PWC and Carneige-Mellon)Evaluates online initiatives within the context of established business criteriaDesigned 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 portfolioInternet portfolio map: Based on company fit and project viability (Tjan, 2001)Viability is assessed by:market value potentialtime to positive cash flowtime to implementationfunding requirementsFit is evaluated by metrics:alignment with core capabilitiesalignment with other company initiativesfit with organisational structureease of technical implementation
30 Exhibit 14.7 Internet Portfolio Map 5.3: EC Strategy FormulationInternet portfolio map:If both viability and fit are low—the project is rejectedIf both are high—the project is adoptedIf fit is high but viability is low—the project is redesignedIf the fit is low but the viability is high—the project is soldExhibit 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 strategyThe first step in any risk assessment is risk analysisIdentifying and evaluating the sources of riskFour sources of business risk in an EC strategy:Competitive riskTransition riskCustomer-induced riskBusiness partner risk
32 5.3: EC Strategy Formulation: Risk Analysis The next step is risk managementTo put in place a plan that reduces the threat posed by the riskTaking steps to:Reduce the probability that the threat will occurMinimising the consequences if it occurs anywayBoth
33 5.3: EC Strategy Formulation: Issues How to handle channel conflict?Let the established distributors handle e-business fulfillmentProvide online services to intermediaries (e.g., by building portals for them) and encourage them to reintermediate themselves in other waysSell some products only onlineAvoid 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 difficultiesIt is essential that top management support bothoff-line and online operationsa 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 marketplacePricing strategyPrice comparison is easierBuyers sometimes set the priceOnline and off-line goods are priced differentlyDifferentiated 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 teamIn 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 timesIdeally a senior executive]
37 5.4: EC Strategy Implementation: 4 steps 2. Start with a pilot projectImplementing EC often requires significant investments in infrastructureA good way to start is to undertake one or a few small EC pilot projectsPilot 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 resourcesThe resources required for EC projects depend on information requirements and capabilities of each projectSome resources will be new and unique to the project or applicationEven more critical for the project’s success is effective allocation of infrastructure resources that are shared by many applications4. Manage the project
39 5.4: EC Strategy Implementation: Issues Application developmentShould 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’ strategyOutsourcing:The use of a third-party vendor to provide all or part of the products and services that could be provided internallyMany potential business partners with different organisational cultures and their own EC strategies and profit motives, such as:ASPsERP vendors and consultantsISPsA 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 AlliancesVirtual corporation (VC)An organisation composed of several business partners sharing costs and resources for the production or utilisation of a product or serviceCo-opetitionTwo 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 BankpaymentMasterCardClearance Credit cardSalesInformation SystemscoordinationcontentsShippingtransporttrackingorderDistributorinventorydeliverdeliverDHLINGRAMBOOK GROUPreturnsordersalesCustomerbuycontentAffiliatesalessalescriticsAuthormarketingJoinAssociates
43 5.4: EC Strategy Implementation: Issues Redesigning business processesBusiness process reengineering (BPR):A methodology for conducting a comprehensive redesign of an enterprise’s processesDecisions in Redesigning Business ProcessesTo fix poorly designed processesTo change processes so that they will fit commercially available softwareTo produce a fit between systems and processes of different companies that are partnering in e-commerceTo align procedures and processes with e-services such as logistics, payments, or security
44 5.5: E-Strategy and Project Assessment The Objectives of AssessmentMeasure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliverIf they are not delivering, apply corrective actions to ensure that the projects are able to meet their objectivesDetermine if the EC strategy and projects are still viable in the current environmentReassess the initial strategy in order to learn from mistakes and improve future planningIdentify 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 assessmentStrategy 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 metricsMetric: A specific, measurable standard against which actual performance is comparedEach 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 modelCommunicate the strategy to the workforce through performance targetsIncrease accountability when metrics are linked to performance-appraisal programsAlign 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 growthCost reduction—selling costs and expendituresCost avoidanceCustomer fulfillmentCustomer serviceCustomer communicationsWeb analyticsThe analysis of click-stream data to understand visitor behavior on a Web site.
48 Benefits and extent of operations 5.6: Global E-CommerceBenefits and extent of operationsThe 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 worldBarriers to global ECAuthentication 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 frameworkultural – language and cultural differences, preferencesdministrative – legal issues, trade barriers, privacy protectioneographical – logistics, bandwidthconomic – taxation, regulation, payment systemsC A G E
50 Breaking down the barriers to global EC 5.6: Global E-CommerceBreaking down the barriers to global ECBe strategicKnow your audienceLocaliseThink globally, act consistentlyValue the human touchClarify, document, explainOffer 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:marketingbusiness expansionbusiness launchescost cuttingtighter partner alliancesDisadvantages/risks of EC for small businessesThere 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 criticalAppropriate capital investmentLow inventory levelsSecure electronic paymentsFlexible payment methodsAppropriate logistical servicesSearch engine placementMembership in online mallProper web site design
53 5.7: EC in Small and Medium-Sized Enterprises Supporting SMEsMost countries have a government agency devoted to helping SMEs become more aware of and able to participate in ECVendors have set up a variety of service centers that typically offer a combination of free information and fee-based supportibm.com/businesscenterMicrosoft’s bcentral.comProfessional associations, Web resource servicessmallbusiness.yahoo.comworkz.com
54 Managerial Issues1. 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?