1. Copyright © 2003 Sherif Kamel Copyright © 2003 Thomson Learning/South Western Copyright © 2002 Marketspace LLC Electronic Business Strategy Dr Sherif Kamel The American University in Cairo

2. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Outline Business strategy and the classical framework. Past developments in the field of business strategy. The impact of the networked economy on strategy. Case of eBay 7 dimensions to an eCommerce strategy. Bonds of an eCommerce strategy. 4 positional eStrategic directions. From the old to the new world Internet as a business solution. Principles of the digital economy. Strategy elements. New form of organizations “Born-on-the-Net”. Doing business the traditional way “Move-to-the-Net”. Infomediaries. Models of eCommerce.

3. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Defining the Concept of Strategy Strategy formulation involves five basic decisions: Strategy is a plan for how a company will compete in the marketplace. Choosing the market arena Locating a defendable position Seeking differentiation in activities or methods Seeking differentiation in activities or methods Identifying and making tradeoffs Designing interlocking activities Which customers will we serve? What products and services will we offer? Where will we operate? What benefits do our customers seek? Do we have the resources, skills and assets to deliver the target benefits better than our competition? Is our value proposition different from our top competitor’s? Can customers recognize the difference? Do our resource allocations reflect our differentiation? Do all of our strategic decisions fit together? Do we create value by providing mutually reinforcing services?

4. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Mission Statement  A mission statement sets the company’s direction. It provides a clear sense of purpose for the organization’s employees. It provides a clear sense of the business that the firm is in. It expresses both the company’s current business strategy and the future strategic direction of the firm.  We help people trade practically anything on earth. We will continue to enhance the online trading experiences of all — collectors, hobbyists, dealers, small businesses, unique-item seekers, bargain hunters, opportunistic sellers and browsers.  Example: “eBay’s mission statement” Strategic management begins with a mission statement.

5. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Creating Competitive Advantages Investment to Create and Sustain Advantage Distinctive Competencies Competitive Advantages Performance Outcomes Source: Adapted from G.S. Day and R. Wensley, “Assessing Advantage: A Framework for Diagnosing Competitive Superiority,” Journal of Marketing 52 (1988): 1-20. eMarketing Strategy Positioning and target-market selection Marketing tactics (4Ps) Superior customer value Low-cost producer Superior skills Superior resources Satisfaction Loyalty Market share Profitability Companies must continuously build competitive advantages. Competitive advantages are: –Relative to competitors –Not mutually exclusive –Changing over time Implications of the competitive advantage framework: –Distinctive competencies don’t always translate into value for customers. –The public may not perceive the firm’s superior value. –Competitive advantages don’t always translate into superior performance outcomes. –Sometimes outcomes are competitive advantages.

6. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Centricity of Technology Customer Gains Control Strategy Formulation Fast, Unpredictable Competition Fast, Unpredictable Competition Rapidly Reconfigured Company Resources Rapidly Reconfigured Company Resources The Effects of the Networked Economy on Strategy Formulation Opportunities for organizational efficiencies in back office Face-to-screen interactions replace face-to-face meetings in front office Instant competitive response Competition based on demand rather than supply When and how to interact with firm How much information to share How much price comparison sought How much personalization needed Partnerships and combinations of companies competing How the networked economy influences strategy formulation:

7. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Networked Economy’s Impact on Porter’s Five Forces The Internet provides direct connection to customers; however, it minimizes suppliers’ bargaining power Suppliers can access end-users through the Internet, minimizing the need for middlemen Differentiation becomes more difficult as access to suppliers is equalized via digital markets and Internet purchases Fewer barriers to entry result in increased buyer competition, thus boosting supplier bargaining power Reduces bargaining power of channels Consumers have more information and ability to search for better deals Decreases switching costs Wherever technology enables a task to be easily undertaken, barriers to entry go down New market entrants can acquire technology applications easily Large capital pool has attracted new entrants to many industries High technology costs and expertise increase barriers to entry Especially for Internet-related technology or services, substitute products can easily be offered The Internet has introduced new business methodologies, thus creating additional substitution threats The Internet minimizes ability to product differentiate; less differentiation means more competition over price Low barriers to entry open markets to heavier competition Variable costs decrease as a percentage of fixed costs, leaving price discounting as a primary method of competition Risk of Entry by Potential Competitors Bargaining Power of Suppliers Rivalry Among Established Competitors Bargaining Power of Buyers Threat of Substitute Products Source: Adapted from Michael E. Porter, Competitive Strategy (Free Press, 1980).

8. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Porter claims that…. “Internet technology provides better opportunities for companies to establish distinctive strategic positioning than did previous generations of information technology”.

9. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Offering — Interactivity and Individualization Low Game sites Napster Hotmail Low High Myteam.com eBay myCNN.com* Amazon.com First-generation websites Most content sites (magazines) Individualization Customization activities initiated by user or firm Interactivity User’s ability to conduct two-way dialogue on a website Measuring responsiveness to increasing customer control * This website merged with My Netscape (my.netscape.com).

10. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill 7 Dimensions to an eCommerce Strategy Leadership Infrastructure Organizational Learning Service Technology Market Brand

11. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill 7 Dimensions to an eCommerce Strategy  Based on a survey of 40 American and European organizations with revenues ranging between 1 million and 100 billion US dollars and labeled as global eCommerce leaders, the difference between those that have successful eCommerce strategy and those do not is a function of achieving a balance among the following 7 factors…. 4 positional factors –Technology –Service –Market –Brand 3 bonding factors –Leadership –Infrastructure –Organizational learning

12. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Strategy  The 7 dimensions model could be perfect for all forms of organizations in the traditional industrial and service sectors.  It also applies to born-on-the-net organizations where they always to adapt these different components to keep up with the changes taking place in both the marketplace and marketspace.  It is important to note that the model is particularly applicable due to its flexibility when it comes to a traditional organization formulating its eStrategy processes.

13. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Bonds of an eCommerce Strategy  The foundations of a strong eCommerce strategy lie in the preparation if the ground before the functional issues are addressed and 3 of these are… Leadership Infrastructure Organizational learning  There is a clear and strong interaction between these three different elements.  Following are some examples and cases that reflect the importance and role of eCommerce Strategy bonds.

14. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Leadership Model Cases  The drivers of change and creators of organizational strategic vision are CEOs and senior executives “champion”.  Case: Motorola Corporation “Model for a meld between leadership- technology”. Launched an initiative in 1994 attempting to use advanced communication technology to better reach their partners. Creation of Motorola Online Channel Access “MOCA” – the target was capitalizing on communication technology.  Case: IBM’s Louis Gerstner repositioned and transformed IBM based on eCommerce concepts.  Case: Ford’s Jacques Nasser made eCommerce an integral part of Ford’s strategy.

15. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Lessons to be learned  Executives should expand their vision for their organizations and develop creative strategies that can be effectively executed.  Failure to transition or demonstrate leadership will inevitably lead to a subsequent change in leadership.  Executives should… Keep an open mind with regard to all new technologies. Stay attached to new technologies coming over the net. Encourage continuous research and analysis of the marketspace. Always be ready to make the necessary changes in corporate strategy with no limits.

16. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Infrastructure Model Cases  If the need to develop eCommerce is developed and approved by the organization, the next thing to do is developing the required infrastructure [range could be from a single Internet file server to an information-intense online transaction processing company such as UPS www.ups.com.www.ups.com  Infrastructure issues need to be considered at a number of organizational levels such as: Strategic Organizational Physical

17. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Infrastructure Levels  Strategic Level Impact technology will have on the market and the organization. Aim is to align future business planning initiatives with the new technology challenges.  Organizational Level The challenge is to align work practices, process flow and structure of the organization to execute the strategic goals effectively and efficiently.  Physical Level Where execution takes place using hardware and software elements complemented with the telecommunications infrastructure.

18. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Lessons to be learned  Create a flexible infrastructure that can act as the “shock absorber” of change.  Factors influencing the infrastructure come from strategic, organizational and physical levels.  Infrastructure creation requires open level of communication at and across all levels in the organization.  Creation of a technology infrastructure that is scalable, secure and robust.  Maintain awareness of developments and innovations and willingness to change, upgrade and adapt.  The Techno-CEO is the successful leadership model of the future.

19. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Organizational Learning Model Cases  The ability of an organization to react, understand and deploy eCommerce solutions is dependent on its ability to effectively leverage its organizational learning.  Organizational learning is not an isolated process, it is part of the leadership required in the organization that relate to creating and enabling brand, technology, market and service positions.  Organizational learning and the dissemination of the knowledge acquired across the different organizational levels is a key success factor.  Learning leads to improving work flows, practices and managing customer relationships in a away leading to locking customers to products and organizations. Case: IBM website attracts over 1.5 million hits a day and leadership is keen to get customers and retailers feedback daily. –Contribution to brand building –IBM’s website is being adjusted and improved mainly based on customers and retailers feedback and evaluation.

20. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Organizational Learning Model Cases (Cont’d)  IBM, in that sense, is aligning its eCommerce strategy with its organizational strategy as a whole.  Need to clearly understand the driving forces in the marketspace and when and how they change – to be able to respond ahead of the competition. Case: Ford internalized its process control. Case: American Airlines internalized its passenger yield management system. –Both organizational took a leading position in their respective fields and in the industry.

21. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Lessons to be learned  Creating an environment that stimulates and fosters organizational learning which is important to introduce technology and also for the organizational long- term survival.  Organizational learning should have a focus driven from the strategic objectives of the organization as a whole.  Organizational learning creates an environment of positive change and continuous process refinement.

22. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill 4 Positional eStrategic Directions Technology Leadership Market Leadership Brand Leadership Service Leadership Integrated eCommerce Strategy

23. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill 4 Positional eStrategic Directions  In creating an eCommerce strategy, it is necessary to align and integrate the 4 main areas of positional strategic focus: Technology Brand Service Market  This is an important task that has to be considered as of the initial steps of strategy formulation.  The process should also cater for the inevitable and continuous changes that will occur.

24. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Technology Leadership  eCommerce strategies that are focused on leadership could be found throughout all industry sectors.  Technology leadership needs early adoption to take a leading position. Examples include: –UPS –Nortel –SUN Microsystems –Motorola –Dow Jones  Technology can offer organizations better tools to monitor customers needs which represents an added-value based strategy.

25. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Brand Leadership  The Internet has a huge ability to influence, change, and reinforce corporate branding.  The development of an eCommerce branding strategy means something different to a new entity than it will to an established organization. Example: Amazon.com could be looked at as the leading brand on the Internet. Branding in that context could be looked at as providing added value beyond low cost including convenience and quality service.  The Internet helps in creating added-value through mass customization. The key to mass customization is getting closer to the customer and providing the product on demand at a low cost while maintaining sufficient margins for the supplier. Case: BMW – continuous changes and improvement in the website with massive “information provision” to potential customers.

26. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Service Leadership  Service in eStrategy means a number of elements beyond the actual purchase order and that includes: Building relationships with customers Gathering customer information Identifying potential customers Maintaining relationships with existing ones “yielding 60% additional revenues”.

27. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Market Leadership  Marketing can achieve new levels on the Internet.  A key factor is to respond to changing market conditions through products and services offerings.  One of the leading strategies is to combine marketing, service and information systems to focus on issues as a cross-functional team. Case: Royal Caribbean International –One of the world’s largest cruise lines evolved as a technology leadership focus in 1997, through a process of brand enhancement to a more recent market focus achieving significant market growth through online sales. Case: American Express –First focused on brand reinforcement then they moved to a market growth mode capitalizing on the Internet.

28. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Developing a Winning eStrategy  To develop a winning eCommerce strategy, the following has to be carefully addressed: Ensure the project is backed by a senior executive. Develop a strategy before developing a web presence. Develop a strategy by focusing on technology, branding, marketing and service. Develop an IT infrastructure capable of matching the strategic objectives. Identify and use knowledge in the organization. The strategy must add value for customers and it must change as the requirements of those customers change.

29. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Why an eStrategy?  To raise maximum awareness.  To provide support to potential users.  To avoid the development of closed user groups.  To achieve a uniformed expansion which the private sector as well as the public sector.  To develop a regulatory framework, in which businesses will participate equally in a secure electronic trading environment.  To participate equally in international forum.

30. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Internet as a Business Solution  Internet has dramatically changed the rule of doing business.  “Everyday it becomes clearer that the Net is taking its place alongside the other great transformational technologies that first challenged and then fundamentally changed the way things are done in the world”. (Louis Gerstner, Chairman and CEO of IBM, 1999)  “The Internet is like a weapon sitting on a table and ready to be picked up by either you or your competitions. (Michael Dell, Chairman and CEO of Dell Corporation, 20001)

31. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Organizational eCommerce  The new form of organizations which was “born-on-the-Internet” in the eCommerce marketspace.  Established organizations traditionally positioned in the offline marketspace “moving to the Net”.  eConsortia which are organizations that are coming together in a new organizational form aiming at leveraging the unique strengths associated with each company and partner through the virtual structure on an online organization.

32. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill New Organizations: Born on the Net  How successful an organization will become will always be based on the business concept including its vision and foundations.  Execution and implementation is also an integral component since strong and constructive visions do not make successful organizations.  For organizations to succeed they need a winning strategy: Conceptual strategy Operational strategy

33. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Networked World Established Organizations Total Market Online Organizations eCommerce Marketspace eConsortium

34. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Strategy Elements  The Net Profit Provider.  The Web Business Pyramid.  The Web Applications Pyramid.  The Internet Business Segments.

35. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Net Profit Retriever Industry Strategy Management Does the industry in which the company competes have economic leverage? Does the company offer its customers a closed-loop solution? Can the company’s management team adapt effectively to rapid change?

36. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Web Business Pyramid Level III Powerware Level II Brandware Level I Lossware

37. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Web Applications Pyramid Level III Integrated Transactions Level II Front-End Transactions Level I Online Brochures

38. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill The Internet Business Segments Level III Powerware Network Infrastructure Web Consulting Internet Venture Capital Level II Brandware Internet Security Web Portals Electronic Commerce Web Content Level I Lossware Internet Service Providers Web Commerce Tools

39. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Key Successful Factors for “Born-on-the-Net”  Technology Goal must be understood for that organization within its industry and market. Should you go technology leader or rely on stable systems. Determine the relationship between the company’s technology or product strategy and the operational aspects of that strategy. Technology should serve customers’ needs from a technology perspective. Can technology create barriers to entry? Can it lock in customers?  Market Identify the target market and whether it is open to new entrants. Determine market changes and whether the organization will be able to meet these changes. Be ready for competition especially from larger and more equipped organizations.

40. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Key Successful Factors for “Born-on-the-Net” – (Cont’d)  Service An organization must know its customers’ expectation regarding service levels. Identify the value proposition and continuously improve it. Identify and properly manage the Internet service value chain.  Brand Determine whether the organization can create a strong brand. Identify the basics of its brand… –Technology leadership? –Service proposition? –Market positioning?

41. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Existing Organizations: Move to the Net  Technology is just like change needs to be dealt with constantly to always remain competitive.  On the Internet, businesses do not operate in linear time as suggested by Michael Porter in his 5 forces model of strategy; however the world of eCommerce compresses time. Case: Barnes and Noble www.bn.com versus Amazon.com.www.bn.com  The society of the Internet has led customers to expect the move from conceptualization of a trade to execution to occur in one step. Example: Product-onDemand  Time compression ads value and encourages customers to take decisions.

42. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Key Successful Factors for “Move-to-the-Net”  Technology Should understood what the total technology implications are for that organization - Internet, ERP, data warehousing, etc… Identify whether processes are aligned to an Internet environment. Should identify the knowledge level of customers with respect to technology use in the marketspace to be able to build and effective and flexile eCommerce strategy. Organizations must assess its internal value chain and that of its suppliers and build it to minimize costs and maximize efficiencies.  Market Understand what the implications of eCommerce and technology are for the marketspace with respect to.. –Branding –Relationship management Whether the target market is the same as its traditional bricks-and- mortar marketspace or has it moved. Understand how the market is going to segment and grow in the future due to the Internet. Identify the strengths brought to the company due to their Internet-based operations [product and market knowledge].

43. Copyright © 2002 Marketspace LLC Copyright © 2002 Mohammed, Fisher, Jaworski and Cahill Key Successful Factors for “Move-to-the-Net” – (Cont’d)  Service New service level expected from customers should be identified. Identify what are the new value proposition expected from the customers. Continuous re-assessment of the service value chain.  Brand How to best leverage existing brands? Determine whether a strong dot- com brand could be created? Will brand positioning change on the net?