1. Strategic Options in E-Business
Pesewa Presentations

2. Strategic Options for Business
Three Fundamental Options:
Be the cheapest (Cost-Leadership)
Really only an option for large businesses
Take advantage of significant economies of scale
Runs the risk of a price war with competitors
Be the best (Differentiation)
Requires that you have a unique product
Usually requires high R&D expenditure
Need continually to innovate to retain position
Dominate a niche market position (Niche strategy)
Probably most suitable for small businesses
Needs exceptionally effective market segmentation
Need to develop (and defend) a strong brand

3. Strategy Choices Perceived Added Value Strategy Clock High Low
Price
High
Low
Low price
“no frills”
hybrid
differentiation
focussed
Strategies
destined for
ultimate failure
Strategy Clock
Bowman and
Faulkner ( 1996)

4. E-Business Planning Standard Questions for defining Strategy:
Where are we now? (Situational Analysis)
What Business are we in?
What business do we want to be in?
What business SHOULD we be in?
Where do we want to go?
How do we get there?
Which way is best?
How will we know when we have arrived?
Who are our competitors?
Who are our allies?
What resources do we have?
What resources do we need?

5. Business Planning Resources
Reading, C (1994): Strategic Business Planning
McKeever, M (2003): How to Write a Business Plan, ISBN: th Edition, Nov '02

6. Other Strategic Issues
Vertical Integration: Extent to which firm owns its upstream suppliers and downstream buyers
May have significant impacts on costs, security of supply, ability to differentiate products and services
Also impacts on its relative freedom to engage in strategic activities
Horizontal Integration: Extent of acquisition of firms at the same level of the value chain
Examples:
Car manufacturer gains control of SUV or van manufacturer
Oil refinery acquires petrol stations
Media company obtains control of magazine, TV, Satellite TV, interactive TV, online media, newspapers and books

7. Porter’s value-Chain Analysis
Widely-used paradigm (we shall explore this later)
Significant history of successful use as an analytical framework
Intent: use it to put e-business developments into context
Ask appropriate questions / explore alternative assessments of e-business operations and e-implementation
Different scenarios:
Not presently in e-business
Considering entry to e-business
Just entered e-business
In e-business, but not yet successful
Successful e-business adoption
Path breaker / world-class performer

8. E-business Ladder of adoption
0 - not on ladder: minimal ICT adoption
1 - Personal Computer
2 -
3 - Internet access
4 - marketing website: marketing communication
5 - order or sell online - B2C
6 - online trading: B2B
7 - order progress tracking
8 - e-business - full implementation
Source: derived from EU
ICT and e-business benchmarking
Surveys

9. Factors Affecting Adoption
Objective: Business Growth (factors in rank order)
What goals does the organization have in mind?
Create and maintain a competitive advantage
Reduce Operational Costs
Improve employee communication and satisfaction
Find new markets for products / services
Create distinct and effective distribution channels
Enhance Customer satisfaction
Improve supply-chain management
Develop new products / services
Develop a strong and enduring brand
Become a global player …? etc.

10. Market Opportunity
Refers to a company’s intended marketspace and the overall potential financial opportunities available to the firm in that marketspace
Marketspace – the area of actual or potential commercial value in which a company intends to operate
Realistic market opportunity is defined by revenue potential in each of market niches in which company hopes to compete
Important to include these issues in business planning and strategy development

11. Value Chain: Note Human resource management Corporate infrastructure
Technology development
Procurement
Inbound
logistics
Operations
Outbound
Marketing
and Sales
After-sales
service
product
customer
Porter, M E (1985): Competitive Advantage: Creating and Sustaining Superior Performance.
New York, The Free Press.

12. Primary and Support Activities
Human resource management
Corporate infrastructure
Technology development
Procurement
Inbound
logistics
Operations
Outbound
Marketing
and Sales
After-sales
service
product
customer
Support Activities
Primary Activities

13. Primary and Support Activities
Human resource management
Corporate infrastructure
Technology development
Procurement
Inbound
logistics
Operations
Outbound
Marketing
and Sales
After-sales
service
product
customer
Human resource management
Corporate infrastructure
Technology development
Procurement
Inbound
logistics
Operations
Outbound
Marketing
and Sales
After-sales
service
product
customer
Intranet
Extranet
Internet

14. Internal Integration Integration Strategy:
May occur at number of different levels
Often find individual departments operate in isolation (often termed “information silos”)
Need for improved inter-departmental communication is crucial to e-business success
Often attempted through Integrated Information Systems (IIS)
Other approaches:
Enterprise Application Integration (EAI - difficult, but getting easier)
.NET (Microsoft web-based communication technology)
Use of Intranets (and Extranets)
BS2PE Framework (Afuah):
Business Model
Structure
Systems
People
Environment Structure applied to the organization

15. Judicial and Legal system
BS2PE Framework
Business model
Performance
Structure
Functional
Matrix
Divisional
Project
Task Division
Systems/Processes
assessment
Rewards/sanctions
Controls
Information Systems
People
Type
Role
Culture
Technological Change
Demographic
Factor conditions
Sociological
Fiscal and
Monetary policies
Competitive
environment
Judicial and Legal system

16. Organizational Structure
Functional Organizational Structure
Span of control
Depth of
hierarchy
Employees organised according to the function they perform.

17. Multi-Divisional Structure (M-form)
Employees organised by Divisions (rather than functions). May be organised by
type of product, geographical region or by brand. Each Division has P&L responsibility
and operates as a discrete business Unit (SBU). Offers FOCUS and better accountability,
but may mean Divisional Managers have limited in-depth knowledge of the whole business.

18. Matrix Structure
Attempts to combine benefits of Functional and M-form of Organization.
Disadvantages: Communication may be patchy; conflicting goals may be set for Managers
Difficult to keep Projects synchronised; may be managed by fully integrated Info Systems.
A variant of this Matrix Form is a Project Structure: Project team is allocated to a Project, work on it, and Team is reallocated when Project is successfully completed.

19. Network Structure Central Headquarters Manufacturers Distributors
Suppliers
Designers
R&D Labs
Universities
Marketing
and Sales
Sometimes described as a Virtual Organisational Structure

20. Network Structure (Recent)
Arisen as result of Technological change
Firm outsources many (or all) value-adding activities and acts as mediator or organiser of resources [e.g. Nike]
Production may occur anywhere in the world - often China, Taiwan, Singapore, India (for IT)
Advantages: no need for high investments in assets (especially in high-wage economies)
Where rate of change in technology is high, risk is borne by manufacturers; easy to switch suppliers (especially easy using e-procurement and web-based project tendering)
Disadvantages: May be difficult to develop competitive advantage from a distance (becoming easier with e-business)
Contracting out may mean losing cross-communication; project interactions and internal idea exchanges.

21. Functional or Project Structure?
Project duration
Rate of Technological Change
Functional Structure
Matrix Organization
Project Structure
Interrelatedness of Activities
High
Long
Low
Short

22. Internet and Industry Structure
Porter, M E (2001): Strategy
and the Internet, Harvard Business Review

23. Industry Value Chains
Set of activities performed in an industry by raw materials suppliers, by suppliers of energy, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services
Reduces the cost of information and other transactional costs

24. Firm Value Chains
Set of activities that a firm engages in to create final products from raw inputs
Increases operational efficiency
(I.e. Support Activities)

25. Firm Value Webs
Networked business ecosystem that uses Internet technology to coordinate the value chains of business partners within an industry, or within a group of firms
Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system

26. So why become an e-business?
Pro:
Con:

27. E-business Development Strategy
Requirement 1: Systematic Approach
Business Planning:
Vision
Strategy
Prepare a Business Plan
Define Target Market
Set immediate, medium - and long-term goals
Decide on the Infrastructure required to deliver vision
What functionality is required of website and back-office (s/w)?
What technology / technologies are need to run these (h/w)?
What Human Resources are required to deliver results?
Design phase: building website and getting it running
Marketing phase: advertising site; feedback systems; high emphasis on CUSTOMER SERVICE (paramount)
Fulfilment phase
Maintenance and enhancement phases: growing the business

28. Generic Approach to Strategy
Position
Resources
Simple Rules
Strategic logic
Establish position
Leverage resources
Pursue opportunities
Strategic steps
identify attractive market
locate defensible position
fortify and defend
establish a vision
build resources
leverage across markets
jump into the confusion
keep moving
seize opportunities
finish strongly
Strategic question
Where should we be?
What should we be?
How should we proceed?
Source of advantage
Unique, valuable position with tightly integrated activity system
Unique, valuable, inimitable resources
Key processes and unique simple rules
Works best in …
Slowly changing, well-structured markets
Moderately changing, well-structured markets
Rapidly-changing, ambiguous markets
Duration of advantage
Sustained
Unpredictable
Risk
Too difficult to alter position as conditions change
Firm too slow to build new resources as conditions change. Long-term dominance
Managers too tentative in executing promising opportunities
Performance goal
Profitability
Long-term dominance
growth
Eisenhart and Sull, Harvard Business Review, 2001

29. Primary e-biz Revenue Models

30. Competitive Environment
Refers to the other companies selling similar products and operating in the same marketspace
Influenced by:
how many competitors are active
how large their operations are
what market share is for each competitor
how profitable these firms are
how they price their products
Direct competitors – companies that sell products or services that are very similar and into the same market segment
Example: priceline.com, expedia.com and travelocity.com
Indirect competitors – companies that may be in different industries but still compete indirectly because their products can substitute for one another
Example: CNN.com and ESPN.com

31. Competitive Advantage
When firm produces superior product &/or brings product to market at lower price than competitors
Firms achieve competitive advantage when firms are able to obtain differential access to factors of production denied to competitors
Asymmetry – when one participant in a market has more resources than others
Information Asymmetry - where one participant in a business transaction has more INFORMATION than others [e.g. 2nd hand cars]
Web REDUCES information asymmetries - potential Customers can retrieve information from websites and use this to negotiate in transactions
Evidence that purchasers research markets online and use information offline (car purchase; travel; high-ticket purchase items)

32. Market Strategy
Plan detailing how company intends to enter new market and attract customers
Best business concepts will fail if not properly marketed to potential customers
Needs properly planned and executed market research
marketing research can be effectively conducted online:
Web server log analysis
Use of cookies
Data collection, storage (warehousing) and analysis

33. Categorising e-business Models
No one correct way
We categorize business models according to e-commerce sector (B2C, B2B, C2C)
Type of e-commerce technology used can also affect classification of a business model
Some companies use multiple business models
A set of papers on business models is online at WebCT

34. B2C Business Models

35. B2C Business Models: Portal
Offers powerful search tools plus an integrated package of content and services [e.g Yahoo!; ]
typically utilises a combination of subscription/advertising revenues/transaction fee model
May be general or specialised (vortal) [e.g.

36. B2C Business Model: e-tailer
Online version of traditional retailer
Types include:
Virtual merchants (online retail store only)
Clicks and bricks (online distribution channel for a company that also has physical stores)
Catalogue merchants (online version of direct mail catalogue)
Manufacturer-direct (manufacturer selling directly on the Web)

37. B2C Biz Models: Content Provider
Information and entertainment companies that provide digital content over the Web e.g - iTunes
Second largest source of B2C e-commerce revenue in 2006
Typically utilises a subscription, pay for download, or advertising revenue model -
Syndication: variation of standard content provider model - Typically, RSS or Atom - an XML based stream of information (often news) sent directly to a PC, iPod or other MP3 device

38. B2C Biz Models: Transaction Broker
Processes online transactions for consumers
Primary value proposition – saving of time and money
Typical revenue model – transaction fee
Industries using this model:
Financial services
Travel services
Job placement services (e.g monster.com)

39. B2C Biz Model: Market Creator
Uses Internet technology to create markets that bring buyers and sellers together
Examples:
Priceline.com
eBay.com
Typically uses a transaction fee revenue model

40. B2C Biz Model: Service Provider
Offers services online
Value proposition – valuable, convenient, time-saving, low-cost alternatives to traditional service providers
Revenue models – subscription fees or one-time payment

41. B2C Biz Model: Community Provider
Sites that create a digital online environment where people with similar interests can transact, communicate, and and receive interest-related information.
Typically rely on a hybrid revenue model
Examples:
Epinions.com
Oxygen.com
About.com
ivillage.com

42. B2B Business Models

43. Key B2B Components Order Fufilment Selling Buying Organization
Deliverer
Selling
ERP

44. E-Distributor
Company that supplies products and services directly to individual businesses
Owned by one company seeking to serve many customers
Examples:
Grainger.com
GE Electric Aircraft Engines (geae.com)
alibaba.com

45. E-procurement company
Create and sell access to digital electronic markets
B2B service provider is one type – offering purchasing firms sophisticated set of sourcing and supply chain management tools
Application service providers a subset of B2B service providers
A specialist or functional ASP delivers a single application, such as credit card payment processing or timesheet services;
A vertical market ASP delivers a solution package for a specific customer type, such as a dental practice;
An enterprise ASP delivers broad spectrum solutions;
A local ASP delivers small business services within a limited area
Examples:
Ariba
CommerceOne
Autodesk
eMeta Corporation
EnergyICT
NetSuite, etc

46. Exchanges (B2B Hubs)
An electronic digital marketplace where suppliers and commercial purchasers can conduct transactions (e.g.
[use tinyurl to convert]
Usually owned by independent firms whose business is making a market
Generate revenue by charging transaction fees
Usually serve a single vertical industry
Number of exchanges has fallen to around 700 in 2006
"B2B E-Commerce Hubs: Towards a Taxonomy of Business Models." Steven N. Kaplan and Mohan Sawhney; Harvard Business Review, 2000, 78(3), pp

47. Interesting Example: CO2E.com

48. Industry Consortia
Industry-owned vertical marketplaces that serve specific industries
Horizontal marketplaces, in contrast, sell specific products and services to a wide range of industries
Leading example: Covisint
Recent consolidation in B2B hubs (see The Economist

49. Private Industrial Networks (PINs)
Digital networks (usually, but not always Internet-based) designed to coordinate the flow of communications among firms engaged in business together
Single firm network: the most common form (example – Wal-Mart)
Industry-wide networks: often evolve out of industry associations (example – WWRE: Worldwide Retail Exchange - now Agentrics:

50. E-commerce Enablers

51. Factors Transforming Strategy
Internet / www: infrastructural backbone allowing firms to coordinate actvities inside and outside the organization (go back to value-chain diagrams: Intranet; Extranet; Internet - all use SAME infrastructure and protocol: TCP/IP and Browser - simple, easy to use and cheap! UNIVERSAL, well-understood, OPEN Standard.
Internet allows reduction of Transaction Costs [Coase, 1937]
Searching for buyers and sellers
Coordinating various transactional activities
Negotiating and completing contractual aspects of transactions
Reducing search costs (for all parties to transactions)
Allows for deconstruction and reconstruction of Value Chain (business structure)
MAY allow development of NEW business structure [businesses “born on the web” vs “businesses that move to the web”]

52. Value Chain Streamlining
Human resource management
Corporate infrastructure
Technology development
Procurement
Inbound
logistics
Operations
Outbound
Marketing
and Sales
After-sales
service
product
margin
customer
Porter, M E (1985)

53. Value Chain Deconstruction
Business Process
Re-engineering of
each link in chain
Existing value-chain
Unfrozen value-chain

54. Value-Chain Reconstruction
Re-engineered
deconstructed
value-chain
Reconstructed value-chain
Enhanced Customer
Value

55. Opportunities and Challenges
Use Internet to develop competitive advantage by the ways they perform interconnected value-adding activities
Internet impacts not just on individual VC activities
Internet impacts on way VC is configured, and how its component parts are integrated (especially across different firms in industry value chain) - IOS
INFORMATION is the glue that holds the VC together
Internet is a powerful tool for ungluing and re-gluing the chain (especially when linked in with BPR)
It is increasingly seen as important to ensure that VC is a fully INTEGRATED as possible to deliver Customer value (e.g. Dell; K-Mart; Cisco; SAP, etc) [Evans and Wurster (2000)]
Firm needs to deliver competitive advantage at least in part of its VC [E&W]

56. Supply Chain
Definition: All activities associated with the flow and transformation of goods from raw materials to end users
Upstream
Internal
Downstream
2nd Tier
Supplier
Distribution
Centres
Customers
1st Tier
Supplier
Assembly/
Manufacturing and
Packaging
2nd Tier
Supplier
1st Tier
Supplier
2nd Tier
Supplier
Retailers
Grain
Producer
Processing
Facility
Packaging
Distributor
Store
Customers
Corrugate
Manufacturer
Timber
Company
Label
Cereal
Packaged Cereal
Labels
Wood
Paperboard
Key:
Red: inputs
Blue: production process
Green: products

57. Supply-Chain Disintermediation
Supplier
Producer
Wholesaler
Retailer
Consumer
Electronic intermediation
Over the internet
Traditional Supply Chain
Disintermediation in Direct Marketing
Disintermediation of the Retailer
Reintermediation
Goods flow
Information flow