1. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 1 Chapter 15 E-Commerce Strategy and Global EC Jason C. H. Chen, Ph.D. Professor of MIS School of Business Administration Gonzaga University Spokane, WA 99223 USA chen@jepson.gonzaga.edu http://barney.gonzaga.edu/~chen

2. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 2 Learning Objectives 1. Describe the strategic planning process. 2. Understand how e-commerce impacts the strategic planning process. 3. Understand how EC applications are formulated, justified, and prioritized. 4. Describe strategy implementation and assessment, including the use of metrics. 5. Understand the causes of EC failures and lessons for success. 6. Evaluate the issues involved in global EC. 7. Analyze the impact of EC on small businesses.

3. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 3 OPENING VIGNETTE: Lonely Planet Travels from Place to Space The Problem Independent travelers depend on a 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

4. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 4 Lonely Planet Travels from Place to Space (cont.) 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

5. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 5 Lonely Planet Travels from Place to Space (cont.) 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

6. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 6 Lonely Planet Travels from Place to Space (cont.) The Solution LP’s current combination of business models that make up value proposition and revenue model: Content provider Virtual community Direct to consumer

7. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 7 Lonely Planet Travels from Place to Space (cont.) Online LP launched these initiatives: –online store (LP shop), 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

8. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 8 Lonely Planet Travels from Place to Space (cont.) –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

9. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 9 Lonely Planet Travels from Place to Space (cont.) –Knowledge Bank is an internal knowledge management project that aims to transfer all of LP’s intellectual property into a standardized and centralized digital database

10. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 10 Lonely Planet Travels from Place to Space (cont.) 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

11. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 11 Lonely Planet Travels from Place to Space (cont.) –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

12. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 12 Lonely Planet Travels from Place to Space (cont.) 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

13. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 13 Lonely Planet Travels from Place to Space (cont.) –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

14. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 14 End of the Case

15. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 15 15.1 Organizational Strategy Strategy: 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

16. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 16 Value propositions 1. Business model 2. Core competencies competition structure/ culture Strategic intent Finance ManagementProcessH/RTechnology … Strategy Positioning on product/market Differentiation/choice of competitive advantage Competitive posture Industry characteristics ， Market growth ， Demand characteristics ， Barrier of entry ， etc. fulfill IT Role? N Consistent Essentials for a Successful Enterprise Analysis (Porter, SWOT) Corporate strategy Business strategy Functional strategy Business landscape Internal/ External future positioning Positioning 3. Execution

17. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 17 Planning is everything... Products, Services Customers, market, competition Vision guide Strategy create develop Tactic N

18. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 18 IT Planning: The Relationship Between Business, IS, and IT Strategies Business Strategy Business Decisions Objectives and Direction Change Supports business Direction for business IS Strategy Business Based Demand Orientated Application Focused IT Strategy Activity Based Supply Orientated Technology Focused Where is the business going and why What is required How it can be delivered Needs and priorities Infrastructure And services IT Impact and potential

19. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 19 Opportunities to be turned Into marketing strategies and plans Develop product market Screening criteria Focusing marketing Strategy S.W.O.T Analysis Defining generic markets and product-markets Targeting and Segmentation Positioning and Differentiation Company mission, objectives, resources Competitor analysis Trends in external environment: Technological, Economic, Political & Legal Cultural & Social Evaluating Opportunities Focusing Marketing Strategy and Evaluating Market Opportunities

20. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 20 Organizational Strategy (cont.) Profitability and economic value is determined by establishing a unique value proposition Strategy is focused on questions about: –organizational fit –trade-offs –profitability –value

21. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 21 Organizational Strategy (cont.) E-commerce strategy (e-strategy): The formulation and execution of a vision for how a new or existing company intends to do business electronically Is the Internet a source of competitive advantage? –Michael Dell –Michael Porter

22. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 22 Systems Development Life Cycle (SDLC) Systems Implementation Product: Operational System Systems Implementation Product: Operational System Systems Investigation Product: Feasibility Study Systems Investigation Product: Feasibility Study Systems Analysis Product: Functional Requirements Systems Analysis Product: Functional Requirements Systems Design Product: System Specifications Systems Design Product: System Specifications Systems Maintenance Product: Improved System Systems Maintenance Product: Improved System Understand the Business Problem or Opportunity Develop an Information System Solution Implement the Information System Solution

23. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 23 Strategy Initiation (section 15.3) Strategy Initiation (section 15.3) Strategy Assessment (section 15.6) Strategy Assessment (section 15.6) Strategy Implementation (section 15.5) Strategy Implementation (section 15.5) Strategy Formulation (section 15.4) Strategy Formulation (section 15.4) Exhibit 15.1 The Strategic planning Process Organizational Strategy (cont.)

24. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 24 Strategic planning process Strategy initiation: The initial phase of strategic planning in which the organization examines itself and its environment –Value proposition: The benefit that a company’s products or services provide to customers; the consumer need that is being fulfilled

25. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 25 Organizational Strategy (cont.)

26. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 26 Strategic planning process (cont.) Outcomes from strategy initiation phase –Company analysis (including value proposition) –Core competencies –Forecasts –Competitor (industry) analysis

27. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 27 Strategic planning process (cont.) 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 and outcomes from strategy formulation phase: –Business opportunities –Cost-benefit analysis –Risk analysis, assessment, and management

28. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 28 Strategic planning process (cont.) 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: –Business planning –Resource allocation –Project management

29. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 29 Strategic planning process (cont.) Strategy assessment: The continuous evaluation of progress toward the organization’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

30. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 30 Organizational Strategy (cont.) Strategic planning tools SWOT analysis: A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses

31. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 31 A Marketing Strategy – showing the 4 P’s of a Marketing Mix Place ProductPricePromotion C

32. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 32 Overview of Marketing Strategy Planning Process PlaceProduct PricePromotion C External Market Environment Technologies Political and Legal Cultural and Social Economic Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions Company Objectives & Resources Competitors Current & Prospective Segmentation & Positioning Segmentation & Targeting S. W. O. T.

33. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 33 Organizational Strategy (cont.) Competitor analysis grid: A strategic planning tool that highlights points of differentiation between competitors and the target firm 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

34. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 34 Organizational Strategy (cont.) Return on investment (ROI): A ratio of required costs and perceived benefits of a project or an application Balanced scorecard: An adaptive tool that assesses organizational progress toward strategic goals by measuring performance in a number of different areas

35. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 35 15.2 EC Strategy: Concepts and Overview The e-difference –Reach and richness are possible –Barriers to entry are reduced –Virtual partnerships multiply Interaction costs: The time and money expended when people and companies exchange goods, services, and idea –Market niches abound –Others Disintermediation, reintermediation Alliances, customer service, market

36. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 36 EC Strategy (cont.) Organizational difference –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 utilize its strengths effectively

37. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 37 15.3 EC Strategy Initiation Issues in e-strategy initiation –Be a first mover or a follower? Size of the opportunity Commodity products Be the best –Go Global?

38. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 38 Insights and Additions 15.1 First-Mover and Best Mover Success Stories (p.572) Companies that “got there first” and leveraged their first-mover advantage for success eBay eBay was a first mover into the online auction market. Listening to the customer and constantly adding features and services has kept eBay on top. Yahoo The world’s first Internet directory remains the world’s most popular Internet directory. Innovation such as My Yahoo (my.yahoo.com), Yahoo Groups (groups.yahoo.com), and Web-page hosting (geocities.yahoo.com) have helped Yahoo morph into a profitable Internet portal. Being first with a Windows desktop, mouse, hard floppy disk, floppyless laptops, and wireless technology has given Apple a frontier-pushing reputation that keeps it in the personal computer operating system market while others (e.g., IBM’s OS/2) have floundered I nthe face of the Microsoft windows. Companies that had first mover advantage, but lost the marketplace battle to late movers CitibankThe company that invented automatic teller machines has lost the ATM protocol race to Cirrus. SonyBeing first and having the technically superior beta videotape format did not save Sony from being beaten by Matsushiata’s VHS format. ChemdexThe original B2B digital exchange closeddown when revenue growth slowed and the owners decided to change to a different business model. The world’s first Internet browser company saw its dominance of the browser market diminish as Microsoft bundled Internet Explorer into the Windows operating system. Companies that were late movers, but gained success over first movers by being best movers Intel Intel didn’t invent the microchip, but its alliance with Microsoft (“Wintel”) and its world-best research and development efforts have made Intel the world’s leading microchip manufacture. AmericaInnovative marketing (e.g., mass distribution of free installation disks) and provision of online information Onlinepeople could use moved AOL to the top of the ISP market while first movers (e.g., Compuserv, Prodigy) failed. While other search engines battled for supremacy in the “keyword ranking” battleground, Google invented “link popularity” and soared to the top in the search engine market Apple Computer Netscape Google

39. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 39 Technology Acceptance Model Perceived Usefulness Perceived Ease of Use External Variables Attitude Toward Using Actual System Use Behavioral Intention to Use N

40. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 40 The new technology adoption curve Level of Activity Time ReadinessIntensification Impact

41. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 41 Keen’s Six-Stage Competitive Advantage Model Stimulus for action Commoditization First major moveCustomer acceptance First-mover expansion movesCompetitor catch-up moves

42. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 42 EC Strategy Initiation Issues –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

43. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 43 EC Strategy Initiation Issues (cont.) –Have a Separate Online Company? (cont.) 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

44. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 44 EC Strategy Initiation Issues (cont.) –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

45. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 45 Case 15.1 BankDirect: New Zealand’s Virtual Bank (p.573)

46. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 46 Strategy Formulation Evaluation of EC opportunities Cost/Benefit Analysis Risk Analysis EC projects/ applications Risk Management Plans EC projects/ applications S. W. O. T. 15.4 EC Strategy Formulation

47. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 47 EC Strategy Formulation (cont.) Common mistakes made in selecting EC projects: 1.Let a thousand flowers bloom—funding many projects indiscriminately 2.Bet it all—bets everything on a single high-stakes initiative 3.Trend-surf—follow the crowd toward the most fashionable new idea 4.Being fear- or greed-driven—thinking they can make lots of money by rushing into EC

48. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 48 EC Strategy Formulation (cont.) Approaches that have propelled strategy formulation: –Problem driven EC apps may solve the problem –Technology driven Use technology (first-mover) Sell the technology to others –Market driven Wait to see what the competitors in the industry do (late-mover)

49. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 49 EC Strategy Formulation (cont.) The e-business maturity model –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 –EC apps profile determines which initiatives to pursue and when

50. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 50 EC Strategy Formulation (cont.) Determining an appropriate EC application portfolio –Internet portfolio map - based on company fit and project viability

51. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 51 EC Strategy Formulation (cont.) –Fit is evaluated by metrics: alignment with core capabilities alignment with other company initiatives fit with organizational structure ease of technical implementation –Viability is assessed by: market value potential time to positive cash flow time to implementation funding requirements

52. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 52 EC Strategy Formulation (cont.) –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

53. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 53 Sell project Sell project Reject project Reject project Adopt project Adopt project Redesign project Redesign project Company Fit Viability of Project Exhibit 15.4 Internet Portfolio Map Low High

54. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 54 EC Strategy Formulation (cont.) Making a business case Business case: A written document that is used by managers to garner funding for specific applications or projects by providing justification for investment of resources

55. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 55 Cost-Benefit Analysis Cost-benefit analysis –A valuable planning tool and assists in the development of metric measures that later will be used in strategy assessment –Many of the costs of an EC project can be clearly identified and estimated costs of hardware, software, new staff, and facilities

56. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 56 Cost-Benefit Analysis (cont.) –Most benefits of an EC project are quite intangible—it is difficult to estimate: Increased sales from an expanded customer base Savings from streamlined purchasing procedures Reduced telecommunications costs –One of the most difficult factors in accurate benefit estimation, especially for start-up companies, is to properly plan the revenue model revenues from advertising may not materialize revenue models based on sales depend on large and rapid customer acquisition

57. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 57 Risk Analysis Risk analysis and management –E-commerce risk: The likelihood that a negative outcome will occur in the course of developing and operating an electronic commerce strategy –The first step in any risk assessment is risk analysis—identifying and evaluating the sources of risk

58. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 58 MicroSoft Risk Analysis 1.Business partners 2.Competitive 3.Customer 4.Distribution 5.Financial 6.operations 7.People 8.Political 9.Regulatory and legislative 10.Reputational 11.Strategic 12.Technological M/S 12 primary sources of risk:

59. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 59 Risk Analysis (cont.) Risk identification - four sources of business risk in an e-commerce strategy: 1.Competitive risk Negative impact 2.Transition risk Consequences for current customers, distribution channels etc. 3.Customer-induced risk Manage customer relations in an online world 4.Business partner risk Manage increasingly dependent business partnership

60. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 60 Risk Analysis (cont.) 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 minimizing the consequences if it occurs anyway both

61. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 61 Issues in Strategy Formulation Issues in strategy formulation –How to handle channel conflict Let the established distributors handle e-business fulfillment Provide online services to intermediaries Sell some products only online, other products may be advertised online but sold exclusively off- line Not selling online

62. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 62 Issues in Strategy Formulation (cont.) –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

63. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 63 Price Setting Pricing objectives Discounts and allowances Pricing flexibility Legal environment Geographic pricing terms Markup chain in channels Competition Cost Demand Price of other products in the line Key Factors that Influence Price Setting

64. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 64 Target Market PromotionPricePlaceProduct Price objectives Geographic Term -- who pays transportation and how Discounts and allowances -- to whom and when Price levels over product life cycle Price flexibility Strategy Planning for Price

65. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 65 Issues in Strategy Formulation (cont.) –Pricing strategy –Two models: Cost-plus and Competitor 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

66. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 66 15.5 EC Strategy Implementation Creating a Web team –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 –align business and technology goals to implement a sound EC plan with available resources

67. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 67 EC Strategy Implementation (cont.) Starting 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

68. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 68 EC Strategy Implementation (cont.) Allocating resources –The resources required for the 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 –Tools Project management tool (MS/Project) System Design tool etc.

69. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 69 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? EC Strategy Implementation Issues

70. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 70 Application Development (cont.) –Build, buy or outsource 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? –Factors Strategic nature of the application The skills of the company’s technology group The necessity to move fast or not EC Strategy Implementation Issues

71. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 71 EC Strategy Implementation Issues (cont.) 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 Two drivers – focus on core business – value shareholder

72. When to Outsourcing? Which IS activities are strategic to our company's business? Will outsourcing save us at least 15 percent? Does our firm have access to the needed technology and expertise? –If not, outsourcing may be the answer to acquiring these resources. Does outsourcing increase our firm's flexibility? Dr. Chen, Managing IT Reos. Thru Strategic Partnerships; A Portoflio Approach to IT Development TM -72

73. HighLow Marketing gap vs. industry leader Manufacturing gap vs. industry leader Targeting IT- Based Investment (as Compared with Industry Leaders) Increase operating performance Catch up Maintain advantage Increase flexibility, responsiveness/ Differentiate products and services A Contingency Approach to IT Use What four competitive investment strategies used when organizations are comparing their positions with industry leaders? High Dr. Chen, The Trends of the Information Systems Technology TM -73

74. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 74 EC Strategy Implementation Issues (cont.) A Virtual Corporation (VC) is an Organization Composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies. A Virtual Corporation (VC) is an Organization Composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies.

75. SALES & MARKETING COMPANY FINANCE COMPANY LOGISTICS COMPANY DESIGN COMPANY MANUFACTURING COMPANY VIRTUAL ORGANIZATION CORE COMPANY TM -75 N

76. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 76 Characteristics of Virtual Corporations Borderless Opportunism Adaptability Trust-Based Excellence Technology Six Characteristics of Virtual Companies N Utilization

77. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 77 EC Strategy Implementation Issues (cont.) Alliances in e-commerce (e-alliance) –Partners in different locations communicate and collaborate online –When EC initiatives are too large and complex for one company to undertake –A strategic partner should be one that has the ability to deliver and is willing to collaborate to provide a service

78. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 78 EC Strategy Implementation Issues (cont.) Redesigning business processes –Organizational transformation: the process of changing an organization to a new mode of operation –Business process reengineering (BPR): A methodology for conducting a comprehensive redesign of an enterprise’s processes

79. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 79 EC Strategy Implementation Issues (cont.) BPR may be needed: –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 partner companies –To align procedures and processes with e- services

80. 1950s: TECHNICAL CHANGES 60s-70s: MANAGERIAL CONTROL 80s-90s: INSTITUTIONAL CORE ACTIVITIES 90s and beyond: GROWING IMPORTANCE Evolutions of SYSTEMS Automation Information Innovation Paradigm Shift Dr. Chen, The Challenge of the Information Systems Technology TM -80

81. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 81 15.6 E-Strategy and Project Assessment Objectives of assessment –Measure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliver –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

82. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 82 E-Strategy and Project Assessment (cont.) Measuring results and using metrics Metric: A specific, measurable standard against which actual performance is compared 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

83. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 83 E-Strategy and Project Assessment (cont.) Axon metrics implementation obtained results in: –Revenue growth –Cost reduction—selling costs and expenditures –Cost avoidance –Customer fulfillment –Customer service –Customer communications

84. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 84 Exhibit 15.6 Blueprint of the Performance Dashboard Step One: Articulate Business Strategy Step One: Articulate Business Strategy Step Three: Devise Metrics Step Three: Devise Metrics Step Four: Link Metrics to leading And lagging indicators Step Four: Link Metrics to leading And lagging indicators Step Five: Calculate Current and Target Performance Step Five: Calculate Current and Target Performance Market opportunity Opportunity Competitive environment Market opportunity Opportunity Competitive environment Business Model Unique value proportion? Capabilities vs. competition Business Model Unique value proportion? Capabilities vs. competition Implementing and Branding How to develop brand? How to go to market? Implementing and Branding How to develop brand? How to go to market? Customer How to acquire customers? How will customers change? How to improve the customer experience? Customer How to acquire customers? How will customers change? How to improve the customer experience? Financial Financial consequences in terms of revenue, profit, cost, and balance sheet? Financial Financial consequences in terms of revenue, profit, cost, and balance sheet? Market Opportunity Market size and growth Average age and income Competitor concentration Market Opportunity Market size and growth Average age and income Competitor concentration Business Model Customer perceived benefit Exclusive partnerships $ invested in technology vs. competition Business Model Customer perceived benefit Exclusive partnerships $ invested in technology vs. competition Implementation Customer brand awareness System uptime percentage Number of IT staff % inaccurate orders Implementation Customer brand awareness System uptime percentage Number of IT staff % inaccurate orders Customer Market share Purchase/year Success rate Service requests/customers Customer Market share Purchase/year Success rate Service requests/customers Financial Revenue Profit Earning per share Debt to equity ratio Financial Revenue Profit Earning per share Debt to equity ratio For each metric, determine the metrics that it affects and that affect it. Map the linked set of Metrics, indicating leading and lagging indicators. Ensure that there is a balance between leading and lagging indicator. For each metric, determine the metrics that it affects and that affect it. Map the linked set of Metrics, indicating leading and lagging indicators. Ensure that there is a balance between leading and lagging indicator. For each metric, calculate the level of performance. Determine target level required to meet outcomes described in Step Two. Ensure that target are consistent with each other. For each metric, calculate the level of performance. Determine target level required to meet outcomes described in Step Two. Ensure that target are consistent with each other. Step Two: Translate Strategy Into Desired Outcome Step Two: Translate Strategy Into Desired Outcome Define goals and value proposition Develop resource system required to deliver the strategy

85. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 85 15.7 Keys to EC Success E-commerce failures 1.Macro economic level: The technological revolution posed by the Internet should be expected to go through a boom-and-bust- and-consolidation cycle like the automobile and railroad industries

86. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 86 E-commerce failures (cont.) 2.Mid-economic level, the bursting of the dot- com bubble in mid-2000 is consistent with economic downturns that have occurred in property, precious metals, currency, and stock markets 3.Micro-economic level, the “Web rush” reflected an over allocation of scarce resources venture capital technical personnel advertising-driven business models

87. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 87 Financial reasons are lack of funding and incorrect revenue models –Lack of funding –Incorrect revenue model Reasons of failure of B2C EC (Chapter3, p.116) 1) Lack of profitability, 2) excessive risk exposure 3) High cost of branding, 4) poor performance 5) Static Web site design B2C EC failures

88. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 88 Keys to EC Success (cont.) E-commerce successes –Brick-and-mortar companies are adding online channels using organizational knowledge, brand, infrastructure, and other strategic assets –Move to higher quality customers –Change products or services in existing market –Establish an off-line presence

89. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 89 CSFs in the Old Economy Vertically integrate or do it yourself Deliver high-value products Build market share to establish economies of scale Analyze carefully to avoid missteps Leverage physical assets Compete to sell product EXHIBIT 15.7 Critical Success Factors for EC CSFs for EC Success Create new partnerships and alliance, stay with core competency Deliver high-value service offerings that encompass products Optimize natural scale and scope of business, look at mass customization Approach with urgency to avoid being locked out; use proactive strategies Leverage intangible assets, capabilities, and relationships-unleash dormant assets Compete to control access and relationships with customers; compete with Web sites

90. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 90 Keys to EC Success (cont.) CSFs (as per Asian CEOs): –select robust business models –understand the dot-com future –foster e-innovation –carefully evaluate a spin-off strategy –co-brand –employ ex-dot-com staffers –focus on the e-generation

91. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 91 Keys to EC Success (cont.) The top three factors for successful B2C e- commerce: 1.effective marketing management 2.attractive Web site 3.building strong connections to customers The top three factors for successful B2B e- commerce: 1.readiness of trading partners 2.information integration inside the company and in the supply chain 3.completeness of the application

92. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 92 Keys to EC Success (cont.) The top three factors for overall, successful e-business: 1.proper business model 2.readiness of the firm to become an e- business 3.internal enterprise integration

93. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 93 15.8 Going Global Benefits and extent of operations –The major advantage of EC is the ability to do business at any time from anywhere at a reasonable cost

94. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 94 Going Global (cont.) Barriers to global EC –authentication of buyers and sellers –generating and retaining trust –order fulfillment and delivery –security –domain names

95. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 95 Going Global (cont.) Barriers to global EC

96. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 96 Barriers to global EC 1. Cultural issues –cultural attributes determine how people interact with companies, agencies, and each other based on: social norms local standards religious beliefs language

97. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 97 Barriers to global EC (cont.) 2. Administrative issues –National governments and international organizations are working together to find ways to avoid uncoordinated actions and encourage uniform legal standards

98. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 98 Barriers to global EC (cont.) 2. Administrative issues (cont.) –International trade organizations are attempting to reduce EC trade barriers like: pricing regulations customs import/export restrictions tax issues product specification regulations –Privacy protection

99. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 99 Barriers to global EC (cont.) 3. Geographical issues –Government tariffs –Customs –Taxation –Major US tax issue imposition by states and local authorities of sales taxes on goods purchased by their residents from out-of- state EC companies

100. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 100 Barriers to global EC (cont.) 4. Economic Issues –Issues include government tariffs, customs, and taxation –A major key financial barrier to global EC is electronic payment systems –Although credit cards are widely used in the U.S., many European and Asian customers prefer to complete online transactions with off-line payments

101. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 101 Going Global (cont.) Breaking down the barriers –Be strategic –Know your audience –Localize –Think globally, act consistently –Value the human touch –Clarify, document, explain –Offer services that reduce barriers

102. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 102 15.9 EC in Small- and Medium-Sized Enterprises SMEs moved onto the Web because they realized there were opportunities in: –marketing –business expansion –business launches –cost cutting –tighter partner alliances

103. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 103 EC in Small- and Medium-Sized Enterprises (cont.) CSFs for SMEs: –Product is critical Effective product strategy has been niche or specialty items –Payment methods must be flexible E-payment, fax and others –Electronic payments must be secure –Capital investment should be kept to a minimum Overhead and risk will be low

104. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 104 EC in Small- and Medium-Sized Enterprises (cont.) –Inventory control is crucial –Logistical services must be quick and reliable Subcontract, outsourcing –High visibility on the Internet –Join an online community –A Web site should provide all the services needed by consumers

105. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 105 EC in Small- and Medium-Sized Enterprises (cont.) Supporting SMEs –Most countries have a government agency devoted to helping SMEs become more aware of and able to participate in EC sba.gov business.gov.au

106. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 106 EC in Small- and Medium-Sized Enterprises (cont.) –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

107. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 107 Case 15.3 A Small Business Goes Global (p.592)

108. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 108 Managerial Issues 1. What is the strategic value of EC to the organization? 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?

109. Dr. Chen, Electronic Commerce  Prentice Hall & Dr. Chen, Electronic Commerce 109 Summary 1. The strategic planning process. 2. The EC strategic process. 3. E-strategy initiation and formulation. 4. E-strategy implementation and assessment. 5. Understanding failures and learning from them. 6. Issues in global EC. 7. Small businesses and EC.