Chapter 5 E-business strategy

Learning outcomes Follow an appropriate strategy process model for e-business; Apply tools to generate and select e-business strategies; Outline alternative strategic approaches to achieve e-business.

Management issues How does e-business strategy differ from traditional business strategy? How should we integrate e-business strategy with existing business and IS strategy? How should we evaluate our investment priorities and returns from e-business?

Michael Porter on the Internet ‘The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it.’ Porter, M. (2001) Strategy and the Internet, Harvard Business Review, March 2001, 62–78.

Alternative definitions of strategy What is strategy? “Defines how we will meet our objectives” “Sets allocation of resources to meet goals” “Selects preferred strategic options to compete within a market” “Provides a long-term plan for the development of the organization”.

Figure 5.1 Different forms of organizational strategy

e-Business development Going Forward Environment Support Levels Enterprise Development Levels Taxation & Finance ICT adoption & use Legal & Regulatory Investment in e-Business Security & Trust Growth in numbers of e-Businesses Research & Development Numbers employed E-business Development National Infrastructure E-Business Market Size E-Government Support Services E-Business Export growth Electronic Business Processes Number of e-Commerce transcations Skills National Strategy Education

Key Technology Trends and Strategies Going Forward Supplier Integration Full supply chain integration Order taking, making and tracking eBusiness evolution and business benefit Intranet / Web-mail eBusiness functionality implemented Web page INFORM INTERACT TRANSACT INTEGRATE

What is working? music, books, gifts, Computers, electronic items Pornography Travel / Tourism Retail - items that don’t need personal touch - objectivity in product quality and performance music, books, gifts, Computers, electronic items Auctions Real Estate - houses and investment properties. Customer support services More efficient and effective processes between businesses (B 2 B)

Items which require “touch and trial” What is not working? Items which require “touch and trial” Luxury goods Clothes - beyond Tshirts Groceries - it works for some people but market is restricted Note: Many OFF line factors determine success of Online service. Eg. Transport network, customer profiles,

Sell-side e-commerce is a channel strategy Sell-side E-commerce strategy (Chapters 8 & 9) or E-marketing/E-CRM Strategy Sell-side e-commerce is a channel strategy Objectives for online contribution percentage should drive our strategy Our e-commerce strategy defines how we should: Hit our channel leads & sales targets Acquisition, Conversion, Retention, Service, Profitability Communicate benefits of using this channel Prioritise products available through channel Prioritise audiences targeted through channel Select partners for this channel Channel strategy thrives on differentials BUT, need to manage channel integration.

Operational efficiency KPIs should drive our strategy Buy-side E-commerce strategy (Chapters 6 & 7) or E-supply chain management strategy Buy-side e-commerce strategy is about maximizing operational efficiencies while improving customer service quality Operational efficiency KPIs should drive our strategy Our buy-side e-commerce strategy defines how we should: Automate internal processes Link internal resource management systems with external purchasing systems Prioritize suppliers/partners collaborating using this channel Prioritize applications for E-SCM – create a roadmap Involves selection of appropriate strategic partners.

E-business strategy For me, an IS strategy or change management strategy (Chapter 10) which ensures resources are managed effectively to achieve opportunities from Buy-side and Sell-side e-commerce. Also involves deploying IS to manage administrative internal process and employee knowledge Involves management of information systems resources (e-business applications, infrastructure/hardware and people/change/ knowledge management).

Figure 5.2 Relationship between e-business strategy and other strategies

Business and E-commerce Strategy E-commerce has changed business strategy. A strategy is 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.1 1Michael Porter “What is Strategy”, Harvard Business Review, November 1996, pp. 69-84.

E-commerce Strategy An e-commerce strategy is a … To build an e-commerce strategy requires two view of an organization’s strategy: what is wants to do (conceptual) and how it will do it (technology strategy). One strategy being used by many companies is customer relationship management which enables them to create to one-to-one marketing experience for their customers. Other e-commerce strategies include virtual showrooms, increased channel choices, wider component choice, and use of mobile technology. Mobile commerce is …

E-commerce Business Models (cont.)1 Description Examples Comments Brokerage Brokers bring buyers and sellers together for a fee. There are many types of brokerage models in all types of e-commerce. Advertising An extension of the traditional media broadcasting model in which ads appear on Web sites. There are many different types of advertising, but all depend on a large volume of viewer traffic. Merchant Sell products, both physical and electronic, to consumers Commonly referred to as e-tailers, merchants can use pure e-commerce or a combination (click and mortar). 1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

E-commerce Business Models (cont.)1 Description Examples Comments Manufacturer Direct Make and sell products directly to customer Products can be purchased (PCs), leased (servers), or licensed (software). Affiliate Affiliate Web sites are paid a fee when purchases come through them. Can also include banner ad exchange between affiliated sites as well as revenue-sharing. Community Based on user loyalty because of high investment of time and emotion. Revenue is generated through sale of ancillary products or voluntary contributions 1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

E-commerce Business Models (cont.)1 Description Examples Comments Subscription Users are charged fee to subscribe to service to service or information source Subscription may be for premium services; advertising model may be combined with this model Infomediary Provides data on consumers and consumption habits Usually aimed at helping businesses rather than consumers Coopetitive Enable competitors to cooperate on a Web site Usually aimed at individuals or small businesses that cannot attract customers to their own Web site. 1Adapted from Micheal Rappa, http://digitalenterprise.org/models/models.html.

Web Sites Classified By Purpose Web Site Type Purpose Example Business Model Portal A gateway to many other Web sites Advertising, Affiliate Search Engine Finds Web sites that contain a word or phrase Advertising, Affiliate, Infomediary Browse or search and buy Sell goods and services Merchant, Infomediary, Manufacturer Direct, Coopetitive Sales Support To provide information on a product before or after the sale Community, Infomediary

Web Sites Classified By Purpose (Cont.) Web Site Type Purpose Example Business Model Information Service To provide news, information, commentary, and so on. Subscription, Community, Affiliate Auction Facilitate sales between third parties Brokerage Travel Sell travel tickets and tours Merchant, Brokerage, Coopetitive Special Interest or Services Provide information, product sales and support, and contacts between visitors Community, Merchant, Affiliate, Infomediary, Advertising

B2B Business Models Strategic sourcing is often carried out through a one-to-one business model, but company-centric and exchange models are also used. In the one-to-one business model … In the company-centric business model … The single company dominates the market and controls the information systems that supports the transactions. Electronic data interchange (EDI) or an extranet is often used to link trading partners. E-procurement is often the name for B2B e-commerce in the many-to-one business model.

Company Centric Business Model

Exchange Model In the exchange business model, many companies use an exchange to buy and sell from each other through spot-buying transactions.

Issues confronting m-commerce Mobile Commerce Mobile commerce (m-commerce) relies on the use of wireless devices, such as personal digital assistants, cell phones, and smart phones, to place orders and conduct business Issues confronting m-commerce User-friendliness of the wireless device Network speed Security

What happens where there is no e-business strategy? Missed opportunities for additional sales on the sell-side and more efficient purchasing on the buy-side Fall-behind competitors in delivering online services – may become difficult to catch-up, e.g. Tesco, Dell Poor customer experience from poorly integrated channels.

Electronic Payment Systems Digital certificate: an attachment to an e-mail message or data embedded in a Web page that verifies the identity of a sender or a Web site Certificate authority (CA): a trusted third party that issues digital certificates Secure Sockets Layer (SSL): a communications protocol used to secure sensitive data Electronic cash: an amount of money that is computerized, stored, and used as cash for e-commerce transactions

Figure 5. 3 BA communicates their online value proposition (www Figure 5.3 BA communicates their online value proposition (www.britishairways.com) Source: Based on Revolution (2005)

Figure 5.4 A generic strategy process model

Figure 5.5 Dynamic e-business strategy model Source: Adapted from description in Kalakota and Robinson (2000)

Figure 5.6 Elements of strategic situation analysis for the e-business

Figure 5.7 Summary applications of a portfolio analysis for The B2B Company

Figure 5.8 SWOT analysis for The B2B Company

Figure 5.9 Customer demand for e-marketing services for The B2B Company

Figure 5.10 Competitive threats acting on the e-business

Porter’s five forces

Activity – impact of Internet For one of the industries below, assess how the Internet has changed the competitive forces, e.g. has it increased or decreased power of suppliers and customers Industries: Banking Supermarkets Oil industry Rail industry

Figure 5.11 Elements of strategic objective setting for the e-business

Figure 5. 12 An evaluation tool relating information to business value Figure 5.12 An evaluation tool relating information to business value. An organization’s use of information on each axis can be assessed from 1 (low use of information) to 10 (high use of information) Source: Marchand et al. eds (1999)

Figure 5.13 Capital One web site (www.capitalone.co.uk)

Figure 5.14 Direct and indirect Internet contributions for fast-growth companies in the USA Source: PricewaterhouseCoopers (2000)

Figure 5.15 Grid of product suitability against market adoption for transactional e-commerce (online purchases)

Table 5.5 Vision of online revenue contribution for The B2B Company

Figure 5.16 Elements of strategy definition for the e-business

Figure 5.17 Strategic options for a company in relation to the importance of the Internet as a channel

Right Channelling Right channelling can be summarized as: Examples: Reaching the right customer Using the right channel With the right message or offering At the right time Examples: B2B serve SMEs through e-channels and larger clients through personal service Encourage consumers to buy and serve through lower cost electronic channels Encourage offline fulfillment/conversion as appropriate Different levels of service/promotion for different customers.

Figure 5.18 Liveperson – an example of a service to assist with ‘right-channelling’ Source: www.liveperson.com

Figure 5.19 Using the Internet to support different growth strategies

Figure 5.20 smile (www.smile.co.uk) Source: Reprinted by permission of The Co-operative Bank

Figure 5.21 Dabs.com (www.dabs.com)

Figure 5.22 Elements of strategy implementation for the e-business