Chapter 5 E-business strategy

Learning outcomes Follow an appropriate strategy process model for e-business Produce and select e-business strategies Outline alternative strategic approaches to achieve e-business goals.

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.

Definitions of Strategy What is strategy? A plan of action designed to achieve a particular goal. -wikipedia ‘Defines how we will meet our objectives’ ‘Sets allocation of resources to meet goals’ ‘Selects preferred strategic option to compete within a market’ ‘Provides a long-term plan for the development of the organization’

Figure 5.1 Different forms of organizational strategy

Sell-side e-commerce strategy (Chapters 8 & 9) 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 and sales targets Acquisition, Conversion, Retention, Service, Profitability Communicate benefits of using this channel Prioritize products available through channel Prioritize audiences targeted through channel Select partners for this channel Channel strategy thrives on differentials BUT, need to manage channel integration

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

Figure 5.2 Relationship between e-business strategy and other strategies

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

Figure 5. 3 BA communicates its online value proposition (www Figure 5.3 BA communicates its 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 Kalakota/Robinson, EBUSINESS 2.0 © 2001, 1999 Pearson Education, Inc. Reproduced by permission of Pearson Education, Inc.

Strategic Analysis Collection and review of information about the external environment and internal resources Immediate competition Wider environment Internal resources

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

Stage Models of e-Business Development Earlier in chapter 1 a stage model was presented, which could be helpful in assessing the business’s position and resources

Figure 1.13 A simple stage model for buy-side and sell-side e-commerce 17

Portfolio Analysis Portfolio analysis is helpful for assessing current e-business capability and future e-business strategies The next slide show an example for B2B case

Figure 5.7 Summary applications of a portfolio analysis for an example B2B company

SWOT Analysis Strengths, weaknesses, opportunities, and Threats analysis is a useful tool for analyzing the current situation and for formulating strategies Next slide shows an example of e-business SWOT analysis

Figure 5.8 SWOT analysis

Balance Internal and External A e-Business strategy must be based on the balance between internal capability and external forces Next slide presents different options based on such a balance

Figure 5.9 Matrix for evaluation of external capability against internal capability Source: Perrott (2005)

Competitive Environment Analysis Porter’s five forces Source: adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from COMPETITIVE STRATEGY: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved

Activity – Impact of Internet For one of the industries below, assess how the Internet has changed the competitive forces, for example, has it increased or decreased power of suppliers and customers? Industries: Banking Supermarkets Retail Travel Oil industry Rail industry

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

How can e-business create value Following methods were proposed Adding values—better quality products and services Reducing cost—making the business process more efficient Managing risks—improve information flow and availability Creating new reality—create new way that products and or services

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 to 10 Source: Marchand et al. (2002)

E-Business and Competitive Advantage Read Case Study 5.1 on pages 286-287 Discuss questions on p.287

SMART Objectives The 2nd phase of strategy development process will produce objectives. The objectives should be SMART Specific Measurable—both efficient and effective Actionable Relevant Time-Related Example—ref. p. 289, table 5.6

Figure 5.13 Arena Flowers (www.arenaflowers.com)

SMART Objectives Online Revenue Contribution--% of company revenue directly generated through online transactions B2B should consider indirect revenue Conversion Modeling for B2C Using various conversion rates to measure the effectiveness of e-marketing Ref. p. 291 Box 5.5

Figure 5.14 An example of conversion modelling for an online retailer

Case Study Read page 292-293 Case study 5.2 Answer the questions on page 293 Activity 5.2, pages 293

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

Scorecard for Objective Setting Scorecard is a comprehensive framework for setting and monitoring business performance. Metrics includes Customer issues Internal efficiency Financial, and Innovation Example—p. 295, table 5.8

Figure 5.16 Elements of strategy definition for the e-business

Strategy Definition Various models were suggested for defining e-business strategies Ref. pp.296-297 The next slide shows a strategy selection model based on portfolio analysis proposed by EConsultancy

Figure 5.17 Matrix for evaluating e-business strategy alternatives Source: Econsultancy (2008a)

D. 1 Channel Priority “Getting the right mix of bricks and clicks” The next slide shows various options

Figure 5.18 Strategic options for a company in relation to the importance of the Internet as a channel

D. 1 Channel Priority Right-Channeling Right-channeling example Integrate different channels to reach the right person at the right time using the right channel with a relevant offer, product or message Right-channeling example Ref. pp. 299-300, table 5.9

D.2 Market and Product Development A key strategic considering is which market to target and using what products The next slide shows a matrix with different options to grow market and product development

Figure 5.19 Using the Internet to support different growth strategies

D.3 Positioning and Differentiation Once the market is identified, we need to define the best position of our e-commerce services relative to competitors. Research suggests that customer brand perception is determined by this formula Value = (product quality * service quality)/ (price * fulfillment time) Strategies can be developed around this formula

D.3 Positioning and Differentiation Commonly used Criteria that customers use to benchmark e-tailor performance is presented in table 5.10 on p. 304

Activity Read Activity 5.3 on pages 305-306 Discuss the questions 1 and 2 on page 305

D.4 Business, Service and Revenue Model Review business model (ch2) This decision is closely related or similar to D3. However, here it emphasizes new models, e.g., Amazon “Only the paranoid will survive” (Andy Grove) Also need to notice that many companies are successful by sticking to a single business model not far from their original vision

D.5 Marketplace Restructuring Companies should also look at the new opportunities created by Internet in this regard Disintermediation Re-intermediation Counter-mediation Mini Case Study 5.4 3M on pp. 308-309 What did 3M do in taking advantages of market restructuring?

D.6 SCM Capabilities This might be considered together with decision 5 but could be examined on its own How to interact more closely with suppliers? What to be covered in this e-relationship? Participate in marketplace to reduce cost?

D.7 Internal KM Capabilities What is knowledge? Patterns, rules, and contexts that provide a framework for creating, evaluating, and using information. Can be tacit (undocumented) or explicit (documented) knowledge What is knowledge management? Set of processes to create, store, transfer, and apply knowledge

D.8 Organizational Resources and Capabilities What changes does the organization need to make? Available options In-house division (integration) Joint venture (mixed) Strategic partnership (mixed) Spin-off (separation)

D.8 Organizational Resources and Capabilities Questions & Discussion What are the pros and cons for in-house option? When the separation option would be a good choice?

D.8 Organizational Resources and Capabilities Other changes to be examined Strategy process and performance improvement E-commerce infrastructure Senior management support Market integration Online market focus An e-commerce capability maturity model Ref. p. 311, Table 5.11

Strategy Implementation Figure 5.20 Elements of strategy implementation for the e-business

Failed e-Business Strategies Some reasons were articulated Overestimate the speed that the marketplace adopts the dot.com innovation Timing errors Lack of creativity Free services Over ambition

Failed e-Business Strategies Usually there are more fundamental problems than surfaced Major problems occurred at the strategy development and implementation process Situation Analysis—insufficient research on demand and completive forces Object setting—no objectives or unrealistic Strategy definition—poor business models Implementation—problems with customer services and product quality, etc.

Implementation Success Factors for SMEs Content—effective presentation Convenience—usability Control—manageable and under control Interaction Community Price sensitivity Brand image Commitment Partnership Process Improvement Integration

Case Study Read the case study on pages 316-318 Answer the questions on page 318

IS Strategy and e-Business Strategy These two are closely related. Business-alignment approach—top down. Start with business strategy and make IS strategy so that it aligns with business strategy Business-impact approach—bottom up. Examine new IS opportunities to see if they can bring positive impact to business strategy

The Productivity Paradox Research indicates that there is a week or poor correlation between IS investment and business performance It’s agreed that IT investment has a strong positive relationship with sales, assets and equity but not with net income. Investment on IT staff and user training does show positive relationship on income It’s strongly recommended that more attention should be paid to business process change when implementing e-business strategy

Next Class Read the Econsultancy interview on pages 606-608 of chapter 11 Answer the following questions What is Arena Flowers’ business model? How competitive is Arena Flowers on the market and Why? Is this a business of bricks & mortar, bricks & clicks, or pure play? Are they planning to change that soon and why? Do they do cross-selling? How successful and why? Is their site developed and maintained in-house or outsourced?

Next Class Econsultancy interview (Continues) Is their site developed and maintained in-house or outsourced? What’s the pros and cons of their approach? What else can we learn from this interview?