Copyright © 2003 Sherif Kamel Copyright © 2003 Thomson Learning/South Western Copyright © 2002...

Copyright © 2003 Sherif KamelCopyright © 2003 Thomson Learning/South Western

Copyright © 2002 Marketspace LLC

Electronic Business StrategyElectronic Business Strategy

Dr Sherif Kamel

The American University in Cairo

Copyright © 2002 Marketspace LLCCopyright © 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.


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 themarket arena

Choosing themarket arena

Locating a defendable position

Locating a defendable position

Seeking differentiationin activities or methods

Seeking differentiationin activities or methods

Identifying andmaking tradeoffs

Identifying andmaking tradeoffs

Designing interlocking activities

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?


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.


Creating Competitive Advantages

Investment to Create and Sustain Advantage

Investment to Create and Sustain Advantage

Distinctive Competencies

Distinctive Competencies

Competitive Advantages

Competitive Advantages

Performance Outcomes

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 StrategyeMarketing 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.


Centricity of TechnologyCentricity of Technology

CustomerGains Control

CustomerGains Control

Strategy Formulation

Fast, UnpredictableCompetition

Fast, UnpredictableCompetition

Rapidly ReconfiguredCompany Resources

Rapidly ReconfiguredCompany 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:


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 byPotential Competitors

Risk of Entry byPotential Competitors

Bargaining Powerof Suppliers

Bargaining Powerof Suppliers

Rivalry AmongEstablished Competitors

Bargaining Powerof Buyers

Bargaining Powerof Buyers

Threat of Substitute Products

Threat of Substitute Products

Source: Adapted from Michael E. Porter, Competitive Strategy (Free Press, 1980).


Porter claims that….

“Internet technology provides better opportunities for companies to establish distinctive strategic positioning than did previous generations of information technology”.


The Offering — Interactivity and Individualization

Low

Game sitesNapsterHotmail

Low High

High

Myteam.comeBay

myCNN.com*Amazon.com

First-generation websitesMost 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).


7 Dimensions to an eCommerce Strategy

Leadership

Infrastructure

OrganizationalLearning

ServiceTechnology

MarketBrand


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


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.


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.


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.


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.


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.

Infrastructure issues need to be considered at a number of organizational levels such as:

Strategic Organizational Physical


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.



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.


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.


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.



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.


4 Positional eStrategic Directions

TechnologyLeadership

MarketLeadership

BrandLeadership

ServiceLeadership

Integrated eCommerce Strategy


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.


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.


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.


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”.


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.


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.


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)


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.


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


The Networked World

Established Organizations

Total Market

Online Organizations

eCommerceMarketspace

eConsortium


Strategy Elements

The Net Profit Provider. The Web Business Pyramid. The Web Applications Pyramid. The Internet Business Segments.


The Net Profit Retriever

Industry

Strategy

Management

Does the industry in whichthe company competes haveeconomic leverage?

Does the company offer its customers a closed-loopsolution?

Can the company’s managementteam adapt effectively torapid change?


The Web Business Pyramid

Level IIIPowerware

Level IIBrandware

Level ILossware


The Web Applications Pyramid

Level IIIIntegrated

Transactions

Level IIFront-End

Transactions

Level IOnline Brochures


The Internet Business Segments

Level IIIPowerware

Network Infrastructure Web Consulting

Internet Venture Capital

Level IIBrandware

Internet SecurityWeb Portals

Electronic CommerceWeb Content

Level ILossware

Internet Service ProvidersWeb Commerce Tools


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.


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?


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. 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.


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].


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?

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Copyright © 2003 Sherif Kamel Copyright © 2003 Thomson Learning/South Western Copyright © 2002...

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