Dr. Chen, Electronic Commerce Pearson/Prentice Hall & Dr. Chen, Electronic Commerce Chapter 14...

Pearson/Prentice Hall & Dr. Chen, Dr. Chen, Electronic CommerceElectronic Commerce

Chapter 14E-Commerce Strategy

and Global EC


Learning Objectives

1. Describe the strategic planning process.2. Describe the purpose and content of a business plan.3. Understand how e-commerce impacts the strategic

planning process.4. Understand how to formulate, justify, and prioritize EC

applications. 5. Describe strategy implementation and assessment,

including the use of metrics.6. Evaluate the issues involved in global EC.7. Analyze the impact of EC on small and medium-sized

businesses.


Planning is everything ...

Products,Services

Customers,market,

competition

Vision

guide

Strategy

create

develop

Tactic

N


14.1 Organizational Strategy: Concepts and Overview

• 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 strong decisions about what not to do


Organizational Strategy (cont.)

• Profitability and economic value is determined by establishing a unique value proposition

• Strategy is focused on questions about:– organizational fit– profitability– value


Organizational Strategy: Concepts and Overview

• Strategy and the Web Environment– e-commerce strategy (e-strategy)

The formulation and execution of a vision of how a new or existing company intends to do business electronically


Organizational Strategy: Concepts and Overview

• Strategy and the Web Environment– strategic information systems planning

(SISP)

A process for developing a strategy and plans for aligning information systems (including e-commerce applications) with the business strategies of an organization


StrategyInitiation

(section 14.4)

StrategyInitiation

(section 14.4)

StrategyAssessment(section 14.7)

StrategyAssessment(section 14.7)

StrategyImplementation(section 14.6)

StrategyImplementation(section 14.6)

StrategyFormulation

(section 14.5)

StrategyFormulation

(section 14.5)

Exhibit 14.1 The Strategic planning Process

Organizational Strategy


Systems Development Life Cycle (SDLC)

Systems ImplementationProduct:

Operational System

Systems ImplementationProduct:

Operational System

Systems InvestigationProduct:

Feasibility Study

Systems InvestigationProduct:

Feasibility Study

Systems AnalysisProduct:

Functional Requirements

Systems AnalysisProduct:

Functional Requirements

Systems DesignProduct:

System Specifications

Systems DesignProduct:

System Specifications

Systems MaintenanceProduct:

Improved System

Systems MaintenanceProduct:

Improved System

Understand theBusinessProblem orOpportunity

Develop anInformationSystemSolution

Implementthe InformationSystemSolution


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


Value propositions1. Business model

2. Core competencies

competition structure/culture

Strategic intent

Finance M

anagemen

t Process

H/

R Technolog

y

… Strategy

•Positioning on product/market

•Differentiation/choice of competitive advantage

•Competitive postureIndustry 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 landscapeInternal/External

future positioning

Positioning

3. Execution


Strategic planning process (cont.)

• Outcomes from strategy initiation phase– Company analysis (including value

proposition)– Core competencies– Forecasts– Competitor (industry) analysis



• 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



• 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



• 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


Strategic planning tools

1. SWOT analysis: A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses


Strategic planning tools (cont.)

• 2. Competitor analysis grid: A strategic planning tool that highlights points of differentiation between competitors and the target firm

• 3. 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


Strategic planning tools (cont.)

• 4. Balanced scorecard: An adaptive tool that assesses organizational progress toward strategic goals by measuring performance in a number of different areas

• 5. (extra) Return on investment (ROI): A ratio of required costs and perceived benefits of a project or an application


A Marketing Strategy –showing the 4 P’s of a Marketing Mix

PlaceProduct

Price Promotion

C


Overview of Marketing Strategy Planning Process

PlaceProduct

Price Promotion

C

External Market EnvironmentTechnologies Political and Legal Cultural and Social Economic

Narrowing down to focused strategy with quantitative and qualitative screening criteria

CustomersNeeds and other

SegmentingDimensions

CompanyObjectives

&Resources

CompetitorsCurrent

&Prospective

Segmentation &Positioning

Segmentation &Targeting

S.W.O.T.


14.2 Business Planning in E-Commerce

• business plan

A written document that identifies the company’s goals and outlines how the company intends to achieve those goals


Business Planning in E-Commerce

• Outline of a business plan– Executive Summary– Business Description– Operations Plan– Financial Plan– Marketing Plan– Competitor Analysis


Business Planning in E-Commerce

• Business Plan Fundamentals– Purposes for business plan

• To acquire funding• To acquire nonfinancial resources• To obtain a realistic approach to the business

• business caseA business plan for a new initiative or large, new project inside an existing organization


14.3 E-Commerce Strategy:Concepts and Overview


IT Planning: The Relationship Between Business, IS,and IT Strategies

Business Strategy

• Business Decisions • Objectives and Direction• Change

Supportsbusiness

Direction for business

IS Strategy

• Business Based• Demand Orientated• Application Focused

IT Strategy

• Activity Based• Supply Orientated• Technology Focused

Where is the business going andwhy

What is required

How it can be delivered

Needs andpriorities

InfrastructureAnd services

ITImpact and potential


14.4 E-Strategy Initiation

• Issues in E-Strategy Initiation– Be a First Mover or a Follower?– Born-on-the-Net or Move-to-the-Net?– Determining Scope– Have a Separate Online Company?– Have a Separate Online Brand?


When to Perform Activities

• First Movers

Advantages Disadvantages

•Build brand recognition•Control scarce resources•Establish networks•Early Economies-of-Scale

•Newer technology•Higher development costs•Reverse engineering by competitors


Winners vs. Losers• What separates winners from losers in creating

(ultimate) strategic competitive advantage is neither bleeding-edge technology nor “timing for market entry.”

• It is from “value innovation”

FirmFirmprice

utility

cost

Innovation ValueInnovation

ValueInnovation

align


14.5 E-Strategy Formulation

• Selecting EC Opportunities– Incorrect approaches to EC strategy selection:

1. Indiscriminately funding many projects and hoping for a few winners

2. Betting it all in a single, high-stakes initiative

3. “Trend-surfing”

– Productive approaches to EC strategy selection1. Problem-driven strategy

2. Technology-driven strategy

3. Market-driven strategy

4. E-business maturity model


E-Strategy Formulation

• Determining an Appropriate EC Application Portfolio Mix– The BCG model– An Internet portfolio map for selecting

applications


Sellproject

Sellproject

RejectprojectRejectproject

AdoptprojectAdoptproject

Redesignproject

Redesignproject

Company FitCompany Fit

Via

bil

ity

of

Pro

ject

Exhibit 14.6 Internet Portfolio Map

Low

High

High




• Risk Analysis and Management– e-commerce (EC) risk

The likelihood that a negative outcome will occur in the course of developing and operating an electronic commerce strategy

– Security issues


E-Strategy Formulation• Issues in Strategy Formulation

– How to handle channel conflict

– How to handle conflict between the off-line and online businesses

– Pricing strategy• 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


14.6 E-Strategy Implementation

• Create a Web Team– project champion

The person who ensures the EC project gets the time, attention, and resources required and defends the project from detractors at all times

• Start with a Pilot Project• Allocate Resources• Manage the Project


14.6 E-Strategy Implementation

• Strategy Implementation Issues– Application development– Partners’ strategy

• outsourcing

The use of an external vendor to provide all or part of the products and services that could be provided internally


EC Strategy Implementation Issues (cont.)

• Partners’ strategyOutsourcing: 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


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 -37


Going Offshore for IS Development • When the MIS organization uses contractor services, or

even builds its own data center in a distant land, it is engaged in offshoring, which is short for outsourcing offshore.

• The types of tasks that are outsourced are usually those that can be well-specified; however, nowadays, the functions sent offshore range from routine IT transactions to increasingly higher end, knowledge-based processes.

• Countries such as India, the Philippines, etc, offer “offshoring”, an alternative to in-house systems development

• It raises the issue of what to send offshore, and what to keep within your enterprise MIS organization.


Strategic Grid forDecisions on Outsourcing

Strategic Importance

Y

Y

N

N

Com

petitive Advantage


Strategic Importance

Y

Y

N

N

Com

petitive Advantage

Insourcing

StrategicAlliance

Outsourcing

Leverage(K-How to partners)

Strategic Grid forDecisions on Outsourcing


Summary: Factors driving outsourcing1. Cost savings2. Qualified IT staff are difficult to find and retain3. By bringing in outside expertise, management

needs to focus less on IS operations and more on the information itself.

4. Outsourcers are specialists, should understand how to manage IS staff more effectively.

5. Outsourcers may have larger IS resources that provide greater capacity on demand.

6. Outsourcing can help a company overcome inertia to consolidate data centers that could not be consolidated by an internal group, or following a merger or acquisition.


E-Strategy Implementation

• Business alliances and virtual corporationsvirtual corporation (VC)

– An organization composed of several business partners sharing costs and resources for the production or utilization of a product or service

– co-opetition

Two or more companies cooperate together on some activities for their mutual benefit, even while competing against each other in the marketplace


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.


SALES & MARKETING

COMPANY

FINANCE COMPANY

LOGISTICS

COMPANY

DESIGN

COMPANY

MANUFACTURING

COMPANY

VIRTUAL ORGANIZATION

CORE CORE COMPANYCOMPANY

TM -TM -4444

N


Characteristics of Virtual CorporationsCharacteristics of Virtual Corporations

Borderless

Opportunism

Adaptability

Trust-Based

Excellence

Technology

SixCharacteristics

of VirtualCompanies

NUtilization



– Redesigning business processes• business process reengineering (BPR)

A methodology for conducting a comprehensive redesign of an enterprise’s processes



– business process management (BPM)

Method for business restructuring that combines workflow systems and redesign methods; covers three process categories—people-to-people, systems-to-systems, and systems-to-people interactions


14.7 E-Strategy and Project Assessment

• The 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


E-Strategy and Project Assessment

• Measuring Results and Using Metrics– metric

A specific, measurable standard against which actual performance is compared

– corporate (business) performance management (CPM, BPM)

Advanced performance measuring and analysis approach that embraces planning and strategy





• Web analytics

The analysis of clickstream data to understand visitor behavior on a Web site


Exhibit 14.8 Blueprint of the Performance Dashboard (P.664)

Step One:Articulate Business

Strategy

Step One:Articulate Business

Strategy

Step Three:Devise MetricsStep Three:

Devise MetricsStep Four:

Link Metrics to leadingAnd lagging indicators

Step Four:Link Metrics to leadingAnd lagging indicators

Step Five:Calculate Current andTarget Performance

Step Five:Calculate Current andTarget 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 levelof 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 levelof 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

De

fin

e g

oa

ls a

nd

va

lue

pro

po

sit

ion

De

velo

p r

eso

urc

e s

yste

m r

eq

uire

d t

o d

eliv

er

the

str

ate

gy


14.8 Global E-Commerce

• Benefits and Extent of Operations– The major advantage of EC is the ability to do

business at any time, from anywhere, and at a reasonable cost


Global E-Commerce

• Barriers to Global EC– Cultural issues– Culture and language translation– Administrative issues– Geographic issues and localization– Economic issues


Global E-Commerce

• Breaking Down the Barriers to Global EC– Be strategic– Know your audience– Localize– Think globally, act consistently– Value the human touch– Clarify, document, explain– Offer services that reduce barriers


E-Commerce in Small and Medium-Sized Enterprises

• Advantages and Benefits of EC to Small and Medium-Sized Enterprises– Inexpensive sources of information– Inexpensive ways of advertising and conducting market

research– Competitor analysis is easier– Inexpensive ways to build storefronts– Less locked into legacy technologies– Image and public recognition can be generated quickly– An opportunity to reach worldwide customers


14.9 E-Commerce in Small and Medium-Sized Enterprises

• Disadvantages and Risks of EC to Small and Medium-Sized Enterprises– Lack of financial resources to fully exploit the Web

– Lack of technical staff or insufficient expertise in legal issues, advertising, etc.

– Less risk tolerance than a large company.

– Products not suitable for online sales

– Reduced personal contact with customers

– Inability to afford the advantages of digital exchanges



• Critical Success Factors for SMES– Product is critical– Payment methods must be flexible– Electronic payments must be secure– Capital investment should be kept to a

minimum– Inventory control is crucial– Logistics services must be quick and reliable



• Critical Success Factors for SMES– Owner support– High visibility on the Internet– Join an online community– A Web site should provide all the services

needed by consumers

• Supporting SMES– Government agencies– Vendor service centers


The Key to successful business on the Internet ...

• The key to successful business on the Internet is not the formulation of a conceptual strategy but the execution of that strategy -– the content owners must buy into the strategy and

have the confidence of senior executives,– often the decisions the content owners make may

have serious consequences to the organization and its strategy

– Buy-in and open discussions are keys to successRobert Plant, eCommerce: Formulation of Strategy, pp.67, 1999, Prentice Hall


Ownership Issues

• E-centric Structure + = Success

Content alone is not sufficient for success

Successes come from a balanced business modelthat involves each business area content provider

contributing to the overall business model.

Content is

Knowledge is

Knowledge,

Power.

Content

N


Managerial Issues

1. What is the strategic value of EC to the organization?

2. Who determines EC strategy?

3. What are the benefits and risks of EC?

4. Why do we need a plan?

5. What metrics should we use?


Managerial Issues

6. What staffing is required?

7. How can we go global?

8. Should the dot-com activities be spun off as a separate company?

9. Can we learn to love smallness?

10. Is e-business always beneficial?

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