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Chapter 9

EC Strategy and Implementation

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IBM’s E-Business Strategy

Following four goals:Lead IBM’s strategy to transform itself into e-business Act as a catalyst to help facilitate that transformationHelp business units become more effective in their use of the Internet/intranet

Internally With their customers

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IBM’s E-Business’s Strategy (cont.)

Establish a strategy for the corporate Internet site

Including definition of how it should look, “feel” and be navigatedCreate an online environment most conducive to customers doing business with IBM

Leverage the wealth of e-business transformational case studies within IBM to highlight the potential of e-business to IBM’s customers

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IBM’s E-Business Strategy (cont.)

IBM focused on key initiatives:E-commerce—selling more goods via the WebE-care for customers—providing all kinds of customer support onlineE-care for business partners—dedicated services providing faster, better information for these important groups

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IBM’s E-Business Strategy (cont.)

E-care for employees—improving the effectiveness of IBMers by making the right information and services available to themE-procurement—working closely with IBM's customers and suppliers to improve the tendering process and to better administer the huge number of transactions involvedE-marketing communications—using the internet to better communicate IBM’s marketing stance

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Essentials of a Business Strategy

Strategy—search for revolutionary actions that will significantly change the current position of a company, shaping its future

Finding the position in marketplace that best fits the firm’s skillsCompany’s choice of new position that must be driven by its ability to find new trade-offs and leverage a new system of complementary activities into sustainable advantage

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Essentials of a Business Strategy (cont.)

Levels of strategyCorporate (or organizational) strategyIT strategyEC strategyEC functional strategies

These are interrelated

Types of strategyStrategic planningStrategic responseStrategic innovation

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Figure 9-1EC Strategy Alignment

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Essentials of a Business Strategy (cont.)

Elements of a strategyForecastingResource allocationCore competencyStrategy formulationEnvironmental analysisCompany analysis

Strategy landscapeStrategy initiationStrategy formulationStrategy implementationStrategy assessment

Four major stepsBasis for chapter organization

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Figure 9-2The Landscape of EC Strategy

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Essentials of a Business Strategy (cont.)

Information technology (IT) strategy—strongly correlated with EC strategy because:

IT provides much of the infrastructure for ECEC applications must be integrated with IT applicationsEC applications may replace or improve existing IT applicationsEC organization may report to CIOEmployees in IS department work on EC applications

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Strategy Initiation

First step is to review the organization’s business and IT vision and missionThen, a vision and mission for EC can be generatedAlthough these statements are usually very vague, they provide a springboard for generating more specific goals and objectivesBegin with industry and competitive analysis

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Industry Analysis

Analyze position of the company in its industry and the competitionRequired for assessing the changes that EC project may introduce and its chances for success

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Industry Assessment

What industry is the EC initiative related to?Who are the customers?What are the current practices of selling and buying?Who are the major competitors? (How intense is the competition?)What e-strategies are used, by whom?

How is value added throughout the value chain?What are the major opportunities and threats?Are there any metrics or best practices in place?What are the existing and potential partnerships for EC?

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Industry and Competitive Analysis

Monitoring, evaluating, disseminating of information from the external and internal environmentsSWOT Analysis

StrengthsOpportunitiesWeaknesses Threats

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Strengths (S) Weaknesses (W)

Opportunities (O)

Threats (T)

INTERNAL FACTORSEXTERNAL

FACTORSSO Strategies

Generate strategies here that use

strengths to take advantages of opportunities

WO Strategies Generate strategies here that take

advantage of opportunities by

overcoming weaknesses

ST Strategies Generate strategies

here that use strengths to avoid

threats

WT Strategies Generate strategies here that minimize

weaknesses and avoid threats

Figure 9-4SWOT Diagram

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Strategy Formulation

Strategy formulationDevelopment of long-range plans

Organization’s missionPurpose or reason for the organization’s existence

3 main reasons for establishing Web siteMARKETING, CUSTOMER SUPPORT, and SALES

Products with good fit for ECShipped easily or transmitted electronicallyTargets knowledgeable buyersPrice falls within certain optimum ranges

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EC Critical Success Factors

Special products or services tradedTop management supportProject team representing various functional areasAppropriate technical infrastructureMust have customer acceptanceUser-friendly Web interfaceIntegration with the corporate legacy systems

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EC Critical Success Factors (cont.)

Security and control of the EC systemCompetition and market situationConduct pilot project and capture corporate knowledgeUse promotion and internal communicationCost of the EC project must be reasonableNeed sufficient level of trust between buyers and sellers

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EC Opportunities

3 common mistakes in allocating EC investment

Let a thousand flowers bloom—fund many projects indiscriminatelyBet it all—put everything on a single high-stake initiativeTrend-surf—follow the crowd toward the next “big thing”

All of the above can be risky and costly

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EC Opportunities (cont.)

Problem-driven—attempt to solve a problem such as:

Excess inventoryDelivery delays

Technology-driven—trying to use existing applications

Find problems no one knew existedUsed by first movers

Approaches to finding individual EC initiatives

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EC Opportunities (cont.)

All can failMarket-driven—waiting to see what the competitors will doFear or greed-driven

Afraid if they do not practice EC they will be big losersThink they can make lots of money going into EC

Approaches to finding individual EC initiatives (cont.)

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Figure 9-5Approaches for Finding EC Opportunities

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Uncovering Specific ECOpportunities and Applications

Understand:How digital markets operateHow Internet customers behaveHow competition is created and what infrastructure is neededWhat the dynamics of EC are

Map opportunities that match current competencies and markets

Many opportunities to create new products and services

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Opportunities for EC businessesMatchmaking—matching buyers’ needs from seller without a prior knowledge of either oneAggregation of services—combines several existing services to create a new serviceBid/ask engine—creates a demand/supply floating pricing systemNotification service—tells you when the service becomes available, or when it becomes cheaper

Uncovering Specific ECOpportunities and Applications (cont.)

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Uncovering Specific ECOpportunities and Applications (cont.)

Smart needs adviser—if you want …, then you should…Negotiation—price, quantity, or features are negotiatedUp-sell—suggests an additional product or serviceConsultative adviser—provide tips on using the product

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A Value Analysis ApproachValue chain—a series of activities a company performs to achieve its goal(s)Value added

Contributes to profit and enhances the asset value as well as the competitive position of the company in the marketTo create additional value using EC channels, a company should consider the competitive market and rivalry in order to best leverage its EC assets

(Customers’ value proposition)

Value Analysis and Proposition

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Value Analysis QuestionsRepresentative Questions for Clarifying Value Chain Statements

Can I realize significant margins by consolidating parts of the value chain to my customers?Can I create significant value for customers by reducing the number of entities they have to deal with in the value chain?

Value Analysis and Proposition (cont.)

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Value Analysis and Proposition (cont.)

Value Analysis Questions (cont.)Representative question for creating new values

Can I offer additional information of transaction services to my existing customer base?Can I use my ability to attract customers to generate new sources of revenue, such as advertising or sales of complementary products?

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Return on Investment and Risk Analysis

Return on Investment (ROI)

A ratio of resources required and benefits generated by an EC project

Includes both quantifiable items (cost of resources, computed monetary savings) and Non-quantifiable items (intangibles)

Some intangible benefitsEffective marketing channelIncreased salesImproved customer service

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Return on Investment and Risk Analysis

IT valuesFinancial values—measurable to some degreeStrategic values—competitive advantage in the market and benefits generated by business proceduresStakeholder values—reflections of organizational redesign, organizational learning, empowerment, information technology architecture of a company, etc.

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Return on Investment and Risk Analysis (cont.)

IT risks risksCompetitive strategy risk—external, due to joint venture, alliances or demographic changes among othersOrganizational risk and uncertainty—internal to company

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Risk Analysis

Risk analysis program should

Identify all potential risksAssess potential damageEvaluate possibility of protection (insurance)Evaluate cost of protection vs. benefits

E-business risksStrategic risks (e.g., competitive environment, wrong strategic direction)Financial risks (e.g., currency management and changes, unclear tax situations)Operational risks (e.g., technological changes and use of poor technology, security)

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EC Scenarios

Scenario planning is a methodology used in planning situations that involve much uncertainty, like that of EC (“what-if”)

Several different scenarios are createdA team compiles several future events as possible influences on the outcomeSecurities are assessed and future projections are madeScenarios are compared

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EC Scenarios (cont.)

Four scenarios described by Hutchinson:Open, global commerce scenario—removal of intermediaries flattens the value chainMembers-only subnet scenario—applies mostly to B2B ECElectronic middlemen scenario—business and consumer market suppliers can make products/services available through independent third-party distribution channels

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EC Scenarios (cont.)

4 scenarios described by Hutchinson (cont.)Consumer marketing channels scenario—traditional methods collapse into a unified consumer-centric EC medium on the Internet

BroadcastingAdvertisingConsumer telephony

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Strategic Planning Framework

EC appears in three levels:Level 1: Basic presence—company uses the Internet to feature company information and provide brochuresLevel 2: Prospecting—features added

Search engineExtensive product informationLinks to servicesAbility to interact with the companyBasic customer service

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Strategic Planning Framework (cont.)

Level 3: Business integration—more features added

EC transaction capabilitiesCustomization and personalization servicesTools fostering creation of a community

Level 4: Business transformation—supplier and customer integration added

Multichannel integrationAdvanced customization and configurationSuperb customer service

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Strategic Planning Framework (cont.)

Generic competitive strategy vs. cooperarative strategy

Competitive strategy assumes fighting against all competitors for the purpose of survival and winningCooperarative strategy plans for working together with specific competitors to gain advantage against other competitors

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Generic Competitive Strategies

Offensive strategy— usually takes place in an established competitor’s market

Frontal Assault— attacker must have superior resources and willingness to persevere Flanking Maneuver— attack a part of the market where the competitor is weak

Defensive strategies— takes place in the firm’s own current market position as a defense against possible attack by a rival

Raise structural barriersLower the inducement for attack

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Generic Cooperative Strategies

CollusionActive cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal)

Strategic AlliancePartnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial

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Generic Cooperative Strategies (cont.)

Joint VentureA way to temporarily combine the different strengths of partners to achieve an outcome of value to both

Value-Chain PartnershipA strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage

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Implementation EC Plan

Starts with organizing a project teamUndertake a pilot project (help discover problems early)

Implementing ECRedesigning existing business processesBack-end processes must be automated as much as possibleCompany must set up workflow applications by integrating EC into existing accounting and financial back-ends

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The steps to successful EC programs

Step 1: Conduct Necessary Education and Training.Step 2: Review Current Distribution and Supply Chain Model.Step 3: Understand What Your Customers and Partners Expect from the Web.Step 4: Reevaluate the Nature of Your Products and Services.Step 5: Give a New Role to your Human Resources Department.Step 6: Extend Your Current Systems to the Outside.Step 7: Track New Competitors and Market Shares.Step 8: Develop a Web-centric Marketing Strategy.Step 9: Participate in the Creation and development of Virtual Marketplace.Step 10: Instill EC Management Style.

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Competitive Intelligence on the Internet

Internet can play a major role as a source of competitive information (competitive intelligence)

Review competitors’ Web sitesAnalyze related newsgroupsExamine publicly available financial documentsAsk the customers—award prizes to those who best describe your competitors’ strengths and weaknesses

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Competitive Intelligenceon the Internet (cont.)

Information delivery servicesFind out what it published on the Internet

NewsgroupsInformation about your competitors and their products

Known as push technologies

Corporate research companies provide information about your competitors:

Risk analysisStock market analysts’ reports

Examine chat rooms

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Competitive Intelligenceon the Internet (cont.)

Evolving experiences, need to be treated with careOverreliance on such information can be dangerousUsing publicly available search engines is free, but may produce lots of irrelevant informationUse specialty-build agents to search the overwhelming amount of information available

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Customized Competitive Intelligence

Current company information is available in their press releases and information published on their Web sites

Push technology services used to keep companies up-to-date by finding information for them

Searches should not replace in-depth background researchBusiness intelligence companies offer packaged competitive analysis

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Evaluating Outsourcing

Factors to consider:Ease of configuration and setupDatabase and scripting supportPayment mechanismSample storefrontsWorkflow managementDocumented database supportIntegration into existing accounting and financial back endsWhich services to outsource

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Issues in Strategy Implementation

Partners’ strategyMany potential partners, may need severalCompanies that make B2B e-marketplaces consider:

LogisticsTechnologyE-payment partners

How to coordinate B2B and B2CSelling direct is creating a B2C businessCoordination between the two can be done in different ways

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Strategy and Project Assessment

Need for assessmentFind out if EC project delivers what it was supposed to deliverAdjust plans if necessaryDetermine if EC project is still viableReassess initial strategy in order to learn from mistakes and improve future planningIdentify failing projects as soon as possible and determine reasons for failure

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Strategy and Project Assessment (cont.)

Measuring results; watch for:Goals may be unrealistic

Web server was inadequate to handle demandExpected cost savings were now realized

Exploding application requests from various functional areas in the company may follow

Review requirements and design documentsDevelop thorough checklistPose a set of questions to assess impact of EC project

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Strategy and Project Assessment (cont.)

Finalization and adjustmentsActual ROI can be computed and compared to the projected oneIf sales expectations were not met, review marketing effortsWeb assessment based on collected information

Corrective steps might be requiredProduct offerings to pricing strategyWeb promotion to review software vendors

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Managerial Issues

Considering the strategic value of ECConsidering the benefits and risksIntegration is criticalMetrics are beneficialPilot projects are usefulImplementing policies and strategies must be written