Strategic Options in E-BusinessPesewa

Presentat ions

Strategic Options for Business• Three Fundamental Options:1. Be the cheapest (Cost-Leadership)

1. Really only an option for large businesses2. Take advantage of significant economies of scale3. Runs the risk of a price war with competitors

2. Be the best (Differentiation)1. Requires that you have a unique product2. Usually requires high R&D expenditure3. Need continually to innovate to retain position

3. Dominate a niche market position (Niche strategy)1. Probably most suitable for small businesses2. Needs exceptionally effective market segmentation3. Need to develop (and defend) a strong brand

Strategy Choices

PerceivedAdded Value

Price High

High

Low

Low

Low price

“no frills”

hybrid

differentiationfocussed

differentiation

Strategies destined for

ultimate failure

Strategy ClockBowman andFaulkner ( 1996)

E-Business Planning

• Standard Questions for defining Strategy:• Where are we now? (Situational Analysis)• What Business are we in?• What business do we want to be in?• What business SHOULD we be in?• Where do we want to go?• How do we get there?• Which way is best?• How will we know when we have arrived?• Who are our competitors?• Who are our allies?• What resources do we have?• What resources do we need?

Business Planning Resources

• http://forum.digitalenterprise.org/cgi-bin/bulletin/ultimatebb.cgi • http://www.ja.org/studentcenter/entrp/entrp_business_plan_fs.html • http://www.paloalto.com/• http://planmagic.com/• http://www.newarttech.com/eBusiness.htm • http://myphliputil.pearsoncmg.com/student/bp_turban_introec_1/TutIntro.htm

l• http://www.bplans.com/ • http://www.bplans.org.uk/• http://www.businessplans.org/ • http://www.tupson.com/ebusplan.htm • http://ec.europa.eu/information_society/ecowor/ebusiness/index_en.htm • http://www.info.gov.hk/digital21/eng/strategy2001/strategy_part32.html • http://www.businesslink4london.com/index.cfm?fuseaction=res.viewResource&

resID=97&sctn=38&subsctn=99

• Reading, C (1994): Strategic Business Planning• McKeever, M (2003): How to Write a Business Plan,

ISBN: 0-87337-863-6 6th Edition, Nov '02

Other Strategic Issues• Vertical Integration: Extent to which firm owns its upstream suppliers and

downstream buyers• May have significant impacts on costs, security of supply, ability to differentiate

products and services• Also impacts on its relative freedom to engage in strategic activities

• Horizontal Integration: Extent of acquisition of firms at the same level of the value chain

• Examples:– Car manufacturer gains control of SUV or van manufacturer– Oil refinery acquires petrol stations– Media company obtains control of magazine, TV, Satellite TV, interactive TV,

online media, newspapers and books

Porter’s value-Chain Analysis• Widely-used paradigm (we shall explore this later)• Significant history of successful use as an analytical framework• Intent: use it to put e-business developments into context• Ask appropriate questions / explore alternative assessments of

e-business operations and e-implementation• Different scenarios:

• Not presently in e-business• Considering entry to e-business• Just entered e-business• In e-business, but not yet successful• Successful e-business adoption• Path breaker / world-class performer

E-business Ladder of adoption

0 - not on ladder: minimal ICT adoption

1 - Personal Computer

2 - e-Mail 3 - Internet access

4 - marketing website: marketing communication

5 - order or sell online - B2C 6 - online trading: B2B

7 - order progress tracking

8 - e-business - full implementation

Source: derived from EU ICT and e-business benchmarkingSurveys 2001-2006

Factors Affecting Adoption

Objective: Business Growth (factors in rank order)What goals does the organization have in mind?1. Create and maintain a competitive advantage2. Reduce Operational Costs3. Improve employee communication and satisfaction4. Find new markets for products / services5. Create distinct and effective distribution channels6. Enhance Customer satisfaction7. Improve supply-chain management 8. Develop new products / services9. Develop a strong and enduring brand 10. Become a global player …? etc.

Market Opportunity

• Refers to a company’s intended marketspace and the overall potential financial opportunities available to the firm in that marketspace

• Marketspace – the area of actual or potential commercial value in which a company intends to operate

• Realistic market opportunity is defined by revenue potential in each of market niches in which company hopes to compete

• Important to include these issues in business planning and strategy development

Value Chain: Note

Human resource management

Corporate infrastructure

Technology development

Procurement

Inboundlogistics

OperationsOutboundlogistics

Marketing and Sales

After-salesservice

product

service

customer

Porter, M E (1985): Competitive Advantage: Creating and Sustaining Superior Performance.New York, The Free Press.

Primary and Support Activities

Human resource management

Corporate infrastructure

Technology development

Procurement

Inboundlogistics

OperationsOutboundlogistics

Marketing and Sales

After-salesservice

product

service

customer

Support Activities

Primary Activities

Primary and Support Activities

Human resource management

Corporate infrastructure

Technology development

Procurement

Inboundlogistics

OperationsOutboundlogistics

Marketing and Sales

After-salesservice

product

service

customer

Human resource management

Corporate infrastructure

Technology development

Procurement

Inboundlogistics

OperationsOutboundlogistics

Marketing and Sales

After-salesservice

product

service

customer

Extranet

Intranet

Internet

Internal Integration• Integration Strategy:

– May occur at number of different levels– Often find individual departments operate in isolation

(often termed “information silos”)– Need for improved inter-departmental communication is crucial to

e-business success– Often attempted through Integrated Information Systems (IIS)– Other approaches:

• Enterprise Application Integration (EAI - difficult, but getting easier)• .NET (Microsoft web-based communication technology)• Use of Intranets (and Extranets)• BS2PE Framework (Afuah):

– Business Model– Structure– Systems– People– Environment Structure applied to the organization

BS2PE Framework

Business model

Performance

Structure• Functional• Matrix• Divisional• Project• Task Division

Systems/Processes• Performance assessment• Rewards/sanctions• Controls• Information Systems

People• Type• Role• Culture

Technological

Change

Demographic Factor conditions

Sociological

Fiscal and Monetary policies

Competitiveenvironment

Judicial andLegal system

Organizational Structure

• Functional Organizational StructureFu n ctio n al Org an izato n

Manager 1Ergonomics

Manager 2Technology

DirectorEngineering & Design

Manager 1Blue Sky

Manager 2Development

DirectorR&D

Manager 1Purchasing

Manager 2Sales Ledger

DirectorFinance

ProductionManager

DirectorManufacturing

Sales Manager

Marketing Manager

DirectorMarketing & Sales

CEO

Employees organised according to the function they perform.

Span of control

Depth ofhierarchy

Multi-Divisional Structure (M-form)

M-Form Organizaton

ManagerR&D

ManagerManufacturing

ManagerMarketing & Sales

DirectorDivision A

ManagerR&D

ManagerManufacturing

ManagerMarketing & Sales

DirectorDivision B

ManagerR&D

ManagerManufacturing

ManagerMarketing & Sales

DirectorDivision C

CEO

Employees organised by Divisions (rather than functions). May be organised bytype of product, geographical region or by brand. Each Division has P&L responsibilityand operates as a discrete business Unit (SBU). Offers FOCUS and better accountability,but may mean Divisional Managers have limited in-depth knowledge of the whole business.

Matrix StructureMatrix Org an izato n

ManagerProject 1

ManagerProject 2

ManagerProject 3

DirectorProgram Management

ManagerProject 1

ManagerProject 2

ManagerProject 3

DirectorR&D

ManagerProject 1

ManagerProject 2

ManagerProject 3

DirectorFinance

ManagerProject 1

ManagerProject 2

ManagerProject 3

DirectorManufacturing

ManagerProject 1

ManagerProject 2

ManagerProject 3

DirectorMarketing & Sales

CEO

Attempts to combine benefits of Functional and M-form of Organization.Disadvantages: Communication may be patchy; conflicting goals may be set for ManagersDifficult to keep Projects synchronised; may be managed by fully integrated Info Systems.A variant of this Matrix Form is a Project Structure: Project team is allocated to a Project, work on it, and Team is reallocated when Project is successfully completed.

Network Structure

CentralHeadquarters

Manufacturers

Distributors

Suppliers

Designers

R&D LabsUniversities

Marketing and Sales

Sometimes described as a Virtual Organisational Structure

Network Structure (Recent)• Arisen as result of Technological change• Firm outsources many (or all) value-adding activities and acts as mediator

or organiser of resources [e.g. Nike]• Production may occur anywhere in the world - often China, Taiwan,

Singapore, India (for IT)• Advantages: no need for high investments in assets (especially in high-

wage economies)• Where rate of change in technology is high, risk is borne by

manufacturers; easy to switch suppliers (especially easy using e-procurement and web-based project tendering)

• Disadvantages: May be difficult to develop competitive advantage from a distance (becoming easier with e-business)

• Contracting out may mean losing cross-communication; project interactions and internal idea exchanges.

Functional or Project Structure?Pr

ojec

t dur

ation

Rate of Technological Change

Functional StructureMatrix Organization

Project Structure

Interrelatedness of Activities

High

Long

Low

Short

Internet and Industry Structure

Porter, M E (2001): Strategyand the Internet, Harvard Business Review

Industry Value Chains• Set of activities performed in an industry by raw materials suppliers, by suppliers of

energy, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services

• Reduces the cost of information and other transactional costs

Firm Value Chains• Set of activities that a firm engages in to create final products from raw inputs• Increases operational efficiency

(I.e. Support Activities)

Firm Value Webs• Networked business ecosystem that uses Internet technology

to coordinate the value chains of business partners within an industry, or within a group of firms

• Coordinates a firm’s suppliers with its own production needs using an Internet-based supply chain management system

So why become an e-business?

• Pro:

• Con:

E-business Development Strategy

• Requirement 1: Systematic Approach• Business Planning:

• Vision• Strategy• Prepare a Business Plan• Define Target Market• Set immediate, medium - and long-term goals

• Decide on the Infrastructure required to deliver vision• What functionality is required of website and back-office (s/w)?• What technology / technologies are need to run these (h/w)?• What Human Resources are required to deliver results?

• Design phase: building website and getting it running• Marketing phase: advertising site; feedback systems; high

emphasis on CUSTOMER SERVICE (paramount)• Fulfilment phase• Maintenance and enhancement phases:

growing the business

Generic Approach to StrategyPosition Resources Simple Rules

Strategic logic Establish position Leverage resources Pursue opportunities

Strategic steps • identify attractive market• locate defensible position• fortify and defend

• establish a vision• build resources• leverage across markets

• jump into the confusion• keep moving• seize opportunities• finish strongly

Strategic question Where should we be? What should we be? How should we proceed?

Source of advantage Unique, valuable position with tightly integrated activity system

Unique, valuable, inimitable resources

Key processes and unique simple rules

Works best in … Slowly changing, well-structured markets

Moderately changing, well-structured markets

Rapidly-changing, ambiguous markets

Duration of advantage

Sustained Sustained Unpredictable

Risk Too difficult to alter position as conditions change

Firm too slow to build new resources as conditions change. Long-term dominance

Managers too tentative in executing promising opportunities

Performance goal Profitability Long-term dominance growth

Eisenhart and Sull, Harvard Business Review, 2001

Primary e-biz Revenue Models

Competitive Environment

• Refers to the other companies selling similar products and operating in the same marketspace

• Influenced by: how many competitors are active how large their operations are what market share is for each competitor how profitable these firms are how they price their products

Direct competitors – companies that sell products or services that are very similar and into the same market segment Example: priceline.com, expedia.com and travelocity.com

• Indirect competitors – companies that may be in different industries but still compete indirectly because their products can substitute for one another Example: CNN.com and ESPN.com

Competitive Advantage

• When firm produces superior product &/or brings product to market at lower price than competitors

• Firms achieve competitive advantage when firms are able to obtain differential access to factors of production denied to competitors

• Asymmetry – when one participant in a market has more resources than others• Information Asymmetry - where one participant in a business transaction has

more INFORMATION than others [e.g. 2nd hand cars]• Web REDUCES information asymmetries - potential Customers can retrieve

information from websites and use this to negotiate in transactions• Evidence that purchasers research markets online and use information offline

(car purchase; travel; high-ticket purchase items)

Market Strategy

• Plan detailing how company intends to enter new market and attract customers

• Best business concepts will fail if not properly marketed to potential customers

• Needs properly planned and executed market research• marketing research can be effectively conducted online:

• Web server log analysis• Use of cookies• Data collection, storage (warehousing) and analysis

Categorising e-business Models• No one correct way• We categorize business models according to e-commerce sector (B2C, B2B,

C2C)• Type of e-commerce technology used can also affect classification of a

business model• Some companies use multiple business models• A set of papers on business models is online at WebCT

B2C Business Models

B2C Business Models: Portal

• Offers powerful search tools plus an integrated package of content and services [e.g Yahoo!; http://www.chembur.net/ ]

• typically utilises a combination of subscription/advertising revenues/transaction fee model

• May be general or specialised (vortal) [e.g. http://searchcio.techtarget.com/sDefinition/0,,sid19_gci213601,00.html

B2C Business Model: e-tailer• Online version of traditional retailer• Types include:

Virtual merchants (online retail store only) Clicks and bricks (online distribution channel for a company that also

has physical stores) Catalogue merchants (online version of direct mail catalogue) Manufacturer-direct (manufacturer selling directly on

the Web)

B2C Biz Models: Content Provider

• Information and entertainment companies that provide digital content over the Web e.g - iTunes

• Second largest source of B2C e-commerce revenue in 2006• Typically utilises a subscription, pay for download, or advertising revenue

model - • Syndication: variation of standard content provider model - Typically, RSS or

Atom - an XML based stream of information (often news) sent directly to a PC, iPod or other MP3 device

B2C Biz Models: Transaction Broker

• Processes online transactions for consumers• Primary value proposition – saving of time and money• Typical revenue model – transaction fee • Industries using this model:

• Financial services• Travel services• Job placement services (e.g monster.com)

B2C Biz Model: Market Creator

• Uses Internet technology to create markets that bring buyers and sellers together

• Examples: Priceline.com eBay.com

• Typically uses a transaction fee revenue model

B2C Biz Model: Service Provider

• Offers services online• Value proposition – valuable, convenient, time-saving, low-cost alternatives to

traditional service providers• Revenue models – subscription fees or one-time payment

B2C Biz Model: Community Provider

• Sites that create a digital online environment where people with similar interests can transact, communicate, and and receive interest-related information.

• Typically rely on a hybrid revenue model• Examples:

Epinions.com Oxygen.com About.com ivillage.com

B2B Business Models

Key B2B Components

OrderFufilment

OrderFufilment

BuyingOrganization

BuyingOrganization

DelivererDeliverer

SellingOrganization

SellingOrganization

ERP

E-Distributor

• Company that supplies products and services directly to individual businesses• Owned by one company seeking to serve many customers• Examples:

Grainger.com GE Electric Aircraft Engines (geae.com) alibaba.com

E-procurement company• Create and sell access to digital electronic markets• B2B service provider is one type – offering purchasing firms sophisticated set

of sourcing and supply chain management tools• Application service providers a subset of B2B service providers• A specialist or functional ASP delivers a single application, such as credit card payment

processing or timesheet services;• A vertical market ASP delivers a solution package for a specific customer type, such as a

dental practice;• An enterprise ASP delivers broad spectrum solutions;• A local ASP delivers small business services within a limited area• Examples:

Ariba CommerceOne• Autodesk• eMeta Corporation• EnergyICT• NetSuite, etc

Exchanges (B2B Hubs)

• An electronic digital marketplace where suppliers and commercial purchasers can conduct transactions (e.g. http://www.b2bhub.org/; http://www.b2bportfolio.co.uk/B2B-Midlands-2007.html;http://www.eweek.com/article2/0,1759,1937401,00.asp

http://www.chinab2bhub.com/En/product_info.asp?categoryid=0000900002&category_id=000090000200000

) [use tinyurl to convert]• Usually owned by independent firms whose business is

making a market• Generate revenue by charging transaction fees• Usually serve a single vertical industry• Number of exchanges has fallen to around 700 in 2006• "B2B E-Commerce Hubs: Towards a Taxonomy of Business Models." Steven N. Kaplan and Mohan Sawhney;

Harvard Business Review, 2000, 78(3), pp. 97. ...

Interesting Example: CO2E.com

Industry Consortia

• Industry-owned vertical marketplaces that serve specific industries• Horizontal marketplaces, in contrast, sell specific products and services to a

wide range of industries• Leading example: Covisint• Recent consolidation in B2B hubs (see The Economist

http://www.economist.com/business/displayStory.cfm?Story_ID=627416)

Private Industrial Networks (PINs)

• Digital networks (usually, but not always Internet-based) designed to coordinate the flow of communications among firms engaged in business together

• Single firm network: the most common form (example – Wal-Mart)• Industry-wide networks: often evolve out of industry associations (example –

WWRE: Worldwide Retail Exchange - now Agentrics:

• http://www.agentrics.com/en/

E-commerce Enablers

Factors Transforming Strategy

• Internet / www: infrastructural backbone allowing firms to coordinate actvities inside and outside the organization (go back to value-chain diagrams: Intranet; Extranet; Internet - all use SAME infrastructure and protocol: TCP/IP and Browser - simple, easy to use and cheap! UNIVERSAL, well-understood, OPEN Standard.

• Internet allows reduction of Transaction Costs [Coase, 1937]– Searching for buyers and sellers– Coordinating various transactional activities– Negotiating and completing contractual aspects of transactions– Reducing search costs (for all parties to transactions)

• Allows for deconstruction and reconstruction of Value Chain (business structure)• MAY allow development of NEW business structure [businesses “born on the web”

vs “businesses that move to the web”]

Value Chain Streamlining

Human resource management

Corporate infrastructure

Technology development

Procurement

Inboundlogistics

OperationsOutboundlogistics

Marketing and Sales

After-salesservice

productmargin

servicemargin

customer

Porter, M E (1985)

Value Chain Deconstruction

Business ProcessRe-engineering ofeach link in chain

Existing value-chain

Unfrozen value-chain

Value-Chain Reconstruction

Re-engineereddeconstructed value-chain

Reconstructed value-chain

Enhanced CustomerValue

Opportunities and Challenges

• Use Internet to develop competitive advantage by the ways they perform interconnected value-adding activities

• Internet impacts not just on individual VC activities• Internet impacts on way VC is configured, and how its component parts

are integrated (especially across different firms in industry value chain) - IOS

• INFORMATION is the glue that holds the VC together• Internet is a powerful tool for ungluing and re-gluing the chain (especially

when linked in with BPR)• It is increasingly seen as important to ensure that VC is a fully INTEGRATED

as possible to deliver Customer value (e.g. Dell; K-Mart; Cisco; SAP, etc) [Evans and Wurster (2000)]

• Firm needs to deliver competitive advantage at least in part of its VC [E&W]

Supply Chain• Definition: All activities associated with the flow and

transformation of goods from raw materials to end users

2nd TierSupplier

Upstream Internal Downstream

2nd TierSupplier2nd TierSupplier

1st TierSupplier1st Tier

Supplier

Assembly/Manufacturing and

Packaging

DistributionCentres

Retailers

Customers

GrainProducer

ProcessingFacility

Packaging Distributor

Store

Customers

CorrugateManufacturer

TimberCompany

LabelManufacturer

Grain Cereal Packaged Cereal

LabelsWood

PaperboardKey:Red: inputsBlue: production process Green: products

Supply-Chain Disintermediation

Supplier Producer Wholesaler Retailer Consumer

Supplier Producer Wholesaler Retailer Consumer

Supplier Producer Wholesaler Retailer Consumer

Supplier Producer Electronic intermediationOver the internet

Consumer

Traditional Supply Chain

Disintermediation in Direct Marketing

Disintermediation of the Retailer

ReintermediationGoods flow

Information flow