1. Chapter 11 E-Strategy,Internet Communities,and Global EC

2. Learning Objectives

Describe the importance and essentials of business and EC strategies

Describe the strategy planning and formulation process for EC

Understand how EC applications are discovered, justified, and prioritized

Describe strategy implementation and assessment including the use of metrics

Understand EC failures and lessons for success

3. Learning Objectives(cont.)

Describe the role and impact of virtual communities on EC

Evaluate the issues involved in global EC

Analyze the impact of EC on small businesses

Describe the relationship between EC and BPR, knowledge management, and virtual corporations

Describe the future of EC

4. IBMs E-Business Strategy

The Problem

• Need to capture new business opportunities and technologies (like EC)

• Develop a business strategy for that purpose

• IBMs current strategy is to transform itself into an e-business in order to provide business value to the corporation and its shareholders

• IBM views e-business as being much broader than EC because it:

• • Serves a broader constituency

• • Offers a variety of Web-based processes and transactions

5. IBMs E-Business Strategy(cont.)

The Solution is based on four goals:

• Lead IBMs strategy to transform itself into e-business

• Act as a catalyst to help facilitate that transformation

• Help business units become more effective in their use of the Internet/intranet

• • Internally

• • With their customers

6. IBMs E-Businesss Strategy(cont.)

• Establish a strategy for the corporate Internet site

• • Including definition of how it should look, feel and be navigated

• • Create 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 IBMs customers

7. IBMs E-Business Strategy (cont.)

E-commerce

E-care for customers

E-care for business partners

E-care for influencers

E-care for employees

E-procurement

E-marketing communications

IBM focused on seven key initiatives:

8. IBMs E-Business Strategy(cont.)

The Results

• Implementation of an e-procurement system that spans IBM globally

• Saved IBM almost $5 billion over a 3-year period

• Electronic invoicing:

• • Reduces the number of paper invoices

• • Enables fast, competitive tendering from its suppliers

9. IBMs E-Business Strategy(cont.)

• IBMs evaluation of the procurement process determined where the use of the Web adds value

• Identification of more than 20 initiatives to reduce costs and improve purchasing including:

• • Collaboration with suppliers

• • Online purchasing

• • Knowledge-management-based applications

10. E-Strategy: Concepts & Overview

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

• Finding the position in a marketplace that best fits the firms skills

• Companys 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

11. Elements of Strategy

Elements of a strategy

• Forecasting

• Resource allocation

• Core competency

• Environmental analysis

• Company analysis

• Business planning

12. Types of E-Strategies

EC strategy (e-strategy)an organizations strategy for use of e-commerce or e-business

• Click-and-mortar companies that use many EC applications

• Click-and-mortar companies that use only one or two EC applications

• Click-and-mortar companies that use one EC application that fundamentally changes all their business

• Pure-play EC companies

13. Need for a Strategy

Why does a company need an e-strategy?

• Fast changes in business and technology means that opportunities and threats can change in a minute

• Company must consider EC strategy that includes contingency plans to deal with changes

• May be too costly not to have one

14. Charles Schwabs EC Strategy

In 1998 Schwab launchedschwab.com oneof the first click-and-mortar stockbrokers

• Changed the company pricing structure radically

• • Took a short-term revenue loss

• • Looking toward a long-term strategic gain

• EC strategy fit well with companys overall strategy emphasizing a one-to-one relationship with its customers

15. Charles Schwab(cont.)

Schwab had first-mover advantage in securing key partnerships

• Schwab and Nextel agreed to build an infrastructure allowing investment opportunities over mobile phones or wireless handheld devices

• Initial target was existing off-line customers with incomes over $150,000 a year and who buy and hold

• Key benefits:

• • Innovative productsSuperior service

• • Low feesCutting-edge technology

16. Charles Schwab(cont.)

Partnered with content providers and technology companies to offer:

• Large number of financial services online

• Community and personalized services

Financial model composed of three parts:

• The revenue model

• The value model

• The growth model

17. Charles Schwab(cont.)

CyberTrader's services are designed for online, self-directed active traders who use short-term trading strategies to generate current income

Cybertrader features include:

• Nasdaq Level II quotes

• Direct Access trading capabilities

• Risk management tools

• Graphical decision support modules

• Streaming News

• Intelligent order routing

• Direct options routing

18. E-Strategy Landscape

Strategy initiation: organization prepares information about its vision,mission,purpose,and the contribution that EC could make to the business

Strategy formulation:

• Identification of EC applications

• Cost-benefit analysis

• Risk analysis

19. E-Strategy Landscape(cont.)

Strategy implementation:

• Organizations resources are analyzed

• A plan is developed for attaining the goals

Strategy assessment:

• Organization periodically assesses progress toward the strategic goals

• Involves the development of EC metrics

20. Exhibit 11.1 The Landscape of EC Strategy 21. Strategy Initiation

Strategy initiationthe initial phase of e-strategy in which an organization prepares information about its vision, mission, purpose, and the contribution that EC could make

• Review the organizations business and IT vision and mission

• Generate vision and mission for EC

• Begin with industry and competitive analysis

22. 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?

23. Company Assessment

The organization investigates its own:

• Business strategy

• Performance

• Customers

• Partners

It looks at everything that has an impact on its operations

• Processes

• People

• Information flows

• Technology support

24. Industry, Company, and Competitive Analysis

SWOT analysisa methodology that surveys the opportunities and threats in the external environment and relates them to the organizations particular strengths and weaknesses

SWOT Analysis

• Strengths

• Opportunities

• Weaknesses

• Threats

SWOT 25. Exhibit 11.2 SWOT Matrix 26. Competitive Intelligence on the Internet

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

• Review competitors Web sites

• Examine publicly available financial documents

• Ask the customersaward prizes to those who best describe your competitors strengths and weaknesses

27. Competitive Intelligence on the Internet (cont.)

• Analyze related discussion groups

• • Find out what people think about a company and its products and competitor's products

• • Reaction to new ideas and products

• Use information delivery services

• • Find out what it published on the Internet

• • Known as push technologies

• Corporate research companies provide information about your competitors:

• Examine chat rooms

28. Issues in Strategy Initiation

Advantages

• Chance to capture large markets

• Establishing a brand name

• Exclusive strategic alliances

Disadvantages

• Cost of developing EC initiative is usually very high

• Chance of failure is high

• System may be obsolete as compared to second wavearrivals

• No support services are available at the beginning

To be a first mover or a follower?

29. Should You Have a Separate Online Company?

Advantages

• Reducing or eliminating internal conflicts

• Providing more freedom to management in pricing, advertising, etc.

• Can create new brands quickly

• Take the e-business to an IPO and make a fortune

Disadvantages

• May be very costly and risky

• Collaboration with off-line business may be difficult

• Lose expertise of business functions unless you use close collaboration

30. Strategy Formulation

Strategy formulation

• Development of long-range and strategic plansto exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses

Includes examining or redefining EC mission

• Specifying achievable objectives

• Developing strategies

• Setting implementation guidelines

31. Discovering EC Opportunities

3 common mistakes in allocating EC investment

• Let a thousand flowers bloomfund many projects indiscriminately

• Bet it allput everything on a single high-stake initiative

• Trend-surffollow the crowd toward the next big thing

Any of the above can be risky and costly

32. Discovering EC Opportunities(cont.)

Approaches to identifying EC opportunities

• Problem-driven

• Technology-driven

• Market-drivenwaiting to see what the competitors will do

• Fear or greed-driven

• • Afraid if they do not practice EC they will be big losers

• • Think they can make lots of money going into EC

33. Determining an Appropriate EC Application Portfolio

Find the most appropriate portfolio in order to share limited resources

• Combine long-term speculative investments in new potentially high-growth business

• With short-term investments in existing, profit-making businesses

Boston Consulting Groups matrix

• Cash cows Questionable projects

• Starts Dogs

34. EC Application Portfolio

Strategy based on company fit (assessed by five levels from high to low)

• Alignment with core capabilities

• Alignment with other company initiatives

• Fit with organizational structure

• Fit with companys culture and values

• Ease of technical implementation

Projects viabilityassessed by 4 criteria

• Market value potential

• Time to positive cash flow

• Personal requirements

• Funding requirements

Tjans portfolio strategyInternet portfolio map

35. Exhibit 11.4 Tjan Application Portfolio Map 36. Strategic Directions at Chubb

Typical choice of EC model at Chubb Corp.

• Create a new business model with EC as a major driverdiscarded because they had a successful business model with products matching distribution systems

• Spawn a secondary business model around EC; go directly to consumersdid not want to interrupt their relationships with agents and brokers

37. Chubb Corp.(cont.)

• Use EC as a tool within the existing business model (the selected model)

• • Helped Chubb further differentiate products and services by providing superb customer service over the Internet

• • Opened several Web sitesone for each specialty group (e.g., for wine collectors)

• • Enables superb communication with agents and business partners

• • Allows business expansion into 20 countries

38. Making the Business Case for EC

Business casewritten document that is used by managers to garner funding for specific applications or projects by providing justification for investments

• Provides foundation for tactical decision making and technology by management

• Helps clarify the companys use of its resources to accomplish the e-strategy

39. Content of an E-Business Case

Business case for EC approach for garnering funding for projects used to:

• Provide justification for investments

• Provides bridge between EC plan and the execution

• Provides foundation for tactical decision making and technology risk management

• Clarifies how the organization will use resources to accomplish the e-strategy

40. Content of an E-Business Case(cont.)

Content of an E-business case

• Strategic justificationwhere are we going?

• Generational justificationhow will we get there?

• Technical justificationwhen will we get there?

• Financial justificationwhy will we win?

41. Cost-Benefit and Risk Analysis

How to conduct an

e-business case

• Develop goal statement

• Set measurable goals

• Develop short- and long-term action plans

• Gain approval and support

Revenue model

• Properly planned revenue model is a critical success factor

• Revenues from sales depend on customer acquisition cost and advertisement

• Must be figured into the analysis

42. Cost-Benefit and Risk Analysis(cont.)

It is difficult to justify EC investment due to many intangible variables

• Return on investment (ROI)

• Discounted cash flow

Two common methods

• Value proposition

• Risk analysis

Variables 43. Value Proposition

Value propositionthe benefit a company can derive from implementing a new project, such as EC, usually by increasing its competitiveness and by providing better service to its customers

Service 44. Risk Analysis

Risk analysis program should

• Identify all potential risks

• Assess potential damage

• Evaluate possibility of protection (insurance)

• Evaluate cost of protection vs. benefits

E-business risks

• Strategic risks

• Financial risks

• Operational risks

Risk 45. Issues in Strategy Formulation

How to handle channel conflicts

• Let established old-economy-type dealers handle e-business fulfillment

• Sell some products only online

• Help your intermediaries (e.g., build portals)

• Sell online and off-line

• Do not sell online

46. Issues in Strategy Formulation(cont.)

How to handle conflict between off-line and online businesses

• Clear support of top management

• Use of innovative processes that support collaboration

• Clear strategy of what and how

47. Issues in Strategy Formulation(cont.)

Pricing strategy

• Setting prices lower than off-line business may lead to internal conflict

• Setting prices at the same level may hurt competitiveness

Should you get financing from big venture capital firms?

• Venture capital financing causes loss of control over business

• Benefit: access to various VC experts and get the cash you need

48. Strategy Implementation

Strategy implementation--The execution of the e-strategy plan, in which detailed, short-term plans are developed forattaining strategic goals

• Establish aWeb team thatcontinues the execution of the plan

• Start with a pilot project

• Planning for resources

49. Strategy Implementation(cont.)

Strategy implementation issues

• Evaluating outsourcing

• • Build an in-house EC infrastructure

• • Purchase a commercial EC software package or EC suite

• • Use a Web hosting company

• Partners strategy

• How to coordinate B2B and B2C

50. Strategy and Project Assessment

Strategy assessmentthe periodic formal evaluation of progress toward the organization's strategic goals; may include needed actions and strategy reformulation

Objectives of assessment

• Find out if EC project delivers what it was supposed to deliver

• Adjust plans if necessary

• Determine if EC project is still viable

• Reassess initial strategy in order to learn from mistakes and improve future planning

• Identify failing projects as soon as possible and determine reasons for failure

51. Measuring Results & Using Metrics

Metrica measurable standard or a target against which actual performance is compared

• Response time to customers enquiries

• Response quality

• Security/trust level

• Download time,

• Timeliness of fulfillment

• How up-to-date information

• Availability

• Site effectiveness, ease of use, and navigability

52. Measuring Results &Using Metrics(cont.)

Balanced scorecarda structured methodology for measuring performance in organizations, using metrics in four areas

• Finance

• Customers assessments

• Internal business processes

• Learning and growth

53. Measuring Results &Using Metrics(cont.)

Performance dashboarda structured methodology proposed by Rayport and Jaworski (2001) for measuring EC performance using:

• Desired outcomes

• Corresponding metrics

• Leading and lagging indicators of performance

54. EC Failures & Lessons Learned

E-Tailing failures

• Lack of funding

• Incorrect revenue model

Exchange failures

• Revenue growth too slow

• Need to move to new business model

EC initiatives failures

• Levi Strauss stopped online direct sales of its apparel (levistrauss.com) when major distributors and retailers put pressure on the company not to compete with their brick-and-mortar outlets

55. Success Stories & Lessons Learned

Reasons for success:

• Brick-and-mortar companies add online channels

• Mergers and acquisitions

• Peter Drucker:

• • Analyze the opportunities

• • Go out to look

• • keep it focused

• • Start small (one thing at a time)

• • Aim at market leadership

56. Success Stories &Lessons Learned(cont.)

• Asian CEOs CSFs:

• • Select robust business models

• • Understanddot-com future

• • Foster e-innovation

• • Evaluate a spin-off strategy

• • Co-brand

• • Employ ex-dot-com staffers

• • Focus on the e-generation as your market

• Get the technology right, avoid expensive technology and technology malfunctions

57. Virtual Communities

Virtual communitya group of people with similar interests who interact with one another using the Internet

Elements of interaction:

• Communicationbulletin boards, chat rooms/threaded discussions, e-mail and instant messaging

• Informationdirectories and yellow pages, search engine, member-generated content

• EC elementse-catalogs, shopping carts, ads, auctions of all types

58. Virtual Communities(cont.)

Communities of transactionsfacilitate buying and selling

Communities of interestpeople interact with each other on a specific topic

Communities of relations (practice)organized around certain life experiences

Communities of fantasyshare imaginary environments

59. Virtual Communities(cont.)

Commercial aspects of community:

• Understand aparticular niche industry

• Build a site that provides valuable information

• Site should mirror the steps a user goes through in the information-gathering and decision-making process

• Build a community that relies on the site for decision support

• Start selling products and services that fit into the decision-support process

60. Exhibit 11.9 Value Creation in E-Communities 61. Virtual Communities(cont.)

Financial viability of communities

• Based on sponsorship and advertisement

• Expenses are very high because of the need to provide:

• • Fresh content

• • Free services

• • Free membership

• This model did not work well, many companies sustained heavy losses in 2000-2001; too few members, too few purchases

62. Virtual Communities(cont.)

Key strategies for successful online communities

• Increase traffic and participation

• Focus on the needs of the members (facilitators and coordinators)

• Encourage free sharing of opinions and information

• Financial sponsorship is a must

• Consider the cultural environment

• Provide tools and activities for member use

• Community members involved in activities and recruiting

• Guide discussions, provoke controversy, and raise sticky issues

63. Going Global

Decision to go global is a strategic one

• Geographical borders are falling

• Artificial borders are being erected through

• • Local language preferences,

• • Local regulations

• • Access limitations

64. Benefits and Extent of Operations

Major advantage of ECability to dobusiness any time, anywhere, rapidly at a reasonable cost

Success stories

• E*TRADE or boom.com as your broker for stock trading

• Amazon.com

• Small companies sell to hundreds of customers worldwide (virtualvine.com)

• Increasing number of out-of-the-country vendorsparticipate in electronic requests for quotes

• Successful employees recruitment

• Successful collaboration in B2B exchanges

65. Barriers to Global Electronic Commerce

Legal Issues

• Uncoordinated actions must be avoided and an international policy of cooperation should be encouraged

Market Access Issues

• Companies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations

Financial Issues

• Customs and taxation

• Electronic payment systems

66. Small Business Goes Global

Cardiac Sciencetrying to break into the international market for years

• Within 2 years after Internet inception in the company, it was shipping its products to 46 countries

• Today, 85 percent of the companys revenue is international, much of this is executed at (cardiacscience.com)

67. Small Business Goes Global(cont.)

Advice for small businesses going global at:

• Universal Business Exchange ( unibex.com )

• Several government agencies ( stat-usa.gov )

Cardiacs CEO crafting a solid export strategy takes a lot more commitment than putting up a snazzy Web site and waiting for the world to show up at our door. Its all about building relationships.

68. Barriers to GlobalElectronic Commerce(cont.)

Other Issues

• Language and translation

• • Primary problems are cost, speed, inaccuracy

• Localization

• • Adapt local business practices

• Culture

• • Multiple cultures warrant different marketing approaches

69. Attracting Japanese Customersto Your Site

English-Japanese Promotion ( ajpr.com )

• Helps clients avoid the mistakes often made when they selling to the Japanese customers

• Target audience uses Japanese-only Web search engines

• Alert companies when logos or themes are likely to strike a sour chord with Japanese sensibilities

70. Japanese Customers(cont.)

• Japanese respond well to symbols or characters

• Productshould be geared to Japanese males in their twenties and thirties

Ajpr.comalso provides help to Japanese companies develop English versions of their sites

• Provides localization advice

• Advertising

• Document translation

• Consulting services

71. Breaking down the Global EC Barriers

Value the human touch

Be strategic

Know your audience

Be a perfectionist

Remember, its the Web

Integrate properly

Keep the site flexible and up-to-date

Synchronize content

OECD (oecd.org) read

Dismantling the Barriers to Global EC

72. EC in SMEs

Advantages/benefits of EC in SMEs

• Inexpensive

• • Source of information

• • Advertising

• • Conducting market research

• • Build(or rent) a storefront

• • Low transaction costs

• • Niche markets are best

• • Provide catalogs

• • Way to reach worldwide customers

73. EC in SMEs(cont.)

Disadvantages/risks

• Inability to use EDI, unless it is EDI/Internet

• Lack of resources to fully exploit the Web

• Lack of expertise in legal issues, advertisement

• Less risk tolerance than a large company

• Disadvantage when a commodity is the product (for example, CDs)

• No more personal contact, which is a strong point of a small business

• No advantage to being in a local community

74. Critical Success Factors for SMEs

Capital investment must be small

Inventory should be minimal or non-existent

Electronic payments scheme

Payment methods must be flexible

Logistical services must be quick and reliable

The Web site should be submitted to directory-based search engine services

Join an online service or mall and do banner exchange

Design a Web site that is functional and provides all needed services to consumers

75. Supporting Small Business

Technical support from IBM (for a fee of only $25 per month) at ibm.com.search:businesscenter

Digitals virtual stores

Microsofts Personal Web Server(PWS)

U.S. government at ecommerce.gov

Gartner Group provides access to online research material at gartner.com

76. Business Process Reengineering (BPR)

Organizational transformationthe process of completely or drastically transforming an entire organization to a new mode of operation

Business process reengineering (BPR)a methodology for comprehensive redesign of an enterprises processes

77. BPR(cont.)

Redesign of the enterprise process and BPR

• Does not make sense to automate poorly designed processso restructure

• Necessary to change processes to fit commercially available software

• Fit is required between systems and processes of different companies

• Change processes to fit procedures and standards of public e-marketplaces

• Adjust procedures and processes to align with available services (logistics, payments, security)

• Changes to assure flexibility and scalability

78. Workflow Technologies

Workflow systemsoftware programs that manage all the steps in a business process from start to finish, including all exception conditions

Two categories:

• Collaborative workflowproducts address project-oriented and collaborative processes

• Production workflowtools address mission-critical, transaction-oriented processes

79. Virtual Corporations

Virtual corporationan organization composed of several business partners (some of whom may be pure-play EC players) sharing costs and resources for the production or purchasing of a product or service

Major attributes of VCs:

• UtilizationExcellence

• Opportunism Lack of borders

• Trust Adaptability to change

• Technology

80. The Future of EC

Internet usage

Opportunities for buying

M-commerce

Purchasing incentives

Increased security and trust

Efficient information handing

Innovative organizations

Virtual Communities

Payment systems

Business-to-business

B2B exchanges

Auctions

Going global

E-government--comprehensive

Intrabusiness EC

E-learning

81. EC Technology Trends

Clients

Embedded clients

Servers

Networks

Wireless communications

EC software and services

Search engines

P2P technology

Integration

Wearable devices

82. The Digital Divide

Digital dividethe gap between those who have and those who do not have the ability to access electronic technology in general, and the Internet and EC in particular

Digital Divide 83. IntegratingMarketplace and Marketspace

Click-and-mortar organization

• How to cooperate in planning, advertising, logistics, resource allocation

• How to align the strategic plans

• B2C ordering systems

The impact of EC on our lives may be as much as, ormore than that of the IndustrialRevolution

84. Managerial Issues

What is the strategic value of EC to the organization?

What are the benefits and risks of EC?

What metrics should we use?

Can we do a pilot project?

Do we have a community?

How can we go global?

Can we learn to love smallness?

Is restructuring needed?

85. Summary

Importance of strategic planning for EC

The strategy planning and formulation process

Application discovery, justification, and prioritization

EC strategy implementation and assessment

86. Summary(cont.)

Understanding failures and learning from them

The role and impact of virtual communities

Issues in global EC

Small businesses and EC

Restructuring and virtual organizations

The future of EC