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

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  1. Chapter 11E-Strategy, Internet Communities, and Global EC Prentice Hall, 2003

  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 Prentice Hall, 2003

  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 Prentice Hall, 2003

  4. IBM’s E-Business Strategy • The Problem • Need to capture new business opportunities and technologies (like EC) • Develop a business strategy for that purpose • IBM’s 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 Prentice Hall, 2003

  5. IBM’s E-Business Strategy (cont.) • The Solution is based on four goals: • Lead IBM’s 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 Prentice Hall, 2003

  6. 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 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 IBM’s customers Prentice Hall, 2003

  7. 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’s E-Business Strategy (cont.) • IBM focused on seven key initiatives: Prentice Hall, 2003

  8. IBM’s 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 Prentice Hall, 2003

  9. IBM’s E-Business Strategy (cont.) • IBM’s 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 Prentice Hall, 2003

  10. E-Strategy: Concepts & Overview • Strategy—search 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 firm’s skills • Company’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 Prentice Hall, 2003

  11. Elements of Strategy • Elements of a strategy • Forecasting • Resource allocation • Core competency • Environmental analysis • Company analysis • Business planning Prentice Hall, 2003

  12. Types of E-Strategies • EC strategy (e-strategy)—an organization’s 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 Prentice Hall, 2003

  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 Prentice Hall, 2003

  14. Charles Schwab’s EC Strategy • In 1998 Schwab launched schwab.com—one of 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 company’s overall strategy emphasizing a one-to-one relationship with its customers Prentice Hall, 2003

  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 products Superior service • Low fees Cutting-edge technology Prentice Hall, 2003

  16. Charles Schwab (cont.) • Partnered with content providers and technology companies to offer: • Large number of financial services online • Community and personalized services • Financial modelcomposed of three parts: • The revenue model • The value model • The growth model Prentice Hall, 2003

  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 Prentice Hall, 2003

  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 Prentice Hall, 2003

  19. E-Strategy Landscape (cont.) • Strategy implementation: • Organization’s 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 Prentice Hall, 2003

  20. Exhibit 11.1The Landscape of EC Strategy Prentice Hall, 2003

  21. Strategy Initiation • Strategy initiation—theinitial phase of e-strategy in which an organization prepares information about its vision, mission, purpose, and the contribution that EC could make • Review the organization’s business and IT vision and mission • Generate vision and mission for EC • Begin with industry and competitive analysis Prentice Hall, 2003

  22. 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? Industry Assessment Prentice Hall, 2003

  23. 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 Company Assessment Prentice Hall, 2003

  24. Industry, Company, andCompetitive Analysis • SWOT analysis—a methodology that surveys the opportunities and threats in the external environment and relates them to the organization’s particular strengths and weaknesses • SWOT Analysis • Strengths • Opportunities • Weaknesses • Threats SWOT Prentice Hall, 2003

  25. Exhibit 11.2SWOT Matrix Prentice Hall, 2003

  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 customers—award prizes to those who best describe your competitors’ strengths and weaknesses Prentice Hall, 2003

  27. Competitive Intelligenceon 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 Prentice Hall, 2003

  28. 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 wave arrivals No support services are available at the beginning Issues in Strategy Initiation To be a first mover or a follower? Prentice Hall, 2003

  29. 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 Should You Have a SeparateOnline Company? Prentice Hall, 2003

  30. Strategy Formulation • Strategy formulation Development of long-range and strategic plans to 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 Prentice Hall, 2003

  31. Discovering EC Opportunities • 3 common mistakes in allocating EC investment • Let a thousand flowers bloom—fund many projects indiscriminately • Bet it all—put everything on a single high-stake initiative • Trend-surf—follow the crowd toward the next “big thing” • Any of the above can be risky and costly Prentice Hall, 2003

  32. Discovering EC Opportunities (cont.) • Approaches to identifying EC opportunities • Problem-driven • Technology-driven • Market-driven—waiting 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 Prentice Hall, 2003

  33. Determining an AppropriateEC 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 Group’s matrix • Cash cows Questionable projects • Starts Dogs Prentice Hall, 2003

  34. 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 company’s culture and values Ease of technical implementation Project’s viability—assessed by 4 criteria Market value potential Time to positive cash flow Personal requirements Funding requirements EC Application Portfolio • Tjan’s portfolio strategy—Internet portfolio map Prentice Hall, 2003

  35. Exhibit 11.4Tjan Application Portfolio Map Prentice Hall, 2003

  36. Strategic Directions at Chubb • Typical choice of EC model at Chubb Corp. • Create a new business model with EC as a major driver—discarded because they had a successful business model with products matching distribution systems • Spawn a secondary business model around EC; go directly to consumers—did not want to interrupt their relationships with agents and brokers Prentice Hall, 2003

  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 sites—one for each specialty group (e.g., for wine collectors) • Enables superb communication with agents and business partners • Allows business expansion into 20 countries Prentice Hall, 2003

  38. Making the Business Case for EC • Business case—written 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 company’s use of its resources to accomplish the e-strategy Prentice Hall, 2003

  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 Prentice Hall, 2003

  40. Content of an E-Business Case (cont.) • Content of an E-business case • Strategic justification—”where are we going?” • Generational justification—”how will we get there?” • Technical justification—”when will we get there?” • Financial justification—”why will we win?” Prentice Hall, 2003

  41. 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 Cost-Benefit and Risk Analysis Prentice Hall, 2003

  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 Prentice Hall, 2003

  43. Value Proposition • Value proposition—the 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 Prentice Hall, 2003

  44. 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 Analysis Risk Prentice Hall, 2003

  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 Prentice Hall, 2003

  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” Prentice Hall, 2003

  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 Prentice Hall, 2003

  48. Strategy Implementation • Strategy implementation--The execution of the e-strategy plan, in which detailed, short-term plans are developed for attaining strategic goals • Establish a Web team that continues the execution of the plan • Start with a pilot project • Planning for resources Prentice Hall, 2003

  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 Prentice Hall, 2003

  50. Strategy and Project Assessment • Strategy assessment—the 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 Prentice Hall, 2003