Strategic Options in E-Business

1. Strategic Options in E-Business Pesewa Presentations

2. Strategic Options for Business • Three Fundamental Options: • Be the cheapest (Cost-Leadership) • Really only an option for large businesses • Take advantage of significant economies of scale • Runs the risk of a price war with competitors • Be the best (Differentiation) • Requires that you have a unique product • Usually requires high R&D expenditure • Need continually to innovate to retain position • Dominate a niche market position (Niche strategy) • Probably most suitable for small businesses • Needs exceptionally effective market segmentation • Need to develop (and defend) a strong brand

3. High differentiation focussed differentiation hybrid Perceived Added Value Low price Strategies destined for ultimate failure “no frills” Low High Low Price Strategy Choices Strategy Clock Bowman and Faulkner ( 1996)

4. 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?

5. 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.html • 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: 0-87337-863-66th Edition, Nov '02

6. 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

7. 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

8. 8 - e-business - full implementation 7 - order progress tracking 6 - online trading: B2B 5 - order or sell online - B2C 4 - marketing website: marketing communication 3 - Internet access Source: derived from EU ICT and e-business benchmarking Surveys 2001-2006 2 - e-Mail 1 - Personal Computer 0 - not on ladder: minimal ICT adoption E-business Ladder of adoption

9. Factors Affecting Adoption Objective: Business Growth (factors in rank order) What goals does the organization have in mind? Create and maintain a competitive advantage Reduce Operational Costs Improve employee communication and satisfaction Find new markets for products / services Create distinct and effective distribution channels Enhance Customer satisfaction Improve supply-chain management Develop new products / services Develop a strong and enduring brand Become a global player …? etc.

10. 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

11. Human resource management product Corporate infrastructure Technology development Procurement customer After-sales service Marketing and Sales Outbound logistics Inbound logistics Operations service Value Chain: Note Porter, M E (1985): Competitive Advantage: Creating and Sustaining Superior Performance. New York, The Free Press.

12. Human resource management product Corporate infrastructure Technology development Procurement customer After-sales service Marketing and Sales Outbound logistics Inbound logistics Operations service Primary and Support Activities Support Activities Primary Activities

13. Human resource management Human resource management product product Corporate infrastructure Corporate infrastructure Technology development Technology development Procurement Procurement customer customer After-sales service After-sales service Marketing and Sales Marketing and Sales Outbound logistics Outbound logistics Inbound logistics Inbound logistics Operations Operations service service Primary and Support Activities Intranet Internet Extranet

14. 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

15. Competitive environment Judicial andLegal system Fiscal and Monetary policies Business model Technological Change • Structure • Functional • Matrix • Divisional • Project • Task Division • Systems/Processes • Performance assessment • Rewards/sanctions • Controls • Information Systems • People • Type • Role • Culture Performance Demographic Sociological Factor conditions BS2PE Framework

16. Organizational Structure • Functional Organizational Structure Span of control Depth of hierarchy Employees organised according to the function they perform.

17. Multi-Divisional Structure (M-form) Employees organised by Divisions (rather than functions). May be organised by type of product, geographical region or by brand. Each Division has P&L responsibility and 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.

18. Matrix Structure Attempts to combine benefits of Functional and M-form of Organization. Disadvantages: Communication may be patchy; conflicting goals may be set for Managers Difficult 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.

19. R&D Labs Universities Manufacturers Suppliers Central Headquarters Marketing and Sales Designers Distributors Network Structure Sometimes described as a Virtual Organisational Structure

20. 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.

21. Long Functional Structure Project duration Matrix Organization Interrelatedness of Activities Project Structure Short High Low Rate of Technological Change Functional or Project Structure?

22. Internet and Industry Structure Porter, M E (2001): Strategy and the Internet, Harvard Business Review

23. 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

24. 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)

25. 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

26. So why become an e-business? • Pro: • Con:

27. 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

28. Generic Approach to Strategy Eisenhart and Sull, Harvard Business Review, 2001

29. Primary e-biz Revenue Models

30. 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

31. 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)

32. 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

33. 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

34. B2C Business Models

35. 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

36. 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)

37. 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

38. 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)

39. 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

40. 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

41. 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

42. B2B Business Models

43. Order Fufilment Selling Organization Buying Organization Deliverer ERP Key B2B Components

44. 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

45. 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

46. 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. ...

47. Interesting Example: CO2E.com

48. 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)

49. 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/

50. E-commerce Enablers