Chapter 8

E-Strategy, Internet Communities,

and Global ECPrentice Hall, 2003

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

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Elements of Strategy

• Elements of a strategy– Forecasting– Resource allocation– Core competency– Environmental analysis– Company analysis– Business planning

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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 companiesPrentice Hall, 2003

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

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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

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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

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Exhibit 11.1The Landscape of EC Strategy

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Strategy Initiation

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

1. Review the organization’s business and IT vision and mission

2. Generate vision and mission for EC3. Begin with industry and competitive analysis

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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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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

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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

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Exhibit 11.2SWOT Matrix

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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 sites– Examine publicly available financial documents– Ask the customers—award prizes to those who

best describe your competitors’ strengths and weaknesses

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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 roomsPrentice Hall, 2003

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 wave arrivals

– No support services are available at the beginning

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To be a first mover or a follower?

Should You Have a SeparateOnline 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

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Strategy Formulation

• Strategy formulationDevelopment 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

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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

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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

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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

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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

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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-strategyPrentice Hall, 2003

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?”

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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

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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

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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

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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

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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

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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”

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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

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

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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

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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

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Measuring Results & Using Metrics

• Metric—a 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

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Measuring Results & Using Metrics (cont.)

• Balanced scorecard—a structured methodology for measuring performance in organizations, using metrics in four areas – Finance– Customers’ assessments– Internal business processes– Learning and growth

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Measuring Results & Using Metrics (cont.)

• Performance dashboard—a structured methodology proposed by Rayport and Jaworski (2001) for measuring EC performance using: – Desired outcomes– Corresponding metrics– Leading and lagging indicators of performance

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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 failuresLevi 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

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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 leadershipPrentice Hall, 2003

Success Stories & Lessons Learned (cont.)

– Asian CEOs CSFs: • Select robust business models• Understand dot-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

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Virtual Communities

Virtual community—a group of people with similar interests who interact with one another using the InternetElements of interaction:

Communication—bulletin boards, chat rooms/threaded discussions, e-mail and instant messaging

– Information—directories and yellow pages, search engine, member-generated content

– EC elements—e-catalogs, shopping carts, ads, auctions of all types

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Virtual Communities (cont.)

• Communities of transactions—facilitate buying and selling

• Communities of interest—people interact with each other on a specific topic

• Communities of relations (practice)—organized around certain life experiences

• Communities of fantasy—share imaginary environments

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Virtual Communities (cont.)

• Commercial aspects of community:– Understand a particular 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

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Exhibit 11.9Value Creation in E-Communities

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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

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Virtual Communities (cont.)

• Key strategies for successful online communities1. Increase traffic and participation 2. Focus on the needs of the members (facilitators and

coordinators)3. Encourage free sharing of opinions and information4. Financial sponsorship is a must5. Consider the cultural environment6. Provide tools and activities for member use7. Community members involved in activities and recruiting8. Guide discussions, provoke controversy, and raise sticky issues

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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

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Benefits and Extent of Operations

• Major advantage of EC—ability to do business 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 vendors participate in

electronic requests for quotes– Successful employees recruitment– Successful collaboration in B2B exchanges

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Barriers to Global Electronic Commerce

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

• Market Access IssuesCompanies 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

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Small Business Goes Global

• Cardiac Science—trying 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 company’s revenue is international, much of this is executed at (cardiacscience.com)

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Small Business Goes Global (cont.)

• Advice for small businesses going global at:– Universal Business Exchange (unibex.com)– Several government agencies (stat-usa.gov)

• Cardiac’s 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. It’s all about building relationships.”

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Barriers to Global Electronic Commerce (cont.)

• Other Issues– Language and translation

Primary problems are cost, speed, inaccuracy

– LocalizationAdapt local business practices

– CultureMultiple cultures warrant different marketing approaches

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Breaking down theGlobal EC Barriers

• Value the human touch• Be strategic• Know your audience• Be a perfectionist• Remember, it’s the Web• Integrate properly

• Keep the site flexible and up-to-date

• Synchronize content• OECD (oecd.org) read

“Dismantling the Barriers to Global EC”

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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

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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 communityPrentice Hall, 2003

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 consumersPrentice Hall, 2003

Supporting Small Business

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

• Digital’s virtual stores• Microsoft’s Personal Web Server (PWS)• U.S. government at ecommerce.gov• Gartner Group provides access to online research

material at gartner.com

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Business Process Reengineering (BPR)

• Organizational transformation—the 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 enterprise’s processes

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BPR (cont.)

• Redesign of the enterprise process and BPR– Does not make sense to automate poorly designed process—so

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

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Workflow Technologies

• Workflow system—software programs that manage all the steps in a business process from start to finish, including all exception conditions

• Two categories:– Collaborative workflow—products address project-

oriented and collaborative processes– Production workflow—tools address mission-

critical, transaction-oriented processes

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Virtual Corporations

• Virtual corporation—an 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:– Utilization Excellence– Opportunism Lack of borders– Trust Adaptability to change– Technology

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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

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EC Technology Trends

• Clients• Embedded clients• Servers • Networks • Wireless

communications

• EC software and services

• Search engines• P2P technology• Integration• Wearable devices

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The Digital Divide

• Digital divide—the 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

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Integrating Marketplace 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, or more than that of the Industrial Revolution

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