Strategy Implementation
E-C Value Creation
E-C Value Realization
Change Management and Process Redesign
E-C Value Creation: Five Levers – Scheme 1
Time (cycle time reduction)
Distance (overcome distance)
Relationships (trust and loyalty)
Interactions (chat, board, community)
Product (enhancements, new products)
Social networking demand (cry for socialization
in Cyber world)
Value Creation: Time
Reduce cycle time
Quick order entry
Example: Amazon’s 1-click shopping; Google shopping
Extend business hrs.
24X7 Service
Example: 25% Grainger’s Web sales
Value Creation: Distance
Virtual presence Virtual network
Example: ziprealty.com; autobytel.com
Location independence Real-time chat
Example: AOL’s Instant Messenger; Skype
Long distance learning; video-conferencing; etc
Value Creation: Relationships
New intermediaries
Alter Role of Intermediaries
Example: Alibaba.com; ctrip.com; FreeMarkets.com
Lock-in User Create switching costs
Example: OfficeDepot.com
Value Creation: Interactions
Get feedback Extensive User Feedback
Example: McGraw-Hill (betabooks)
Give control User Controls Information Access
Example: Otis e*Direct (Plan Your ProjectSM)
Value Creation: Product
Transactions to solutions
Help buy/sell used equipment
Example: Milacron
Decision support
Online Decision Support Tools
Example: Turner mania for media managers
Value Creation: social networking
Instant contact
Instant contact with friends
Example: QQ, MSN messenger
Virtual life Bring Virtual Life into Real Life
Example: Facebook, secondlife …
Value Creation - Scheme 2
The eight C’s• Content
• Make vs. buy vs. package (e.g., Yahoo!, youtube.com, qidian.com)
• Context• Localization and Personalization (e.g., Yahoo!, Amazon)
• Community• Affinity groups (e.g., Tripod, Geocities)
• Connectivity• Networks (e.g., AOL Instant Messaging, Facebook)
• Commerce• Transactions in information or physical goods (e.g.,
Amazon)• Cost
• Costs to consumers and to seller (google shopping)• Convenience
• Provide ways for consumer to search/find (e.g., dianping.com, google.com)
Strategy Implementation
E-C Value Creation
E-C Value Realization
Change Management and Process Redesign
Value Creation vs. Value Realization
Who captures the value? Buyer or the Seller?
Example: ATM case in Banking
Competitive advantage or necessity?
Buyer’s Strategies
3. Control Transaction
6. Induce commoditization
5. Cost transparency
1. Transaction cost reduction
2. Dictate price
4. One-to-one Negotiation
Bargaining Costs
Enforcement Costs
Decision Costs
Policing Costs
Reduction of Buyer’s
Transaction Costs
Search Costs
Information Costs
1. Buyer’s Transaction Costs
2. Buyer Dictates Price
• Priceline.com started this tactic
Its stock price was down from the $974
It abandoned grocery and gas businesses
But it created an idea
• Shop2gether.com for small businesses
• Can buyers band together like never before?
• Group purchasing
3. Buyer Controls Transactions
• FreeMarkets example
Select and train suppliers
Select lot size
Design bid event
Increase competitive intensity
• Reverse auction has become popular!
Auction Formats
Liquidation Auctions: (e.g. Priceline)
suppliers customersauction
Market Efficiency Auctions: (e.g. eBay)
Seek lowest price on widely available goods and services
auction
disincentives to use auction shrink supply over time
Seek first to maximize existing
channels & reduce inventory
suppliers customersSeek access to unique / rare products or services
incentives to use auction increase supply over time
Auction format is favored over the
inefficiency of existing channels
4. Return to 1-1 Negotiation
- Bargaining was common before the industrial era.
- Mass markets led to fixed-price trades.
- Cost of negotiation was deemed too high!
- That may be changing, thanks to agent technology.
- Automate part or all of the negotiation process?
5. Cost transparency
The Internet equips the buyer with lot more information!
Why is cost transparency bad for seller?
-
-
-
6. Commoditization
–Commoditization occurs as a goods or services market loses differentiation, and the competition is reduced to price competition.
–Customization to avoid it. But cautions:
– Buyer posts product requirements on the web
– Two sellers meet requirements by modifying existing products
– Buyer sees no difference between vendors
– Buyer wants to pick the lower cost vendor
– So, customization may lead to commoditization!
Supplier’s Strategies
3. Customer retention
6. Reconfigure channel
5. Value Proposition
1. Pricing alternatives
2. Buyer’s total costs
4. Lock-in strategies
1. Pricing Alternatives
Differentiated pricing
• Not uniform pricing
• FordDirect.com attempted regional pricing
Dynamic Pricing
• Price changes with time
• Airline industry as the prime example
Workflow Cost
Fulfillment Cost
Carrying Cost
Product Cost
Transaction Cost
Customer incurs
multiple costs
2. Consider Buyer’s Total Costs
Increasing customer retention by 5% increases profit by more than 25% (Bain & Company)!
How can we retain customers on the Web?
• What are the drivers? (e.g., on-time delivery, product performance, content, and service)
• How can the Web help?
• How may the Web hurt?
3. Customer Retention
Customer Retention Arithmetic
Retention Emphasis
Acquire 3 customers: $60
Retain 20 customers: $80
Total Cost: $140
Total Customers: 23
Acquisition Emphasis
Acquire 6 customers: $120
Retain 5 customers: $20
Total Cost: $140
Total Customers: 11
Cost to acquire one new customer: $20Cost to retain one current customer: $4
4. Seller’s Lock-in Strategies
Principles:
- Use extranets to create lock-in
- Create custom content
- Increase switching costs
Customer Benefits:
- Reduce cycle time
- Reduce errors
- Increase control
Examples:
- Dell’s Premier Page
- OfficeDepot.com
5. Value Proposition
• Redefine product by adding new value
• Create new product combination thru
bundling and versioning
• Reduce buyer’s risks
6. Reconfigure Channel
• Provide on-line customer service
• Supplant intermediaries
• Find new customers
• Generate new revenue
Channel Extending Intermediaries
supplier customer
CEIsupplier
supplier
supplier
customer
customer
customer
Search for opportunities to add value: e.g. high customer search costs, switching costs, low customer satisfaction
Wield new power by consolidating traditional buyers & customers. Become the first-line interface with consumers.
Strategy Implementation
E-C Value Creation
E-C Value Realization
Change Management and Process Redesign
Process: how should employees do their work? A set of activities to produce output for customer/market
- Set of inputs + Ordered activities
- Cost, time, quality, customer satisfaction (internal & external)
- Dynamic view of how value is created
Focus: How, not just what
Organizational Structure: Cross functional teams
Business Process
Examples of Cross-Functional Processes
Competitor Analysis &
Market Research
R & D Marketing ManufacturingNew
ProductNew Product Development
Business Proposal Commitment Configuration Credit Delivery Billing Collection Processes
Business Sales Manufacturing Finance Logistics Functions
New Product Development
Order Management
Competitive Advantages Enabled by Process Innovation
“Product innovation gives less than three months competitive advantage.”
“Process innovation gives at least 12 months competitive advantage.”
“产品创新带来的竞争优势少于三个月。”
“流程创新能至少带来十二个月的竞争优势。”
- Sir John Bond, Chairman HSBC
MRO Procurement Process
MRO Procurement Process Redesigned
Ford Purchasing
(1) Purchase Order
Vendor
Vendor
(2) Purchase Order Copy
(3) Receiving Document
Ford Receiving
Accounts Payable (500)
(5) Payment
Goods
(4) Invoice
Ford Purchasing EDI
GoodsFord Receiving
Accounts Payable (125)
EFT
EFT
Ford & Vendor Banks
Procurement Database
Ford’s Procurement ProcessBefore
After
Mortgage Loan Processing at BANC ONE
Closing
Closing
Laptop
Loan Input
Desk-to-Desk Approach: 17 days
Team Approach: 2 daysKodak’s “Concurrent Engineering” uses the
same principle