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Chapter 16 EC Strategy and Implementation

Chapter 16 EC Strategy and Implementation

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Chapter 16 EC Strategy and Implementation

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  1. Chapter 16EC Strategy and Implementation Prentice Hall, 2002

  2. Learning Objectives • Describe the importance and essentials of business and EC strategies • Describe the strategy planning process fro EC • Understand the strategy formulation process • Understand how EC applications are discovered and prioritized Prentice Hall, 2002

  3. Learning Objectives (cont.) • Describe the role of CSFs and justification of EC • Describe strategy implementation • Understand how to reassess EC strategy • Describe the role of metrics in EC • Understand EC failures and lessons for success Prentice Hall, 2002

  4. IBM’s E-Business Strategy • Following 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, 2002

  5. 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, 2002

  6. IBM’s E-Business Strategy (cont.) • IBM focused on key initiatives: • E-commerce—selling more goods via the Web • E-care for customers—providing all kinds of customer support online • E-care for business partners—dedicated services providing faster, better information for these important groups Prentice Hall, 2002

  7. IBM’s E-Business Strategy (cont.) • E-care for employees—improving the effectiveness of IBMers by making the right information and services available to them • E-procurement—working closely with IBM's customers and suppliers to improve the tendering process and to better administer the huge number of transactions involved • E-marketing communications—using the internet to better communicate IBM’s marketing stance Prentice Hall, 2002

  8. Need for a Strategy • Cases of e-strategy • Click-and-mortar companies that use several 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, 2002

  9. Need for a Strategy (cont.) • Why does a company need an e-strategy? • Fast changes in business and technology means 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, 2002

  10. Essentials of a Business Strategy • Strategy—search for revolutionary actions that will significantly change the current position of a company, shaping its future • Finding the position in 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, 2002

  11. Levels of strategy Corporate (or organizational) strategy IT strategy EC strategy EC functional strategies These are interrelated Types of strategy Strategic planning Strategic response Strategic innovation Essentials of a Business Strategy (cont.) Prentice Hall, 2002

  12. Figure 16-1EC Strategy Alignment Prentice Hall, 2002

  13. Elements of a strategy Forecasting Resource allocation Core competency Strategy formulation Environmental analysis Company analysis Strategy landscape Strategy initiation Strategy formulation Strategy implementation Strategy assessment Four major steps Basis for chapter organization Essentials of a Business Strategy (cont.) Prentice Hall, 2002

  14. Figure 16-2The Landscape of EC Strategy Prentice Hall, 2002

  15. Essentials of a Business Strategy (cont.) • Information technology (IT) strategy—strongly correlated with EC strategy because: • IT provides much of the infrastructure for EC • EC applications must be integrated with IT applications • EC applications may replace or improve existing IT applications • EC organization may report to CIO • Employees in IS department work on EC applications Prentice Hall, 2002

  16. Strategy Initiation • First step is to review the organization’s business and IT vision and mission • Then, a vision and mission for EC can be generated • Although these statements are usually very vague, they provide a springboard for generating more specific goals and objectives • Begin with industry and competitive analysis Prentice Hall, 2002

  17. Industry Analysis • Analyze position of the company in its industry and the competition • Required for assessing the changes that EC project may introduce and its chances for success Prentice Hall, 2002

  18. 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, 2002

  19. Figure 16-3Company Analysis Source: Hackbarth and Kettinger (2000), p. 85. Reprinted with permission of William J. Kettinger. Prentice Hall, 2002

  20. Industry and Competitive Analysis • Monitoring, evaluating, disseminating of information from the external and internal environments • SWOT Analysis • Strengths • Opportunities • Weaknesses • Threats SWOT Prentice Hall, 2002

  21. Figure 16-4 SWOT Diagram INTERNAL FACTORS Strengths (S) Weaknesses (W) EXTERNAL FACTORS SO Strategies Generate strategies here that use strengths to take advantages of opportunities WO Strategies Generate strategies here that take advantage of opportunities by overcoming weaknesses Opportunities (O) ST Strategies Generate strategies here that use strengths to avoid threats WT Strategies Generate strategies here that minimize weaknesses and avoid threats Threats (T) Prentice Hall, 2002

  22. Competitive Intelligence on the Internet Internet can play a major role as a source of competitive information (competitive intelligence) • Review competitors’ Web sites • Analyze related newsgroups • Examine publicly available financial documents • Ask the customers—award prizes to those who best describe your competitors’ strengths and weaknesses Prentice Hall, 2002

  23. Competitive Intelligenceon the Internet(cont.) • Information delivery services • Find out what it published on the Internet • Newsgroups • Information about your competitors and their products • Known as push technologies • Corporate research companies provide information about your competitors: • Risk analysis • Stock market analysts’ reports • Examine chat rooms Prentice Hall, 2002

  24. Competitive Intelligenceon the Internet(cont.) • Evolving experiences, need to be treated with care • Overreliance on such information can be dangerous • Using publicly available search engines is free, but may produce lots of irrelevant information • Use specialty-build agents to search the overwhelming amount of information available Prentice Hall, 2002

  25. Customized Competitive Intelligence • Current company information is available in their press releases and information published on their Web sites • Push technology services used to keep companies up-to-date by finding information for them • Searches should not replace in-depth background research • Business intelligence companies offer packaged competitive analysis Prentice Hall, 2002

  26. 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, 2002

  27. Enhancing the sell channel by advertisement and sales Enhancing the buy (procurement channel) Enhancing the customer service channel Going global Facilitating value-chain integration Providing for new products and services Going into specialty markets Going to mass customization What Do You Need an EC For? Prentice Hall, 2002

  28. 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 or Not? Prentice Hall, 2002

  29. Strategy Formulation • Strategy formulation • Development of long-range plans • Organization’s mission • Purpose or reason for the organization’s existence • 3 main reasons for establishing Web site • MARKETING, CUSTOMER SUPPORT, and SALES • Products with good fit for EC • Shipped easily or transmitted electronically • Targets knowledgeable buyers • Price falls within certain optimum ranges Prentice Hall, 2002

  30. EC Critical Success Factors • Special products or services traded • Top management support • Project team representing various functional areas • Appropriate technical infrastructure • Must have customer acceptance • User-friendly Web interface • Integration with the corporate legacy systems Prentice Hall, 2002

  31. EC Critical Success Factors (cont.) • Security and control of the EC system • Competition and market situation • Conduct pilot project and capture corporate knowledge • Use promotion and internal communication • Cost of the EC project must be reasonable • Need sufficient level of trust between buyers and sellers Prentice Hall, 2002

  32. 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” • All of the above can be risky and costly Prentice Hall, 2002

  33. EC Opportunities (cont.) Approaches to finding individual EC initiatives • Problem-driven—attempt to solve a problem such as: • Excess inventory • Delivery delays • Technology-driven—trying to use existing applications • Find problems no one knew existed • Used by first movers Prentice Hall, 2002

  34. EC Opportunities (cont.) Approaches to finding individual EC initiatives (cont.) • All can fail • 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, 2002

  35. Figure 16-5Approaches for Finding EC Opportunities Prentice Hall, 2002

  36. Uncovering Specific ECOpportunities and Applications • Understand: • How digital markets operate • How Internet customers behave • How competition is created and what infrastructure is needed • What the dynamics of EC are • Map opportunities that match current competencies and markets • Many opportunities to create new products and services Prentice Hall, 2002

  37. Uncovering Specific ECOpportunities and Applications (cont.) • Opportunities for EC businesses • Matchmaking—matching buyers’ needs from seller without a prior knowledge of either one • Aggregation of services—combines several existing services to create a new service • Bid/ask engine—creates a demand/supply floating pricing system • Notification service—tells you when the service becomes available, or when it becomes cheaper Prentice Hall, 2002

  38. Uncovering Specific ECOpportunities and Applications (cont.) • Smart needs adviser—if you want …, then you should… • Negotiation—price, quantity, or features are negotiated • Up-sell—suggests an additional product or service • Consultative adviser—provide tips on using the product Prentice Hall, 2002

  39. Brainstorming by a group of employees Soliciting the help of experts, such as consultants Review what the competitors are doing Ask the vendors to provide you with suggestions Read the literature to find out what’s going on Use analogies from similar industries or business processes Use a conventional IS requirement analysis approach Methods for Finding IT Applications Prentice Hall, 2002

  40. Determining an AppropriateEC Application Portfolio Generic approaches • 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, 2002

  41. EC Application Portfolio • Tjan’s portfolio strategy—Internet portfolio map • Strategy based on company fit (assessed by five levels from high to low) • Project’s viability—assessed by 4 criteria • Market value potential • Time to positive cash flow • Personal requirements • Funding requirements • An EC-specific method Prentice Hall, 2002

  42. Which Business Model to Use? • Case: Schubb Corp.—property and casualty insurance company • Typical choice of EC model at Schubb 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, 2002

  43. Case: Schubb Corp. (cont.) • Use EC as a tool within the existing business model (the selected model) • Helped Schubb 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, 2002

  44. Cost-Benefit and Risk Analysis • 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, 2002

  45. Cost-Benefit and Risk Analysis (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, 2002

  46. 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 (cont.) Prentice Hall, 2002

  47. Cost-Benefit and Risk Analysis (cont.) • It is difficult to justify EC investment due to many intangible variables • Methods used for analysis • Value analysis and proposition • Rate of return of investment (ROI) and/or discounted cash flow • Real options valuation and analysis • Management by maxim • Information economics Prentice Hall, 2002

  48. Value Analysis and Proposition • A Value Analysis Approach • Value chain—a series of activities a company performs to achieve its goal(s) • Value added • Contributes to profit and enhances the asset value as well as the competitive position of the company in the market • To create additional value using EC channels, a company should consider the competitive market and rivalry in order to best leverage its EC assets (Customers’ value proposition) Prentice Hall, 2002

  49. Value Analysis and Proposition (cont.) • Value Analysis Questions • Representative Questions for Clarifying Value Chain Statements • Can I realize significant margins by consolidating parts of the value chain to my customers? • Can I create significant value for customers by reducing the number of entities they have to deal with in the value chain? Prentice Hall, 2002

  50. Value Analysis and Proposition (cont.) • Value Analysis Questions (cont.) • Representative question for creating new values • Can I offer additional information of transaction services to my existing customer base? • Can I use my ability to attract customers to generate new sources of revenue, such as advertising or sales of complementary products? Prentice Hall, 2002