Post on 14-Dec-2015
S643: Digital Entrepreneurship Spring ‘13
Assessing ebusiness readiness
I. What are the signs that a firm is ready?
• Questions to ask
II. What is needed to begin an ebusiness initiative?
• Estimating costs
III. The importance of strategic orientation
• Conceptions of strategy
IV. Measuring ebusiness activity
• Return on investment
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Although, e-business may help an organization gain competitive advantages over … competitors, it unfortunately incurs high level of implementation risk.
Companies … need to know whether they are really ready for implementing e-business before they jump onto the … bandwagon.
If they are not ready, they may want to know where they should improve themselves so that they will be ready for implementing e-business later on.Huang, J.H., Huang, W.W., Zhao, C.J., and Huang, H. (2004). An E-Readiness Assessment Framework and Two Field Studies. Communications of the IS. 14 Article 19, p2
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Key members of the organization have expressed interest in an ebusiness initiative
They have noticed that their main competitors have web sites that are selling goods and/or services
Market research tells them that a significant % of their customers (and potential customers) are online
Presupposes an awareness of IT, the net, the web, and their impacts on business practices
Also knowledge of part of business that will be affected by ebusiness
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
An e-readiness assessment framework
Internal need for ebusiness
Are the goals of the ebusiness initiative suitable and effective?
Do the products and services of the firm meet the requirements of ebusiness?
Can the firm benefit from implementing ebusiness?
How and how quickly?Huang and Huang (2004), 368
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
An e-readiness assessment framework
External environment
Does the firm’s ebusiness initiative fit well with trends in the industry?
Does the firm’s value chain fit with the initiative?
IT diffusion and change management
Is the firm’s change management aligned with the initiative?
Is IT adoption and diffusion being resolved in the firm?
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
First 3 levels of the readiness assessment frameworkHuang and Huang (2004) 369
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Internal needs for e-business
Are the goals of the e-business initiative are suitable and effective?
Do the products or services of a company meet the requirements of e-business?
Can a company really benefit from implementing ebusiness?
Is the overall e-business plan appropriate?
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
External environment
Does the company’s e-business initiative fit well with the whole industry’s development?
Does the a company’s value chain fits with the ebusiness initiative?
IT diffusion and change management
Is the change management of a company ready for and aligned with e-business implementation?
Is the IT adoption and diffusion issue is being resolved within a company?
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Tasks:
Identify ebusiness opportunities and drivers
Business processes, IT apps (customer, supplier and internal orientations), systems
integration
Uncover weaknesses in current IS applications
Work out an effective e-business budget
Analyze e-business trends in the industry
Monitor a sample e-business project
Evaluate e-business investment (ROI)
Identify e-business skills training and development
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Early questions to ask:
Why do you want to do this?
Do you have a plan to do this?
Is the firm ready to do this?
What will you be selling and who are your buyers?
What is the business model for this initiative?
What are the goals for this initiative?
How will it address market needs?
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
What will you be selling?
Why it is a good idea to sell the product or service online?
What is it about this product that makes it feasible to use this channel?
What will your customers gain by being able to buy it online?
What are the potential benefits and costs of selling it online?
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
What % of your market sector’s business is online?
Who will be your main competitors online?
What are the main characteristics (architectural, functional, usability) of their sites?
Business processes
How will the business have to change to integrate this marketing and distribution channel?
How will people’s work be affected by the ebusiness initiative?
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Why firms get involved
External: marketplace factors (32.3%)
Internal: revenue generation (25.8%)
Process improvement (22.5%) 67.7%
Cost containment (19.4%)
Internal factors seem to be more important in the decision to implement ebusinessSaban, K.A. (2001). Strategic Preparedness: A Critical Requirement to Maximize E-commerce Investments. Electronic Markets. 11(1). 26-36.
S643: Digital Entrepreneurship Spring ‘13
I. What are the signs that a firm is ready?
Perceived barriers
External: marketplace factors (18%)
Internal: lack of strategy (55%)
Leadership (18%) 82%
Organizational factors (9%)
Perceived barriers to strategy
Lack of vision
Lack of business plan
Lack of perceived benefits
S643: Digital Entrepreneurship Spring ‘13
Assessing ebusiness readiness
I. What are the signs that a firm is ready?
• Questions to ask
II. What is needed to begin an ebusiness initiative?
• Estimating costs
III. The importance of strategic orientation
• Conceptions of strategy
IV. Measuring ebusiness activity
• Return on investment
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
Do you have the personnel and infrastructure to to this?
Do you have the distribution and logistical system in place to handle this?
What organizational resources will be devoted to this?
How many people will be working on it?
Who are they?
Will there be adequate budgetary and technical resources made available for this project?
What is this venture going to cost?
How will you measure success?
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
www.pescatoreluca.com/fun/37.jpg
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
What’s involved in estimating costs?
Page design: industry standard $1,000-$10,000 and up
Site hosting: industry standard $100-$100,000 and up
It’s more expensive if you have your own domain name
Advantage: the host worries about the servers, firewalls, and data backup
Maintenance: industry standard $20-$200/hour, 10 hours minimum a month
This consists of content updates, changes to the pages, performance reports, and monthly link and
image checks
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
Other costs
Software and personnel: industry standard $0-$350,000
Staffing grows depending the volume of business (web server admin, programmer and…)
Merchant-level software helps manage orders, invoices, customer contact info, inventory and shipments
Some may be done in house, some outsourced
Databases: industry standard $1,000-$100,000 and up
What is the range of appropriate solutions?
How will this database be integrated into the legacy databases in the organization?
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
Security: industry standard $0-$40,000 and up
What types of payment options will you offer?
What protections should be in place for customers?
What protection should be in place for your site?
Backups, redundancy, mirrors
Advertising and marketing: industry standard $100-100,000
Online: search engine registration, meta-tags, keywords, and reciprocal links with other companies
Offline: billboards, phone book, media ads (newspaper, radio, television), stationary, business cards…
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
Electronic payment systems
This system should offer alternative means of payment
Relationships with credit card companies
The company needs secure real time processing of credit card numbers
Relationships with banks
The company needs a merchant account that can accept electronic funds transfer
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
Technical infrastructure
Either in-house or with a hosting solution
Reasonable availability of computing
Technical expertise
Someone in the organization should be able to understand the basics of the ebusiness
initiative
Web-business expertise
Someone should be able to understand what goes on in ebusiness in the relevant market sector
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
The organization also needs
Business planning and strategizing
The ebusiness initiative should be closely linked to the organization’s core business
Managerial infrastructure
People who can manage a digital enterprise
High-level buy-in
Decision makers should agree that this initiative is worth the time and effort needed succeed
S643: Digital Entrepreneurship Spring ‘13
II. What is needed to begin an ebusiness initiative?
This leads to a integration plan
Project management
Set out roles, responsibilities, timeline, benchmarks, and deliverables
Change control
Testing and evaluation, metrics for assessing performance
Ownership and rights, confidentiality agreements, dispute resolution
S643: Digital Entrepreneurship Spring ‘13
Assessing ebusiness readiness
I. What are the signs that a firm is ready?
• Questions to ask
II. What is needed to begin an ebusiness initiative?
• Estimating costs
III. The importance of strategic orientation
• Conceptions of strategy
IV. Measuring ebusiness activity
• Return on investment
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
In the information sector, 20% fail in first year, 35% in second year, 50% in third year, 60% in fourth year
Professional and business services, 15% in first year, 32% in second year, 45% in third year, 55% in fourth year
Many had high cash burn rates and could not raise more capital
They did not maintain high growth rates and were not profitable
Some had problems with CRM and order fulfillment
Problem: not understanding the importance of strategyGrover, V. and Saeed, K.A. (2004). Strategic orientation and performance of Internet-based businesses. Information Systems Journal. 23-42
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Two important conceptions of strategy
It is an ongoing process of evaluating the firm’s purpose (Miles and Snow)
Evaluating, questioning, verifying and redefining the firm’s interactions with its environment
Assumes organizational adaptation to environments
Strategy allows the firm to adapt to dynamic, competitive, and uncertain environments
Strategic orientations differ in risk disposition, innovativeness and operational efficiencies
Types: defenders, prospectors, analyzers, reactors
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Porter's five forces model defines the relevant components of the environment
These competitive forces work at the industry level
Existing companies
Potential new companies
Substitutes for products offered
Suppliers and customers
Two adaptations are low cost and differentiation
The goal is to alter the firm’s position in the industry in relation to competitors and suppliers
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Porter’s 5 forces
www.investopedia.com/images/features/porter.gif
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
There is also a view of strategy as resource based (Barney)
This involves gathering and making use of resources and developing capabilities that competitors can’t easily imitate
The goal is superior market position
It links the firm closely to its suppliers and customers
Strategic orientation can be an issue of how firms position themselves with respect to competitors
It focuses on the exploitation of firm-specific assets and capabilities
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Saban, K.A. (2001). Strategic Preparedness: A Critical Requirement to Maximize E-commerce Investments. Electronic Markets. 11(1). 26-36.
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Realistic view of strategy
Firms are simultaneously acquiring and making use of assets and are repositioning themselves with suppliers and customers
Some groups of firms share strategic orientations
Strategic decisions cover
Market segmentation, product characteristics, cost diversification, geographic reach
Resource commitments
How resources are deployed to maintain competitive advantage
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Strategic orientation and ebusiness
Three key issues in e-business implementation: e-operations,e-marketing, and e-services
A firm should know how to develop in these opportunity domains before implementing e-business.
An e-business framework has four crucial strategic quadrants
Technology Brand
Service Market
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Strategic orientation and ebusiness
There are differences between ebusiness and offline business that matter
The number of customers that can visit the store
The range of products that are available
The nature of the interaction with customers
Higher costs of acquiring customers
The nature of the interaction with suppliers
Different form of inventory management
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Other differences that matter
Economics of information and other digital services
High fixed costs in compiling the product or service
Low marginal costs value-based pricing strategies, such as bundling information products and providing personalized services
Many ebusinesses could not create adequate ‘value’
They had to invest large amounts of cash to acquire customers and attempt to become profitable
Customization and personalization are expensive ongoing costs
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Goal of ebusiness strategy
To leverage net infrastructure and digital economics in order to gain strategic positioning in the marketplace
Key factors in developing a strategic orientation
Risk disposition
Management’s willingness to invest in projects to stimulate growth
Financial resources are used to pursue risky projects
Risks can be short or long term
Continuum: aggressive aversive
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Dimension of strategic orientation
Innovation
The firm’s commitment to support new initiatives
This includes the ability to generate slack resources and allocate funds to support innovative initiatives
Technological changes (disruptive or incremental)
Marketing innovations (targeted or pervasive)
Developing reliable and consistent customer relationship management
Continuum: innovative conservative
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Another dimension
Operational efficiency
Managerial control over routine operations and assets
Efficiency and effectiveness of organizational processes
Extent of system integration with the web front-end
Also efficient co-ordination of the firm with its suppliers
Continuum: efficient inefficient
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Another dimension
Marketing intensity
The aggressiveness of the firm in pursuing customers
Investing in customer-facing processes
Marketing and advertising
Efficiency in customer acquisition and order fulfillment
Continuum: innovative conservative
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Developing a strategic orientation for ebusiness
Firms make multifaceted resource deployment decisions that shape their strategies
A key decision deals with the management of ICT
Recent research indicates that ICT do contribute indirectly to productivity
How are ICT resources used along with other resources to generate superior performance?
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Mature orientations
Larger, older, with large customer bases, brand equity and reasonable performance
This can mean lower marketing and customer acquisition costs
Reasonable cash flow with low short term risk and high slack resources
Risky orientations
Efficient at co-ordination, advertising, order fulfillment
Low cost to sales ratios
High levels of short term risk/debt, low cash reserves
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Moderate orientations
Smaller, with low costs and low levels of advertising, coordination and marketing efficiency
Low short and long term risk, moderate innovation
Moderate cash flow allows marketing expenditures but these tend not to be effective
Novice orientations
Smaller, with low advertising, coordination, and order fulfillment efficiency
Moderate short term risk
Negative cash flow, high R&D expenses
S643: Digital Entrepreneurship Spring ‘13
III. The importance of strategic orientation
Benefits of an integrated ebusiness strategy
Enables management to close any performance gaps before the processes are implemented
Creates a unified plan of action that all operations, departments and employees can endorse
Reinforces that ebusiness is a means to improve the value chain, not an end in itself
Six managerial implications of launching an integrated e-business plan:
Leadership; innovation; organizational learning; structure; support; and resources
S643: Digital Entrepreneurship Spring ‘13
Assessing ebusiness readiness
I. What are the signs that a firm is ready?
• Questions to ask
II. What is needed to begin an ebusiness initiative?
• Estimating costs
III. The importance of strategic orientation
• Conceptions of strategy
IV. Measuring ebusiness activity
• Return on investment
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
It’s important to be able to explain to management the return on investment for any major ICT project in a firm
This is especially the case for ebusiness
Numbers of unique visitors does not work anymore
ROI helps determine the metrics that matter
Once ROI is calculated, it is easier to do it for similar projects
It provides a sense of which ebusiness applications produce the best and fastest resultsMogollon, M. and Raisinghani,M. (2003). Measuring ROI in e-business: a practical approach. Information Systems Management. Spring. 63-83.
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
Measuring ROI of projects
Investment is measured as the total cost in time, dollars, or other unit needed to plan, execute, and complete the project
Return is the savings in time, dollars, or any other measurable unit generated by the project
ROI is the ratio of the total return divided by the total cost of the project
The difficulty in calculating ROI is determining what is the total cost and what is total return of the project
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
Tangible benefits for ROI
Sales increases
Production increases
Increases in leads and higher conversion rate
Shorter time to market
Reduction in operating costs
Reduced network downtime
Increased mean time before failure
Reduced time to configure the network
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
Intangible benefits for ROI
Improved customer satisfaction
Increased customer retention
Increased customer base
Improved managerial knowledge
Increased employee retention
Improved employee morale
Stronger channel ties
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
ROI measures the performance of one investment relative to another
The ratio of money gained or lost on an investment relative to the amount of money invested
It is expressed as a percentage and is based on returns over an associated time period, usually one year
For example, a 25 % annual ROI means that a $100 investment returns $25 in one year
After one year, the total investment becomes $125
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
Example: are ads worth it?
Data:
Ad cost: the amount you are spending on your ads on a site
Clicks: the number of visits from paid listings
Number of sales: the number of completed orders from product searches
Revenue: the dollar amount generated from paid listings for that product
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
ROI: determine the profitability of each listing and how much it costs to generate each sale
Subtract the ad cost from the revenue generated: spend $500 on a one month ad and sell $1,500 during that time -> $1,000 ad profit
Cost per acquisition: divide the ad cost by the number of sales: the ad costs $500 and you made 20 sales, CPA is $25
Determine ROI percentage by dividing ad profit by the ad cost and multiply by 100
Ad profit is $1,000 and ad cost is $500, so ROI would be 200%
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
Measuring ROI
1. Determine internal and external costs of implementing and maintaining current and new ebusiness application processes
2. Calculate cost savings between the current and new process (all should be measurable)
Add the benefits in productivity and efficiency
It may be easier in some cases to measure value in $
3. Calculate the ebusiness app’s risk and determine company’s cost of capital for that specific application
S643: Digital Entrepreneurship Spring ‘13
IV. Measuring ebusiness activity
4. Calculate net present value
5. Compare present value of expected cash flow with required outlay
If present value of the ebusiness app cash flow exceeds cost, the project should be implemented
Otherwise, it should be rejected
So ROI = Current process cost - new process cost + expected benefits
Cost to implement the project + operation and maintenance costs