Chapter 15 E-Commerce Strategy and Global EC. © Prentice Hall 20042 Learning Objectives 1.Describe...

Chapter 15Chapter 15

E-Commerce Strategy E-Commerce Strategy

and Global ECand Global EC

© Prentice Hall 2004© Prentice Hall 2004 22

Learning ObjectivesLearning Objectives

1.1. Describe the strategic planning Describe the strategic planning process.process.

2.2. Understand how e-commerce Understand how e-commerce impacts the strategic planning impacts the strategic planning process.process.

3.3. Understand how EC applications are Understand how EC applications are formulated, justified, and prioritized.formulated, justified, and prioritized.

4.4. Describe strategy implementation Describe strategy implementation and assessment, including the use and assessment, including the use of metrics.of metrics.


Learning Objectives Learning Objectives (cont.)(cont.)

5.5. Understand the causes of EC Understand the causes of EC failures and lessons for success.failures and lessons for success.

6.6. Evaluate the issues involved in Evaluate the issues involved in global EC.global EC.

7.7. Analyze the impact of EC on Analyze the impact of EC on small businesses.small businesses.


Lonely Planet Travels Lonely Planet Travels from Place to Spacefrom Place to Space

The ProblemThe ProblemIndependent travelers depend Independent travelers depend on a Lonely Planet guidebook to:on a Lonely Planet guidebook to:

Help them get to their destinationHelp them get to their destination

Where to sleepWhere to sleep

The best places to eatThe best places to eat

What to see and doWhat to see and do

At a price they can afford At a price they can afford


Lonely Planet Travels Lonely Planet Travels from Place to Space from Place to Space (cont.)(cont.)

LP’s principal assets are:LP’s principal assets are:global brand nameglobal brand name

dedication of its writers and dedication of its writers and editorial staffeditorial staff

vast library of text, maps, photos, vast library of text, maps, photos, and imagesand images

community of global travelers who community of global travelers who buy LP products and contribute to buy LP products and contribute to the company’s knowledge base the company’s knowledge base



LP has been successful in the LP has been successful in the physical marketplace and is now physical marketplace and is now migrating to the electronic migrating to the electronic marketspace, it must:marketspace, it must:

Apply electronic technologies to Apply electronic technologies to its vast library of travel its vast library of travel information to reinvent the information to reinvent the travel guide travel guide



Sell its content electronically Sell its content electronically and not create channel conflictsand not create channel conflicts

Make changes in the way it Make changes in the way it collects information, stores it, collects information, stores it, and uses it to publish travel and uses it to publish travel guides guides



The SolutionThe SolutionLP’s current combination of LP’s current combination of business models that make up business models that make up value proposition and revenue value proposition and revenue model:model:

Content providerVirtual communityDirect to consumer



Online LP launched these Online LP launched these initiatives:initiatives:

online store (LP shop), access to online store (LP shop), access to brief destination overviews brief destination overviews

free updates to currently free updates to currently published guidespublished guides

various forms of travel news various forms of travel news

a traveler’s bulletin boarda traveler’s bulletin board

links to related sites links to related sites



eKno (eKno (ekno.lonelyplanet.comekno.lonelyplanet.com) is a ) is a joint venture with eKit.com to joint venture with eKit.com to provide an interactive provide an interactive communications service for communications service for international travelersinternational travelersCitySyn (CitySyn (citysync.comcitysync.com) is branded ) is branded “the personal digital guide to “the personal digital guide to urban adventure.” It allows urban adventure.” It allows owners of handheld computers to owners of handheld computers to load their devices with LP city load their devices with LP city guidesguides



Knowledge Bank Knowledge Bank is an internal is an internal knowledge knowledge management management project that aims project that aims to transfer all of to transfer all of LP’s intellectual LP’s intellectual property into a property into a standardized standardized and centralized and centralized digital databasedigital database



The ResultsThe ResultsLonely Planet seeks to use the Lonely Planet seeks to use the Internet to “reinvent the travel Internet to “reinvent the travel guide” guide”

Award-winning Web site offers a Award-winning Web site offers a successful sales and information successful sales and information distribution channel to its distribution channel to its customer basecustomer base



LP must decide how to generate LP must decide how to generate revenue and further promote its revenue and further promote its branded products, but at the branded products, but at the same time avoid channel conflict same time avoid channel conflict and ally anxiety and ally anxiety Knowledge Bank Knowledge Bank

increased internal efficiencies in increased internal efficiencies in information handling information handling offers numerous long-term offers numerous long-term business possibilities business possibilities



What we can learn…What we can learn…Marketplace-to-marketspace strategiesTakes the company’s core business and envisions its future in Cyberspace

LP LP avoided schemes outside its scope



Initiatives are incremental steps into the marketspaceStrategic experiments that have not distracted the company from its core businessLeadership from the top is essentialSuccessfully avoided channel conflict and ally alienation


Organizational StrategyOrganizational Strategy

Strategy:Strategy: A broad-based formula for A broad-based formula for how a business is going to compete, how a business is going to compete, what its goals should be, and what what its goals should be, and what plans and policies will be needed to plans and policies will be needed to carry out those goalscarry out those goals

Strategy is also about making tough Strategy is also about making tough decisions about what decisions about what not not to do to do


Organizational StrategyOrganizational Strategy (cont.)(cont.)

Profitability and economic value is Profitability and economic value is determined by establishing a determined by establishing a unique unique value propositionvalue proposition

Strategy is focused on questions Strategy is focused on questions about:about:

organizational fitorganizational fit

trade-offstrade-offs

profitabilityprofitability

valuevalue



E-commerce strategy (e-E-commerce strategy (e-strategy):strategy): The formulation and The formulation and execution of a vision for how a execution of a vision for how a new or existing company intends new or existing company intends to do business electronicallyto do business electronically



The process of strategy:The process of strategy:1.1. InitiationInitiation

2.2. FormulationFormulation

3.3. ImplementationImplementation

4.4. Assessment Assessment



Strategic planning processStrategic planning processStrategy initiation:Strategy initiation: The initial phase The initial phase of strategic planning in which the of strategic planning in which the organization examines itself and its organization examines itself and its environmentenvironment

Value proposition:Value proposition: The benefit that a The benefit that a company’s products or services company’s products or services provide to customers; the consumer provide to customers; the consumer need that is being fulfilledneed that is being fulfilled



Outcomes from strategy initiation Outcomes from strategy initiation phasephase

Company analysis (including value proposition)Core competenciesForecastsCompetitor (industry) analysis



Strategy formulation:Strategy formulation: The The development of strategies to development of strategies to exploit opportunities and manage exploit opportunities and manage threats in the business threats in the business environment in light of corporate environment in light of corporate strengths and weaknessesstrengths and weaknesses



Specific activities and outcomes from strategy formulation phase:

Business opportunitiesCost-benefit analysisRisk analysis, assessment, and management



Strategy implementation:Strategy implementation: The The development of detailed, short-development of detailed, short-term plans for carrying out the term plans for carrying out the projects agreed on in strategy projects agreed on in strategy formulationformulation



Specific activities and outcomes from strategy implementation phase:

Business planningResource allocationProject management



Strategy assessment:Strategy assessment: The The continuous evaluation of progress continuous evaluation of progress toward the organization’s strategic toward the organization’s strategic goals, resulting in corrective action goals, resulting in corrective action and, if necessary, strategy and, if necessary, strategy reformulationreformulation

Specific measures called Specific measures called metrics metrics are used to assess the progress are used to assess the progress of the strategyof the strategy



Strategic planning toolsStrategic planning toolsSWOT analysis:SWOT analysis: A methodology A methodology that surveys external that surveys external opportunities and threats and opportunities and threats and relates them to internal relates them to internal strengths and weaknessesstrengths and weaknesses



Competitor analysis gridCompetitor analysis grid:: A strategic A strategic planning tool that highlights points planning tool that highlights points of differentiation between of differentiation between competitors and the target firmcompetitors and the target firmScenario planning:Scenario planning: A strategic A strategic planning methodology that planning methodology that generates plausible alternative generates plausible alternative futures to help decision makers futures to help decision makers identify actions that can be taken identify actions that can be taken today to ensure success in the today to ensure success in the futurefuture



Return on investment (ROI):Return on investment (ROI): A ratio A ratio of required costs and perceived of required costs and perceived benefits of a project or an benefits of a project or an applicationapplication

Balanced scorecard:Balanced scorecard: An adaptive An adaptive tool that assesses organizational tool that assesses organizational progress toward strategic goals by progress toward strategic goals by measuring performance in a number measuring performance in a number of different areasof different areas


EC Strategy: EC Strategy: Concepts and OverviewConcepts and Overview

The e-differenceThe e-differenceReach and richness are possibleBarriers to entry are reducedVirtual partnerships multiply

Interaction costs: The time and money expended when people and companies exchange goods, services, and idea

Market niches abound


EC Strategy EC Strategy (cont.)(cont.)

Organizational differenceOrganizational differenceBorn-on-the-Net and move-to-the-Net firms both start with substantial assets and liabilities that influence their ability to formulate and execute an e-commerce strategyThe difference between success The difference between success and failure is the company’s ability and failure is the company’s ability to utilize its strengths effectivelyto utilize its strengths effectively


EC Strategy InitiationEC Strategy Initiation

Issues in e-strategy initiationIssues in e-strategy initiationBe a first mover or a follower?

Size of the opportunityCommodity productsBe the best

Go Global?Go Global?


EC Strategy Initiation EC Strategy Initiation IssuesIssues

Have a Separate Online Company?Advantages of creating a separate company

reduction or elimination of internal conflictsmore freedom for the online company’s management in pricing, advertising, etc.ability to create a new brand quickly opportunity to build new, efficient information systems that are not burdened by the legacy systems of the old companyinflux of outside funding if the market likes the e-business idea and buys the IPO of stock


EC Strategy EC Strategy Initiation Initiation IssuesIssues (cont.)(cont.)

Disadvantages of creating an Disadvantages of creating an independent division independent division

may be very costly and/or riskymay be very costly and/or risky

expertise vital to the existing company expertise vital to the existing company may be lost to the new firmmay be lost to the new firm

new company will not benefit from the new company will not benefit from the expertise and spare capacity in the expertise and spare capacity in the business functions unless it gets business functions unless it gets superb collaboration from the parent superb collaboration from the parent companycompany


EC Strategy EC Strategy Initiation Initiation IssuesIssues (cont.)(cont.)

Have a separate online brand?Companies with strong, mature, international brands will want to retain and promote that brand onlineFirms with a weak brand or a brand that does not reflect the intent of the online effort may decide to create a new brand


EC Strategy FormulationEC Strategy Formulation

Common mistakes made Common mistakes made in selecting EC projects:

1. Let a thousand flowers bloom—funding many projects indiscriminately

2. Bet it all—bets everything on a single high-stakes initiative


EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)

3. Trend-surf—follow the crowd toward the most fashionable new idea

4. Being fear- or greed-driven—thinking they can make lots of money by rushing into EC



Approaches that have propelled strategy formulation:

Problem drivenTechnology drivenMarket driven



The e-business maturity modelevaluates online initiatives within evaluates online initiatives within the context of established business the context of established business criteria criteria designed to help companies think of what’s necessary to implement an e-business solution



Determining an appropriate EC Determining an appropriate EC application portfolioapplication portfolio

Internet portfolio map—bInternet portfolio map—based on company fit and project viability



Viability Viability isis assessed by: assessed by: market value potentialmarket value potential

time to positive cash flowtime to positive cash flow

time to implementationtime to implementation

funding requirementsfunding requirements



Fit Fit is evaluated by metrics:is evaluated by metrics:alignment with core capabilitiesalignment with core capabilities

alignment with other company alignment with other company initiativesinitiatives

fit with organizational structurefit with organizational structure

ease of technical implementationease of technical implementation



If both viability and fit are low—the project is rejectedIf both are high—the project is adoptedIf fit is high but viability is low—the project is redesignedIf the fit is low but the viability is high—the project is sold



Making a business caseMaking a business caseBusiness case:Business case: A written A written document that is used by document that is used by managers to garner funding for managers to garner funding for specific applications or projects specific applications or projects by providing justification for by providing justification for investment of resourcesinvestment of resources


Cost-Benefit AnalysisCost-Benefit Analysis

Cost-benefit analysisCost-benefit analysisA valuable planning tool and assists in the development of metric measures that later will be used in strategy assessmentMany of the costs of an EC project can be clearly identified and estimated

costs of hardware, software, new staff, and facilities


Cost-Benefit AnalysisCost-Benefit Analysis (cont.)(cont.)

Most benefits of an EC project are quite intangible—it is difficult to estimate:

Increased sales from an expanded customer baseSavings from streamlined purchasing proceduresReduced telecommunications costs


Cost-Benefit AnalysisCost-Benefit Analysis (cont.)(cont.)

One of the most difficult factors in accurate benefit estimation, especially for start-up companies, is to properly plan the revenue model

revenues from advertising may not materializerevenue models based on sales depend on large and rapid customer acquisition


Risk AnalysisRisk Analysis

Risk analysis and managementRisk analysis and managementE-commerce risk:E-commerce risk: The likelihood The likelihood that a negative outcome will occur that a negative outcome will occur in the course of developing and in the course of developing and operating an electronic commerce operating an electronic commerce strategystrategyThe first step in any risk assessment is risk analysis—identifying and evaluating the sources of risk


Risk Analysis Risk Analysis (cont.)(cont.)

Four sources of business risk in an e-commerce strategy:

1. Competitive risk2. Transition risk3. Customer-induced risk4. Business partner risk


Risk Analysis Risk Analysis (cont.)(cont.)

The next step is risk management—to put in place a plan that reduces the threat posed by the riskTaking steps to:

reduce the probability that the threat will occurminimizing the consequences if it occurs anywayboth


Issues in Issues in Strategy FormulationStrategy Formulation

Issues in strategy formulationIssues in strategy formulationHow to handle channel conflict

Let the established distributors handle e-business fulfillmentProvide online services to intermediariesSell some products only online, other products may be advertised online but sold exclusively off-lineNot selling online


Issues in Issues in Strategy Formulation Strategy Formulation

(cont.)(cont.)How to handle conflict between the off-line and online businesses

The allocation of resources between off-line and online activities can create difficultiesIt is essential that top management support both

off-line and online operations a clear strategy of “what and how” each unit will operate are essential


Issues in Issues in Strategy Formulation Strategy Formulation

(cont.)(cont.)Pricing strategyPricing strategy

Price comparison is easierBuyers sometimes set the priceOnline and off-line goods are priced differentlyDifferentiated pricing can be a pricing strategy

versioning:versioning: Selling the same good, but Selling the same good, but with different selection and delivery with different selection and delivery characteristics characteristics


EC Strategy ImplementationEC Strategy Implementation

Creating a Web teamCreating a Web teamProject champion:Project champion: The person The person who insures the EC project gets who insures the EC project gets the time, attention, and the time, attention, and resources required, as well as resources required, as well as defending the project from defending the project from detractors at all timesdetractors at all times


EC Strategy Implementation EC Strategy Implementation (cont.)(cont.)

Starting a pilot projectStarting a pilot projectImplementing EC often requires Implementing EC often requires significant investments in significant investments in infrastructureinfrastructure

a good way to start is to undertake a good way to start is to undertake one or a few small EC pilot projectsone or a few small EC pilot projectspilot projects help uncover pilot projects help uncover problems early, when the plan can problems early, when the plan can be easily modified before be easily modified before significant investments are madesignificant investments are made


EC Strategy Implementation EC Strategy Implementation (cont.)(cont.)

Allocating resourcesAllocating resourcesThe resources required for the The resources required for the EC projects depend on EC projects depend on information requirements and information requirements and capabilities of each projectcapabilities of each project

Some resources will be new and Some resources will be new and unique to the project or applicationunique to the project or applicationEven more critical for the project’s Even more critical for the project’s success is effective allocation of success is effective allocation of infrastructure resources that are infrastructure resources that are shared by many applicationsshared by many applications


Application DevelopmentApplication Development

Application developmentShould site development be done internally, externally, or in combination?Should the software application be built or will commercially-available software be satisfactory?


Application Development Application Development (cont.)(cont.)

If a commercial package will suit, should it be purchased from the vendor or rented from an ASP?Will the company or an external ISP host the Web site?If hosted externally, who will be responsible for monitoring and maintaining the information and system?


EC Strategy EC Strategy Implementation IssuesImplementation Issues

Partners’ strategyOutsourcing:Outsourcing: The use of a third- The use of a third-party vendor to provide all or party vendor to provide all or part of the products and part of the products and services that could be provided services that could be provided internallyinternally


EC Strategy EC Strategy Implementation Issues Implementation Issues (cont.)(cont.)

Virtual corporationVirtual corporationVirtual corporation:Virtual corporation: An An organization composed of organization composed of several business partners several business partners sharing costs and resources for sharing costs and resources for the production or utilization of a the production or utilization of a product or serviceproduct or service



Major attributes of a VC:ExcellenceUtilizationTrustLack of bordersOpportunismAdaptability to changeTechnology



Alliances in e-commercePartners in different locations communicate and collaborate onlineWhen EC initiatives are too large and complex for one company to undertakeA strategic partner should be one that has the ability to deliver and is willing to collaborate to provide a service



Redesigning business processesOrganizational transformation: the process of changing an organization to a new mode of operationBusiness process reengineering (BPR): A methodology for conducting a comprehensive redesign of an enterprise’s processes



BPR may be needed:To fix poorly designed processesTo change processes so that they will fit commercially available softwareTo produce a fit between systems and processes of different partner companiesTo align procedures and processes with e-services


E-Strategy and E-Strategy and Project AssessmentProject Assessment

Objectives of assessmentObjectives of assessmentMeasure the extent to which the EC strategy and ensuing projects are delivering what they were supposed to deliverDetermine if the EC strategy and projects are still viable in the current environment


Project Assessment Project Assessment ObjectivesObjectives

Reassess the initial strategy in order to learn from mistakes and improve future planningIdentify failing projects as soon as possible and determine why they failed to avoid the same problems on subsequent projects


E-Strategy and E-Strategy and Project Assessment Project Assessment (cont.)(cont.)

Measuring results and using Measuring results and using metricsmetrics

Metric:Metric: A specific, measurable A specific, measurable standard against which actual standard against which actual performance is comparedperformance is compared



Metrics can:Metrics can:Define the value proposition of the business modelCommunicate the strategy to the workforce through performance targetsIncrease accountability when metrics are linked to performance-appraisal programsAlign the objectives of individuals, departments, and divisions to the enterprise’s strategic objectives actual performance is compared



Axon metrics implementation obtained results in:

Revenue growthCost reduction—selling costs and expendituresCost avoidanceCustomer fulfillmentCustomer serviceCustomer communications


Keys to EC SuccessKeys to EC Success

E-commerce failuresE-commerce failuresMacro economic level: The technological revolution posed by the Internet should be expected to go through a boom-and-bust-and-consolidation cycle like the automobile and railroad industries


Keys to EC Success Keys to EC Success (cont.)(cont.)

Mid-economic level, the bursting of the dot-com bubble in mid-2000 is consistent with economic downturns that have occurred in property, precious metals, currency, and stock markets



Micro-economic level, the “Web rush” reflected an over allocation of scarce resources

venture capitaltechnical personneladvertising-driven business models



Financial reasons are lack of funding and incorrect revenue models

Lack of fundingIncorrect revenue model



E-commerce successesE-commerce successesBrick-and-mortar companies are adding online channels using use organizational knowledge, brand, infrastructure, and other strategic assetsMove to higher quality customersChange products or services in existing marketEstablish an off-line presence



CSFs (as per Asian CEOs): select robust business modelsunderstand the dot-com futurefoster e-innovationcarefully evaluate a spin-off strategyco-brandemploy ex-dot-com staffersfocus on the e-generation



The top three factors for successful B2C e-commerce:

effective marketing managementattractive Web sitebuilding strong connections to customers



The top three factors for successful B2B e-commerce:

readiness of trading partnersinformation integration inside the company and in the supply chaincompleteness of the application



The top three factors for overall, successful e-business:

proper business modelreadiness of the firm to become an e-businessinternal enterprise integration


Going GlobalGoing Global

Benefits and extent of operationsBenefits and extent of operationsThe major advantage of EC is the ability to do business

at any timefrom anywhereat a reasonable cost


Going Global Going Global (cont.)(cont.)

Barriers to global ECBarriers to global ECauthentication of buyers and sellersgenerating and retaining trustorder fulfillment and deliverysecuritydomain names



Barriers to global ECBarriers to global EC



Cultural issuesCultural issuescultural attributes determine how people interact with companies, agencies, and each other based on:

social normslocal standardsreligious beliefslanguage



Administrative issuesAdministrative issuesNational governments and international organizations are working together to find ways to avoid uncoordinated actions and encourage uniform legal standards



International trade International trade organizations are attempting to organizations are attempting to reduce EC trade barriers like:reduce EC trade barriers like:

pricing regulationspricing regulations

customscustoms

import/export restrictionsimport/export restrictions

tax issuestax issues

product specification regulationsproduct specification regulations

Privacy protectionPrivacy protection



Geographical issuesGeographical issuesGovernment tariffsCustoms TaxationMajor US tax issue imposition by states and local authorities of sales taxes on goods purchased by their residents from out-of-state EC companies



A major key financial barrier to global EC is electronic payment systemsAlthough credit cards are widely used in the U.S., many European and Asian customers prefer to complete online transactions with off-line payments



Breaking down the barriers Breaking down the barriers Be strategicKnow your audienceLocalizeThink globally, act consistentlyValue the human touchClarify, document, explainOffer services that reduce barriers


EC in Small- and EC in Small- and Medium-Sized EnterprisesMedium-Sized Enterprises

SMEs moved onto the Web because they realized there were opportunities in:

marketingbusiness expansionbusiness launchescost cuttingtighter partner alliances


EC in Small- and EC in Small- and Medium-Sized Enterprises Medium-Sized Enterprises

(cont.)(cont.)

CSFs for SMEs:CSFs for SMEs:Product is criticalPayment methods must be flexibleElectronic payments must be secureCapital investment should be kept to a minimum



(cont.)(cont.)Inventory control is crucialLogistical services must be quick and reliableHigh visibility on the InternetJoin an online communityA Web site should provide all the services needed by consumers



(cont.)(cont.)

Supporting SMEsSupporting SMEsMost countries Most countries have a government agency devoted to helping SMEs become more aware of and able to participate in EC

sba.govbusiness.gov.au



(cont.)(cont.)Vendors have set up a variety of service centers that typically offer a combination of free information and fee-based support

ibm.com/businesscenterMicrosoft’s bcentral.com

Professional associations, Web resource services

smallbusiness.yahoo.comworkz.com


Managerial IssuesManagerial Issues

1. What is the strategic value of EC to the organization?

2. What are the benefits and risks of EC?

3. What metrics should we use?4. What staffing is required?


Managerial Issues Managerial Issues (cont.)(cont.)

5. How can we go global?6. Can we learn to love smallness?7. Is e-business is always

beneficial?


SummarySummary

1. The strategic planning process.2. The EC strategic process.3. E-strategy initiation and

formulation.4. E-strategy implementation and

assessment.


Summary Summary (cont.)(cont.)

5. Understanding failures and learning from them.

6. Issues in global EC.7. Small businesses and EC.

Chapter 15 E-Commerce Strategy and Global EC. © Prentice Hall 20042 Learning Objectives 1.Describe...

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