Chapter 16 EC Strategy and Implementation

Prentice Hall, 2002 1

Chapter 16

EC Strategy and Implementation


Learning Objectives

Describe the importance and essentials of business and EC strategiesDescribe the strategy planning process fro ECUnderstand the strategy formulation processUnderstand how EC applications are discovered and prioritized


Learning Objectives (cont.)

Describe the role of CSFs and justification of ECDescribe strategy implementationUnderstand how to reassess EC strategyDescribe the role of metrics in ECUnderstand EC failures and lessons for success


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 transformationHelp business units become more effective in their use of the Internet/intranet

Internally With their customers


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 navigatedCreate 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


IBM’s E-Business Strategy (cont.)

IBM focused on key initiatives:E-commerce—selling more goods via the WebE-care for customers—providing all kinds of customer support onlineE-care for business partners—dedicated services providing faster, better information for these important groups


IBM’s E-Business Strategy (cont.)

E-care for employees—improving the effectiveness of IBMers by making the right information and services available to themE-procurement—working closely with IBM's customers and suppliers to improve the tendering process and to better administer the huge number of transactions involvedE-marketing communications—using the internet to better communicate IBM’s marketing stance


Need for a Strategy

Cases of e-strategyClick-and-mortar companies that use several EC applicationsClick-and-mortar companies that use only one or two EC applicationsClick-and-mortar companies that use one EC application that fundamentally changes all their businessPure-play EC companies


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 minuteCompany must consider EC strategy that includes contingency plans to deal with changesMay be too costly not to have one


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 skillsCompany’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


Essentials of a Business Strategy (cont.)

Levels of strategyCorporate (or organizational) strategyIT strategyEC strategyEC functional strategies

These are interrelated

Types of strategyStrategic planningStrategic responseStrategic innovation


Figure 16-1EC Strategy Alignment



Elements of a strategyForecastingResource allocationCore competencyStrategy formulationEnvironmental analysisCompany analysis

Strategy landscapeStrategy initiationStrategy formulationStrategy implementationStrategy assessment

Four major stepsBasis for chapter organization


Figure 16-2The Landscape of EC Strategy



Information technology (IT) strategy—strongly correlated with EC strategy because:

IT provides much of the infrastructure for ECEC applications must be integrated with IT applicationsEC applications may replace or improve existing IT applicationsEC organization may report to CIOEmployees in IS department work on EC applications


Strategy Initiation

First step is to review the organization’s business and IT vision and missionThen, a vision and mission for EC can be generatedAlthough these statements are usually very vague, they provide a springboard for generating more specific goals and objectivesBegin with industry and competitive analysis


Industry Analysis

Analyze position of the company in its industry and the competitionRequired for assessing the changes that EC project may introduce and its chances for success


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?


Figure 16-3Company Analysis

Source: Hackbarth and Kettinger (2000), p. 85. Reprinted with permission of William J. Kettinger.


Industry and Competitive Analysis

Monitoring, evaluating, disseminating of information from the external and internal environmentsSWOT Analysis

StrengthsOpportunitiesWeaknesses Threats


Strengths (S) Weaknesses (W)

Opportunities (O)

Threats (T)

INTERNAL FACTORSEXTERNAL

FACTORSSO 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

ST Strategies Generate strategies

here that use strengths to avoid

threats

WT Strategies Generate strategies here that minimize

weaknesses and avoid threats

Figure 16-4SWOT Diagram


Competitive Intelligence on the Internet

Internet can play a major role as a source of competitive information (competitive intelligence)

Review competitors’ Web sitesAnalyze related newsgroupsExamine publicly available financial documentsAsk the customers—award prizes to those who best describe your competitors’ strengths and weaknesses


Competitive Intelligenceon the Internet (cont.)

Information delivery servicesFind out what it published on the Internet

NewsgroupsInformation about your competitors and their products

Known as push technologies

Corporate research companies provide information about your competitors:

Risk analysisStock market analysts’ reports

Examine chat rooms


Competitive Intelligenceon the Internet (cont.)

Evolving experiences, need to be treated with careOverreliance on such information can be dangerousUsing publicly available search engines is free, but may produce lots of irrelevant informationUse specialty-build agents to search the overwhelming amount of information available


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 researchBusiness intelligence companies offer packaged competitive analysis


Issues in Strategy Initiation

AdvantagesChance to capture large marketsEstablishing a brand nameExclusive strategic alliances

DisadvantagesCost of developing EC initiative is usually very highChance of failure is highSystem may be obsolete as compared to second wave arrivalsNo support services are available at the beginning

To be a first mover or a follower?


What Do You Need an EC For?

Enhancing the sell channel by advertisement and salesEnhancing the buy (procurement channel)Enhancing the customer service channelGoing global

Facilitating value-chain integration

Providing for new products and services

Going into specialty markets

Going to mass customization


Should You Have a SeparateOnline Company or Not?

Advantages Reducing or eliminating internal conflictsProviding more freedom to management in pricing, advertising, etc.Can create new brands quicklyTake the e-business to an IPO and make a fortune

DisadvantagesMay be very costly and riskyCollaboration with off-line business may be difficultLose expertise of business functions unless you use close collaboration


Strategy Formulation

Strategy formulationDevelopment of long-range plans

Organization’s missionPurpose or reason for the organization’s existence

3 main reasons for establishing Web siteMARKETING, CUSTOMER SUPPORT, and SALES

Products with good fit for ECShipped easily or transmitted electronicallyTargets knowledgeable buyersPrice falls within certain optimum ranges


EC Critical Success Factors

Special products or services tradedTop management supportProject team representing various functional areasAppropriate technical infrastructureMust have customer acceptanceUser-friendly Web interfaceIntegration with the corporate legacy systems


EC Critical Success Factors (cont.)

Security and control of the EC systemCompetition and market situationConduct pilot project and capture corporate knowledgeUse promotion and internal communicationCost of the EC project must be reasonableNeed sufficient level of trust between buyers and sellers


EC Opportunities

3 common mistakes in allocating EC investment

Let a thousand flowers bloom—fund many projects indiscriminatelyBet it all—put everything on a single high-stake initiativeTrend-surf—follow the crowd toward the next “big thing”

All of the above can be risky and costly


EC Opportunities (cont.)

Problem-driven—attempt to solve a problem such as:

Excess inventoryDelivery delays

Technology-driven—trying to use existing applications

Find problems no one knew existedUsed by first movers

Approaches to finding individual EC initiatives


EC Opportunities (cont.)

All can failMarket-driven—waiting to see what the competitors will doFear or greed-driven

Afraid if they do not practice EC they will be big losersThink they can make lots of money going into EC

Approaches to finding individual EC initiatives (cont.)


Figure 16-5Approaches for Finding EC Opportunities


Uncovering Specific ECOpportunities and Applications

Understand:How digital markets operateHow Internet customers behaveHow competition is created and what infrastructure is neededWhat the dynamics of EC are

Map opportunities that match current competencies and markets

Many opportunities to create new products and services


Opportunities for EC businessesMatchmaking—matching buyers’ needs from seller without a prior knowledge of either oneAggregation of services—combines several existing services to create a new serviceBid/ask engine—creates a demand/supply floating pricing systemNotification service—tells you when the service becomes available, or when it becomes cheaper

Uncovering Specific ECOpportunities and Applications (cont.)


Uncovering Specific ECOpportunities and Applications (cont.)

Smart needs adviser—if you want …, then you should…Negotiation—price, quantity, or features are negotiatedUp-sell—suggests an additional product or serviceConsultative adviser—provide tips on using the product


Methods for Finding IT Applications

Brainstorming by a group of employeesSoliciting the help of experts, such as consultantsReview what the competitors are doingAsk the vendors to provide you with suggestions

Read the literature to find out what’s going onUse analogies from similar industries or business processesUse a conventional IS requirement analysis approach


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 matrixCash cows Questionable projectsStarts Dogs

Generic approaches


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 potentialTime to positive cash flowPersonal requirementsFunding requirements

An EC-specific method


Which Business Model to Use?

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 systemsSpawn a secondary business model around EC; go directly to consumers—did not want to interrupt their relationships with agents and brokers

Case: Schubb Corp.—property and casualty insurance company


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 InternetOpened several Web sites—one for each specialty group (e.g., for wine collectors)Enables superb communication with agents and business partnersAllows business expansion into 20 countries


Cost-Benefit and Risk Analysis

Business case for EC approach for garnering funding for projects used to:

Provide justification for investmentsProvides bridge between EC plan and the executionProvides foundation for tactical decision making and technology risk managementClarifies how the organization will use resources to accomplish the e-strategy


Cost-Benefit and Risk Analysis (cont.)

Content of an E-business caseStrategic 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?”



How to conduct an e-business case

Develop goal statementSet measurable goalsDevelop short- and long-term action plansGain approval and support

Revenue modelProperly planned revenue model is a critical success factorRevenues from sales depend on customer acquisition cost and advertisementMust be figured into the analysis



It is difficult to justify EC investment due to many intangible variablesMethods used for analysis

Value analysis and propositionRate of return of investment (ROI) and/or discounted cash flowReal options valuation and analysisManagement by maximInformation economics


A Value Analysis ApproachValue 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 marketTo 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)

Value Analysis and Proposition


Value Analysis QuestionsRepresentative 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?

Value Analysis and Proposition (cont.)


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?


Return on Investment and Risk Analysis

Return on Investment (ROI)

A ratio of resources required and benefits generated by an EC project

Includes both quantifiable items (cost of resources, computed monetary savings) and Non-quantifiable items (intangibles)

Some intangible benefitsEffective marketing channelIncreased salesImproved customer service


Return on Investment and Risk Analysis

IT valuesFinancial values—measurable to some degreeStrategic values—competitive advantage in the market and benefits generated by business proceduresStakeholder values—reflections of organizational redesign, organizational learning, empowerment, information technology architecture of a company, etc.


Return on Investment and Risk Analysis (cont.)

IT risks risksCompetitive strategy risk—external, due to joint venture, alliances or demographic changes among othersOrganizational risk and uncertainty—internal to company


Figure 16-7Real Option Analysis

Source: Rayport and Jaworski (2001); Exhibit 8-8; pg. 304.


Risk Analysis

Risk analysis program should

Identify all potential risksAssess potential damageEvaluate possibility of protection (insurance)Evaluate cost of protection vs. benefits

E-business risksStrategic risks (e.g., competitive environment, wrong strategic direction)Financial risks (e.g., currency management and changes, unclear tax situations)Operational risks (e.g., technological changes and use of poor technology, security)


EC Scenarios

Scenario planning is a methodology used in planning situations that involve much uncertainty, like that of EC (“what-if”)

Several different scenarios are createdA team compiles several future events as possible influences on the outcomeSecurities are assessed and future projections are madeScenarios are compared


EC Scenarios (cont.)

Four scenarios described by Hutchinson:Open, global commerce scenario—removal of intermediaries flattens the value chainMembers-only subnet scenario—applies mostly to B2B ECElectronic middlemen scenario—business and consumer market suppliers can make products/services available through independent third-party distribution channels


EC Scenarios (cont.)

4 scenarios described by Hutchinson (cont.)Consumer marketing channels scenario—traditional methods collapse into a unified consumer-centric EC medium on the Internet

BroadcastingAdvertisingConsumer telephony


Strategic Planning Framework

EC appears in three levels:Level 1: Basic presence—company uses the Internet to feature company information and provide brochuresLevel 2: Prospecting—features added

Search engineExtensive product informationLinks to servicesAbility to interact with the companyBasic customer service


Strategic Planning Framework (cont.)

Level 3: Business integration—more features added

EC transaction capabilitiesCustomization and personalization servicesTools fostering creation of a community

Level 4: Business transformation—supplier and customer integration added

Multichannel integrationAdvanced customization and configurationSuperb customer service


Strategic Planning Framework (cont.)

Generic competitive strategy vs. cooperarative strategy

Competitive strategy assumes fighting against all competitors for the purpose of survival and winningCooperarative strategy plans for working together with specific competitors to gain advantage against other competitors


Generic Competitive Strategies

Offensive strategy— usually takes place in an established competitor’s market

Frontal Assault— attacker must have superior resources and willingness to persevere Flanking Maneuver— attack a part of the market where the competitor is weak

Defensive strategies— takes place in the firm’s own current market position as a defense against possible attack by a rival

Raise structural barriersLower the inducement for attack


Generic Cooperative Strategies

CollusionActive cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal)

Strategic AlliancePartnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial


Generic Cooperative Strategies (cont.)

Joint VentureA way to temporarily combine the different strengths of partners to achieve an outcome of value to both

Value-Chain PartnershipA strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage


Sviokla’s Strategy

What is the company’s digital business strategy?

What is the right value proposition for a new business model?EC ventures don’t fit neatly into established business categoriesTraditional strategies probably won’t fly either

What is the right organizational structure?

Existing company structures designed to sustain existing marketplace modelCompanies usually need to realign their structures to:

Break functional “silos”Meet different business needs


Sviokla’s Strategy (cont.)

What is the best capital structure?

Capital markets tend to reward innovative capital structuresThey are buying the future, not the pastVery risky due to overvaluation

What is the correct technology platform?

Companies succeed online only with IT designed for a digital economyEC technology must integrate seamlessly with:

Customer call centerBillingShipping systems


Mougayar’s Approach

What questions should a strategic plan answer?

How is Electronic Commerce going to

change our business?

How do we uncover new types of

business opportunities?How can we take advantage of new electronic linkages with customers and trading partners?


Mougayar’s Approach (cont.)

Will intermediaries be eliminated in the process? Or do we become intermediaries ourselves?How do we bring more buyers together electronically (and keep them there)?How do we change the nature of our products and services?Why is the Internet affecting other companies more than ours?How do we manage and measure the evolution of our strategy?


Ware’s Approach

Ware et al.’s seven-step model e-strategy asks the following basic questions:

Where are you along the continuum of possible EC applications?Where do you want to go?How are you going to get there?


Ware’s Approach (cont.)

Seven-step model e-strategyStep 1: create a map of scenarios for aligning business strategy and Internet initiatives in the futureStep 2: communicate a vision from top management to drive Internet initiativesStep 3: identify and transform key value constellations (specifically core practices and processes)


Ware’s Approach (cont.)

Seven-step model e-strategy (cont.)Step 4: develop portfolio of EC initiatives the company wants to pursueStep 5: develop year-by-year objectives and plans for chosen initiativesStep 6: implement the changeStep 7: monitor the overall plan, learn lessons, adjust, improve


Strategic E-Breakout Methodology

Initiation stageEnvisions potential strategic changeConfirms top management supportDetermines project schedule

Diagnosis stageGathers information about strengths, weaknesses, opportunities, and threatsAsses company and industry processesBenchmarks e-business technologies

Kettinger and Hackbarth Methodology


Kettinger and Hackbarth Methodology

E-breakout stageFormulates an e-business strategy with objective of breaking out of the boxUsing e-business technology to transform processes and peopleTo better compete in dynamic global marketplace

Transition stageRecognizes reality that e-breakout may not be immediately obtainable because of a company’s unwillingness to changeServes as a gap strategy that allows incremental steps to the e-breakout strategy


Issues in Strategy Formulation

EC strategies in small businessesSenior managers tend to:

Know the whole spectrum of businessPossess knowledge and authority to lead EC venture


Issues in Strategy Formulation (cont.)

How to handle channel conflictsLet established old-economy-type dealers handle e-business fulfillmentSell some products only onlineHelp your intermediaries (e.g., build portals)Sell online and off-lineDo not sell online



How to handle conflict between off-line and online businesses in a click-and-mortar situation

Clear support of top managementUse of innovative processes that support collaborationClear strategy of “what and how”



Pricing strategySetting prices lower than off-line business may lead to internal conflictSetting prices at the same level may hurt competitiveness



Where to compete:Current positionBackward or forward in the supply chainMove horizontally to new businessesPlay different roles

InfomediaryCommunity creatorContent providerPortal builderAggregator



Should you get financing from big venture capital firms?

VC financing causes loss of control over businessBenefit: access to various VC experts and get the cash you need

Should you join an exchange?

Several benefitsMany costs and limitationsDecide early—exchange may provide sell-side or buy-side infrastructureWhich exchange to join?


Implementation EC Plan

Starts with organizing a project teamUndertake a pilot project (help discover problems early)

Implementing ECRedesigning existing business processesBack-end processes must be automated as much as possibleCompany must set up workflow applications by integrating EC into existing accounting and financial back-ends


Evaluating Outsourcing

Factors to consider:Ease of configuration and setupDatabase and scripting supportPayment mechanismSample storefrontsWorkflow managementDocumented database supportIntegration into existing accounting and financial back endsWhich services to outsource


Issues in Strategy Implementation

Partners’ strategyMany potential partners, may need severalCompanies that make B2B e-marketplaces consider:

LogisticsTechnologyE-payment partners

How to coordinate B2B and B2CSelling direct is creating a B2C businessCoordination between the two can be done in different ways


Strategy and Project Assessment

Need for assessmentFind out if EC project delivers what it was supposed to deliverAdjust plans if necessaryDetermine if EC project is still viableReassess initial strategy in order to learn from mistakes and improve future planningIdentify failing projects as soon as possible and determine reasons for failure


Strategy and Project Assessment (cont.)

Measuring results; watch for:Goals may be unrealistic

Web server was inadequate to handle demandExpected cost savings were now realized

Exploding application requests from various functional areas in the company may follow

Review requirements and design documentsDevelop thorough checklistPose a set of questions to assess impact of EC project


Strategy and Project Assessment (cont.)

Finalization and adjustmentsActual ROI can be computed and compared to the projected oneIf sales expectations were not met, review marketing effortsWeb assessment based on collected information

Corrective steps might be requiredProduct offerings to pricing strategyWeb promotion to review software vendors


EC Metrics

Metrics include benchmarks in different areas related to EC implementation and strategy

Define and refine business modelsCommunicate strategyTrack performanceIncrease accountabilityAlign objectives of individuals, departments, and organizations


EC Metrics (cont.)

Balanced scorecard—managers focus on short-term financial results and

Finance—including both short- and long-term measuresCustomers—how the customers view companiesInternal business process—finding areas in which to excelLearning and growth—sustainability to change and expand


EC Metrics (cont.)

Scorecard approach to EC—seven sets of metrics

FinancialCompetitive leadershipMarketingTechnology ServiceInternet siteBrand


EC Metrics (cont.)

Performance dashcardDivided into 5 desired outcomes and 5 corresponding metricsMetrics are mapped with leading and lagging indicators of performance, leading to calculated targetsStrategies are then evaluated and reformulated


EC Failures and Lessons Learned

E-Tailing failuresLack of fundingIncorrect revenue model

Exchange failuresRevenue growth too slowNeed to move to new business model

EC initiative failuresOther failures


Table 16-3Critical Success Factors for EC


12 Truths About How the Internet Really Works

Internet not as disruptive to business as we thoughtIf it doesn’t make cents, it doesn’t make senseTime favors incumbentsMaking a market is harder than it looksThere is no such thing as “”Internet time”“Branding” is not a strategy


12 Truths About How the Internet Really Works (cont.)

Entrepreneurship cannot be systematizedInvestors are not your customersInternet still changes everythingInternet changes your jobDistinction between Internet companies and non-Internet companies is fading fastReal wealth creation is yet to come


Managerial Issues

Considering the strategic value of ECConsidering the benefits and risksIntegration is criticalMetrics are beneficialPilot projects are usefulImplementing policies and strategies must be written

Chapter 16 EC Strategy and Implementation

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Transcript of Chapter 16 EC Strategy and Implementation