Chapter 4 The Business Environment. Copyright © 2003, Addison-Wesley Profit, ROI, and Risk Profit =...

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Chapter 4 The Business Environment

Transcript of Chapter 4 The Business Environment. Copyright © 2003, Addison-Wesley Profit, ROI, and Risk Profit =...

Chapter 4

The Business Environment

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Profit, ROI, and Risk

Profit = revenue – cost Enhance profit by:

Increasing revenue Reducing cost

Ultimate source of investment funds Source of return on investment

Business investment is risky Higher rate of return required

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Figure 4.1 The business planning hierarchy.

Corporatestrategy

Marketingstrategy

Informationtechnology

strategy

Human resourcesstrategy

Product strategyE-commerce

strategy

Objective: define long-term direction

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A Startup Business Plan

A.k.a., path to profitability Contents

Product Market Competitors Customers Risks Financials

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Figure 4.2 Elements of a business plan.

Business description

Sales and marketing

Finance

The market

The product

Management team

Industry overview, mission statement, the company's products orservices, company's position in the market, pricing strategies,competitive advantage.

Current status of product or service, production or service deliveryprocess, design/development budget, labor requirements, operatingexpenses, capital requirements, cost of goods.

Target customers, market size, target market, competitors, estimatedsales.

Plans for identifying potential customers and converting them toactual customers, distribution channels, advertising and promotionplan.

Risk assessment, cash flow, balance sheet, income statement,funding needs, return on investment, payback, net present value.

Owners and controlling stockholders, management structure, boardof directors, management support services.

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Competitive Advantage

Competitive Advantage:

An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition.

The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage. There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers.

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Competitive Advantage

Something that Your company can do Your customers want (or value) Your competitor cannot or will not match

Sources of competitive advantage Unique product Price Quality Cost controls and efficiency

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Competitive Advantage

Big Bang Disruptors:

Tom Tom Garmin Magellan

Block Buster West Coast Video

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Figure 4.3 The value chain.

Conflicting objectives Local process efficiency Organization-wide efficiency

Inboundlogistics

Productionprocesses

Outboundlogistics

Sales andmarketing

Customerservice

Information technology infrastructure

Upstream Downstream

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The value chain

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Conflicting Objectives

Process objectives can conflict Sales wants full warehouse Minimize inventory carrying cost You can have it fast, you can have it

cheap, or you can have it right. Pick any two.

Need for trade-offs to balance

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Figure 4.4 The supply chain.

Conflicting objectives again Company vs. company

Upstream Downstream

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E-Commerce Business Environment

Low cost of entry Global reach Huge potential markets Intense competition

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Figure 4.5 The three categories form an integrated structure.

B2C(Customer focus)

Intra-business(Value chain focus)

B2B(Supply chain focus)

Integration is the future of e-commerce.

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Figure 4.6 The three categories are applications that communicate with each other via the infrastructure.

Another way to view integration

B2C

The World Wide Web

The Internet

The global data communication network

Intra-business

B2B

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Figure 4.7 A B2C transaction and a supply

chain purchasing transaction are similar.

Supply chain links value chains

Categories somewhat arbitrary

Categories are a model

Purchasing(B2B)

Sales(B2C)

Corporate sales(B2B)

...

Acme's Value Chain

The Soup-to-Nuts value chain

Retail customer

Customer's value chain

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Digital Products

Potential killer applications/services Software Recorded music Digital books Information services

Diminishing returns does not apply E-commerce is a digital technology

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The law of diminishing returns applies to physical products.

Unitcost

Quantity

At some point, unit cost increases with volume.

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Digital products do not experience diminishing returns.

High startup cost First copy

Low incremental cost After breakeven

Pure profit

Unitcost

Quantity

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Intermediaries

An intermediary is a middleman Disintermediation

Eliminating the middleman Sometimes claimed as e-commerce

benefit Reintermediation

New middlemen replace the old ones An e-commerce reality

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Figure 4.8 Intermediaries.

Party A Intermediary Party B

Infrastructure hardware and software providersConnectivity providersBandwidth providersWebsite service providersWeb information system service providersSecurity service providersInformation service providers

Intermediaries provide services that lie off the value chain.

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Figure 4.9 Some intermediaries.

Connectivity providersTelephone service providersWireless service providersInternet service providersCable service providersCommon carriers

Web information system serviceprovidersApplication service providersSystem development consultingDevelopment softwareEnterprise portal softwarePlugins and gateways

Business service providersPayment systemsAdvertising servicesSupply chain managementManaged service providersCustomer relationship managementFinancial software and servicesBrokersAuction sites

Bandwidth providersBackbone providersNetwork Service Providers (NSP)Networp Access Points (NAP)Value Added Networks

Website service providersWebsite design and developmentManagement consultingWebsite hostingContent managementContent distributionWebsite usage measurementHTML editorsStorage systemsDatabase software

Infrastructure hardware and software providersDomain name registriesNetwork hardware and softwareRouters and switchesLoad balancersClient and server computersPeripheralsOperating system softwareCommunication hardwareCommunication softwareApplication softwareWeb browser and server softwareGroupware

Security service providersAnti-virus softwareFirewallsEncryption softwareIdentification and authenticationDisaster recovery servicesVirtual private networks

Information service providersPortals, destinations,marketplacesSearch enginesVirtual communitiesPrivacy servicesRating servicesShopping Bots

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Negating Location

Geography no longer matters Global competition

Example—writing this textbook Participants

The authors (Florida and Ohio) The publisher (Boston) Production (New England) Printing and warehousing (Indiana)

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Figure 4.10 A manuscript page.

Created by the authors Florida Ohio

MS Word

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Figure 4.11 Rough art.

Created by the authors

Florida Ohio

Visio

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Figure 4.12 A copy edited page

Copy editor in Massachusetts

MS Word

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Figure 4.13 A finished page.

Paging done in Massachusetts

Adobe Acrobat

All electronic communication

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Figure 4.14 Bots.

Bot is an intelligent agent

Increases customer power

Source: www.botspot.com

Bot Category Allows you to:

Chatter bots Chat with the cyberworld

Commerce bots Perform e-commerce activities on the Web and the Internet

Fun bots Interact with virtual environments and virtual realities.

Game bots Monitor selected online games or act as a skilled opponent

Government bots Find information on government Web sites

Knowledge bots Utilize various artificial intelligence (AI) agents

News bots Create custom newspapers or manage a clipping service

Search bots Use an intelligent agent to search the Web

Shopping bots Comparison shop, often by price

Software bots Obtain software fixes, diagnose problems, and create bots

Stock bots Monitor stock prices

Update bots Obtain update alerts when selected Web content changes

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Figure 4.15 The competitive advantage model.

Stimulus for action

First major move

Customer acceptance

Competitor catch up moves First mover expansion moves

Commoditization

The two yellow boxes represent activities that happen simultaneously.

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Figure 4.16 Time for technologies to reach 50 million users.

Technology First use 50M Elapsed users years

Radio 1922 1963 38Broadcast television 1950 1963 13Cable TV 1976 1986 10Commercial Internet 1994 1999 5

Based on Morgan Stanley Dean Witter, The Global Internet Primer,Volume I, June 2000, page 12.

Note the acceleration!

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Figure 4.17 The accelerating pace of innovation.

Textbook 1980—36 months 2000—21 months Lose 40% of

competitive advantage

Rapid obsolescence Time to market is key Delay means lost

opportunity

Readiness Intensity Impact

Level ofactivity

Time

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User Adoption of Technology

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User Adoption of Technology

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Gartner Hype Cycle

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Selected Technology Milestones Over the Past Forty YearsSource Gartner

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Evolving E-Commerce Business Strategies

Danger—everything becomes a commodity Frictionless e-commerce No competitive advantage for anyone

Brand name matters more than ever Brand name reduces perceived risk Bricks-and-clicks strategy

Reduced cycle time is a key objective Reduce time to market React quickly to change

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Figure 4.18 The 20 top technology-related brand names in the US.

This list is from 2001

How would it change today?

Rank Brand Name Rank Brand Name 1 Napster 11 Microsoft Office 2 Disney 12 Intel 3 Windows 13 WebTV 4 Microsoft 14 Sony 5 Replay TV 15 WebMD 6 TiVo 16 Yahoo! 7 MP3 17 Norton 8 eBay 18 Adobe 9 Pixar 19 Palm Pilot 10 Pentium 20 Blue Mountain

Source: "Marks of Distinction, the Tech Brands that GrabInternet Users Worldwide," Wired, July 2001, page 76.

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2013 The 10 top technology companies

1. Apple, Inc., United States – $156.5 billion2. Samsung Electronics, South Korea – $149 billion3. Hewlett Packard, United States – $120.35 billion4. Foxconn, Taiwan – $117.51 billion5. IBM, United States – $106.91 billion6. Panasonic, Japan – $99.65 billion7. Toshiba, Japan – $74.39 billion8. Microsoft, United States – $73.72 billion9. Sony, Japan – $67.4 billion10. Dell, United States – $62.07 billion

http://www.therichest.com/business/the-top-ten-tech-companies-in-the-world/

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Information Technology as Strategic Tool

Modern business is Extremely competitive Changing at an accelerating rate

Impossible to keep current manually Information technology infrastructure

Essential A strategic resource