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E-Strategy, Internet Communities,

and Global EC

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E-Strategy: Concepts & Overview

Strategy—search for revolutionary actions that will significantly change the current position of a company, shaping its future

Finding the position in a 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

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Elements of Strategy

Elements of a strategyForecastingResource allocationCore competencyEnvironmental analysisCompany analysisBusiness planning

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Types of E-Strategies

EC strategy (e-strategy)—an organization’s strategy for use of e-commerce or e-business

Click-and-mortar companies that use many 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

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Need for a Strategy

Why does a company need an e-strategy?Fast changes in business and technology means that 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

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Charles Schwab’s EC Strategy

In 1998 Schwab launched schwab.com—one of the first click-and-mortar stockbrokers

Changed the company pricing structure radically

Took a short-term revenue lossLooking toward a long-term strategic gain

EC strategy fit well with company’s overall strategy emphasizing a one-to-one relationship with its customers

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Charles Schwab (cont.)

Schwab had first-mover advantage in securing key partnerships

Schwab and Nextel agreed to build an infrastructure allowing investment opportunities over mobile phones or wireless handheld devicesInitial target was existing off-line customers with incomes over $150,000 a year and who buy and holdKey benefits:

Innovative products Superior serviceLow fees Cutting-edge technology

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Charles Schwab (cont.)

Partnered with content providers and technology companies to offer:

Large number of financial services onlineCommunity and personalized services

Financial model composed of three parts:

The revenue modelThe value modelThe growth model

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Charles Schwab (cont.)CyberTrader's services are designed for online, self-directed active traders who use short-term trading strategies to generate current income Cybertrader features include:

Nasdaq Level II quotes Direct Access trading capabilities Risk management toolsGraphical decision support modules Streaming NewsIntelligent order routingDirect options routing

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E-Strategy Landscape

Strategy initiation: organization prepares information about its vision,mission,purpose,and the contribution that EC could make to the businessStrategy formulation:

Identification of EC applicationsCost-benefit analysisRisk analysis

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E-Strategy Landscape (cont.)

Strategy implementation: Organization’s resources are analyzedA plan is developed for attaining the goals

Strategy assessment: Organization periodically assesses progress toward the strategic goalsInvolves the development of EC metrics

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Exhibit 11.1The Landscape of EC Strategy

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Strategy Initiation

Strategy initiation—the initial phase of e-strategy in which an organization prepares information about its vision, mission, purpose, and the contribution that EC could make

1. Review the organization’s business and IT vision and mission

2. Generate vision and mission for EC3. Begin with industry and competitive

analysis

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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?

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Company Assessment

The organization investigates its own:

Business strategyPerformance Customers Partners

It looks at everything that has an impact on its operations

ProcessesPeopleInformation flowsTechnology support

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Industry, Company, andCompetitive Analysis

SWOT analysis—a methodology that surveys the opportunities and threats in the external environment and relates them to the organization’s particular strengths and weaknessesSWOT Analysis

StrengthsOpportunitiesWeaknesses Threats

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Exhibit 11.2SWOT Matrix

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Competitive Intelligence on the Internet

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

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

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Competitive Intelligenceon the Internet (cont.)

Analyze related discussion groupsFind out what people think about a company and its products and competitor's productsReaction to new ideas and products

Use information delivery servicesFind out what it published on the InternetKnown as push technologies

Corporate research companies provide information about your competitors:Examine chat rooms

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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?

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Should You Have a SeparateOnline Company?

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

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Strategy Formulation

Strategy formulationDevelopment of long-range and strategic plans to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses

Includes examining or redefining EC mission

Specifying achievable objectivesDeveloping strategiesSetting implementation guidelines

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Discovering 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”

Any of the above can be risky and costly

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Discovering EC Opportunities (cont.)

Approaches to identifying EC opportunities

Problem-drivenTechnology-drivenMarket-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

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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

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EC Application Portfolio

Strategy based on company fit (assessed by five levels from high to low)

Alignment with core capabilitiesAlignment with other company initiativesFit with organizational structureFit with company’s culture and valuesEase of technical implementation

Project’s viability—assessed by 4 criteria

Market value potentialTime to positive cash flowPersonal requirementsFunding requirements

Tjan’s portfolio strategy—Internet portfolio map

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Exhibit 11.4Tjan Application Portfolio Map

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Strategic Directions at Chubb

Typical choice of EC model at Chubb 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

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Chubb Corp. (cont.)

Use EC as a tool within the existing business model (the selected model)

Helped Chubb 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

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Making the Business Case for EC

Business case—written document that is used by managers to garner funding for specific applications or projects by providing justification for investments

Provides foundation for tactical decision making and technology by managementHelps clarify the company’s use of its resources to accomplish the e-strategy

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Content of an E-Business Case

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

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Content of an E-Business Case (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?”

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Cost-Benefit and Risk Analysis

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

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Cost-Benefit and Risk Analysis (cont.)

It is difficult to justify EC investment due to many intangible variables

Return on investment (ROI)Discounted cash flow

Two common methodsValue propositionRisk analysis

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Value Proposition

Value proposition—the benefit a company can derive from implementing a new project, such as EC, usually by increasing its competitiveness and by providing better service to its customers

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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 risksFinancial risksOperational risks

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Issues in Strategy Formulation

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

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Issues in Strategy Formulation (cont.)

How to handle conflict between off-line and online businesses

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

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Issues in Strategy Formulation (cont.)

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

Should you get financing from big venture capital firms?

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

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Strategy Implementation

Strategy implementation--The execution of the e-strategy plan, in which detailed, short-term plans are developed for attaining strategic goals

Establish a Web team that continues the execution of the planStart with a pilot projectPlanning for resources

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Strategy Implementation (cont.)

Strategy implementation issuesEvaluating outsourcing

Build an in-house EC infrastructurePurchase a commercial EC software package or EC suiteUse a Web hosting company

Partners’ strategyHow to coordinate B2B and B2C

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Strategy and Project AssessmentStrategy assessment—the periodic formal evaluation of progress toward the organization's strategic goals; may include needed actions and strategy reformulationObjectives of assessment

Find 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

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Measuring Results & Using Metrics

Metric—a measurable standard or a target against which actual performance is compared

Response time to customers’ enquiriesResponse qualitySecurity/trust levelDownload time,Timeliness of fulfillmentHow up-to-date informationAvailabilitySite effectiveness, ease of use, and navigability

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Measuring Results & Using Metrics (cont.)

Balanced scorecard—a structured methodology for measuring performance in organizations, using metrics in four areas

FinanceCustomers’ assessmentsInternal business processesLearning and growth

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Measuring Results & Using Metrics (cont.)

Performance dashboard—a structured methodology proposed by Rayport and Jaworski (2001) for measuring EC performance using:

Desired outcomesCorresponding metricsLeading and lagging indicators of performance

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EC Failures & Lessons Learned

E-Tailing failuresLack of fundingIncorrect revenue model

Exchange failuresRevenue growth too slowNeed to move to new business model

EC initiatives failuresLevi Strauss stopped online direct sales of its apparel (levistrauss.com) when major distributors and retailers put pressure on the company not to compete with their brick-and-mortar outlets

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Success Stories & Lessons Learned

Reasons for success:Brick-and-mortar companies add online channelsMergers and acquisitionsPeter Drucker:

Analyze the opportunitiesGo out to lookkeep it focusedStart small (one thing at a time)Aim at market leadership

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Success Stories & Lessons Learned (cont.)

Asian CEOs CSFs: Select robust business modelsUnderstand dot-com futureFoster e-innovationEvaluate a spin-off strategyCo-brandEmploy ex-dot-com staffersFocus on the e-generation as your market

Get the technology right, avoid expensive technology and technology malfunctions

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Virtual Communities

Virtual community—a group of people with similar interests who interact with one another using the InternetElements of interaction:

Communication—bulletin boards, chat rooms/threaded discussions, e-mail and instant messagingInformation—directories and yellow pages, search engine, member-generated contentEC elements—e-catalogs, shopping carts, ads, auctions of all types

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Virtual Communities (cont.)

Communities of transactions—facilitate buying and sellingCommunities of interest—people interact with each other on a specific topic

Communities of relations (practice)—organized around certain life experiencesCommunities of fantasy—share imaginary environments

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Virtual Communities (cont.)

Commercial aspects of community:Understand a particular niche industryBuild a site that provides valuable informationSite should mirror the steps a user goes through in the information-gathering and decision-making processBuild a community that relies on the site for decision supportStart selling products and services that fit into the decision-support process

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Exhibit 11.9Value Creation in E-Communities

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Virtual Communities (cont.)

Financial viability of communitiesBased on sponsorship and advertisementExpenses are very high because of the need to provide:

Fresh contentFree servicesFree membership

This model did not work well, many companies sustained heavy losses in 2000-2001; too few members, too few purchases

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Virtual Communities (cont.)

Key strategies for successful online communities1. Increase traffic and participation 2. Focus on the needs of the members (facilitators

and coordinators)3. Encourage free sharing of opinions and information4. Financial sponsorship is a must5. Consider the cultural environment6. Provide tools and activities for member use7. Community members involved in activities and

recruiting8. Guide discussions, provoke controversy, and raise

sticky issues

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Going Global

Decision to go global is a strategic oneGeographical borders are fallingArtificial borders are being erected through

Local language preferences,Local regulationsAccess limitations

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Benefits and Extent of Operations

Major advantage of EC—ability to do business any time, anywhere, rapidly at a reasonable costSuccess stories

E*TRADE or boom.com as your broker for stock tradingAmazon.comSmall companies sell to hundreds of customers worldwide (virtualvine.com)Increasing number of out-of-the-country vendors participate in electronic requests for quotesSuccessful employees recruitmentSuccessful collaboration in B2B exchanges

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Barriers to Global Electronic Commerce

Legal IssuesUncoordinated actions must be avoided and an international policy of cooperation should be encouraged

Market Access IssuesCompanies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations

Financial IssuesCustoms and taxationElectronic payment systems

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Small Business Goes Global

Cardiac Science—trying to break into the international market for years

Within 2 years after Internet inception in the company, it was shipping its products to 46 countriesToday, 85 percent of the company’s revenue is international, much of this is executed at (cardiacscience.com)

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Small Business Goes Global (cont.)

Advice for small businesses going global at:Universal Business Exchange (unibex.com)Several government agencies (stat-usa.gov)

Cardiac’s CEO “crafting a solid export strategy takes a lot more commitment than putting up a snazzy Web site and waiting for the world to show up at our door. It’s all about building relationships.”

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Barriers to Global Electronic Commerce (cont.)

Other IssuesLanguage and translation

Primary problems are cost, speed, inaccuracy

LocalizationAdapt local business practices

CultureMultiple cultures warrant different marketing approaches

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Attracting Japanese Customers to Your Site

English-Japanese Promotion (ajpr.com)Helps clients avoid the mistakes often made when they selling to the Japanese customersTarget audience uses Japanese-only Web search enginesAlert companies when logos or themes are likely to strike a sour chord with Japanese sensibilities

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Japanese Customers (cont.)

Japanese respond well to symbols or charactersProduct should be geared to Japanese males in their twenties and thirties

Ajpr.com also provides help to Japanese companies develop English versions of their sites

Provides localization adviceAdvertising Document translationConsulting services

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Breaking down theGlobal EC Barriers

Value the human touchBe strategicKnow your audienceBe a perfectionistRemember, it’s the WebIntegrate properly

Keep the site flexible and up-to-dateSynchronize contentOECD (oecd.org) read“Dismantling the Barriers to Global EC”

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EC in SMEs

Advantages/benefits of EC in SMEsInexpensive

Source of informationAdvertising Conducting market researchBuild (or rent) a storefrontLow transaction costsNiche markets are bestProvide catalogsWay to reach worldwide customers

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EC in SMEs (cont.)

Disadvantages/risksInability to use EDI, unless it is EDI/InternetLack of resources to fully exploit the WebLack of expertise in legal issues, advertisementLess risk tolerance than a large companyDisadvantage when a commodity is the product (for example, CDs)No more personal contact, which is a strong point of a small businessNo advantage to being in a local community

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Critical Success Factors for SMEs

Capital investment must be smallInventory should be minimal or non-existentElectronic payments schemePayment methods must be flexibleLogistical services must be quick and reliableThe Web site should be submitted to directory-based search engine services Join an online service or mall and do banner exchangeDesign a Web site that is functional and provides all needed services to consumers

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Supporting Small Business

Technical support from IBM (for a fee of only $25 per month) at ibm.com.search:businesscenterDigital’s virtual storesMicrosoft’s Personal Web Server (PWS)U.S. government at ecommerce.govGartner Group provides access to online research material at gartner.com

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Business Process Reengineering (BPR)

Organizational transformation—the process of completely or drastically transforming an entire organization to a new mode of operationBusiness process reengineering (BPR)—a methodology for comprehensive redesign of an enterprise’s processes

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BPR (cont.)

Redesign of the enterprise process and BPRDoes not make sense to automate poorly designed process—so restructureNecessary to change processes to fit commercially available softwareFit is required between systems and processes of different companiesChange processes to fit procedures and standards of public e-marketplacesAdjust procedures and processes to align with available services (logistics, payments, security)Changes to assure flexibility and scalability

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Workflow Technologies

Workflow system—software programs that manage all the steps in a business process from start to finish, including all exception conditionsTwo categories:

Collaborative workflow—products address project-oriented and collaborative processesProduction workflow—tools address mission-critical, transaction-oriented processes

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Virtual Corporations

Virtual corporation—an organization composed of several business partners (some of whom may be pure-play EC players) sharing costs and resources for the production or purchasing of a product or serviceMajor attributes of VCs:

Utilization ExcellenceOpportunism Lack of bordersTrust Adaptability to changeTechnology

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The Future of EC

Internet usageOpportunities for buyingM-commercePurchasing incentivesIncreased security and trustEfficient information handingInnovative organizationsVirtual Communities

Payment systemsBusiness-to-businessB2B exchangesAuctionsGoing globalE-government--comprehensiveIntrabusiness ECE-learning

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EC Technology Trends

ClientsEmbedded clientsServers Networks Wireless communications

EC software and servicesSearch enginesP2P technologyIntegrationWearable devices

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The Digital Divide

Digital divide—the gap between those who have and those who do not have the ability to access electronic technology in general, and the Internet and EC in particular

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Integrating Marketplace and Marketspace

Click-and-mortar organizationHow to cooperate in planning, advertising, logistics, resource allocationHow to align the strategic plansB2C ordering systems

The impact of EC on our lives may be as much as, or more than that of the Industrial Revolution

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Managerial Issues

What is the strategic value of EC to the organization?What are the benefits and risks of EC?What metrics should we use?Can we do a pilot project?Do we have a community?How can we go global?Can we learn to love smallness?Is restructuring needed?

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Summary

Importance of strategic planning for ECThe strategy planning and formulation processApplication discovery, justification, and prioritizationEC strategy implementation and assessment

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Summary (cont.)

Understanding failures and learning from themThe role and impact of virtual communitiesIssues in global ECSmall businesses and ECRestructuring and virtual organizationsThe future of EC