Lecture 3( January 25, 2003)

Personal Productivityand

Business Operations

Case AnalysisEntrepreneurial industry: Amazon Co.

SMEs and Entrepreneurs

Small and Medium-sized Enterprises (SME)

- family business

- small scale

- certain criteria for members of SME association

or government grants

- not listed (just announced on 26 Dec 2002, conditions for SME supports to be

relaxed)

SMEs and Entrepreneurs

Entrepreneurs

- “oddballs”

- doing business for themselves

- a new way to do things or to market a new product

- a person who risks his or her livelihood to start a business from scratch

Entrepreneurial industry

• The change – thriving and vibrant• From not getting respect to being admired

and sought after• From failure in corporate ladder to became

desired mind-set for corporate to succeed • Relying more and more on

microcomputers due to decreasing costs and availability of off-the-shelf application systems

Some considerations

• High risks, high returns• To be your own boss, try your best and prepare for the

worst• A good idea or product is not enough, creating demand

or market to grow• Capitalize on current trends, e.g. internet has exploded

as it makes data gathering so much faster when people seem to have less time to spare

• Use technology to give an edge• Grab incentives and grants from government in our local

context

Business Operations & Transactions

• A transaction is the exchange between individuals, areas or companies

• All business revolves around transactions• The basic element of a transaction is data• Data elements are combined or collected

to produce information• Technology’s first step has always been to

capture, store and manipulate the basic data that surround a transaction

Retail sales

• Retail sales industry encompasses all sales to end-product users, the consumers of the world

• Retail sales generate the most transactions• It is expanding as new and innovative means of reaching

customers continue to be developed• Internet as a new media for retail sales will capture a

bigger piece of the retail shopping market as consumers are more pressed for time

• Transaction processing systems are the oldest type of retails information systems. Customer Relationship Management (CRM) and data warehousing technologies are being used to obtain, gather and analyze customer data/purchasing habits etc

POS and NETS

• POS (Point Of Sales)• NETS (Network for Electronic Transfers (S) Pte Ltd)• Capture transaction data at the location and time the

transaction occurs• Accuracy of data is maintained• Up-to-date information can be used almost immediately• Amount of data and information used is enormous• Data obtained easily and voluntarily (active or passive)

from consumers

Technological investments and analysis

Using technology and tools to– Improve work efficiency– Increase productivity– Gain competitive advantage– Cut cost– Project image– Identify trends– Support decision making

Some basic personal tools

• Microsoft Word, Excel, PowerPoint, Access and FrontPage

• Web browsers and e-mail facilities

• Similar tools and other vendor products like Star Office, Chinese software

• Licensed product and freeware downloadable from the internet

Advanced technology is costly

• Cautious investments on technology

• Success and failure stories

• Factors to analyze

• Leader or follower

• Conservative or risk taker

• Corporate worker or entrepreneur

HIGH

TIME

application of technology

opportunity cost risk

risk

LOW

HIGH

LOWTIME

technology risk

financial risk

acceptance

Cost and benefits

• More cost, more benefits may be, but not directly proportional and may be not • Determine the functions/facilities required• Distinguish the need to have from the nice to have• Choose the options and add-ons available• Relevancy and obsoleteness• Return of investments• Incentives such as tax concessions and grants

availability• Prestige and image

Some local assistance scheme

• Start-up assistance• Same year depreciation on technical assets• Economic grouping• Information and advice – SME FirstStop• Subsidy on cost of external consultancy services• LEFS -- local enterprise finance scheme• LETAS -- local enterprise technical assistance

scheme• LIS – Loans insurance scheme• MicroLoan Programme

Case Analysis: Amazon Co. www.amazon.com

the online internet bookstore a Seattle based Fortune 500 company July 1995 start-up founded by Jeff Bezos, systems developer, Bankers Trust, New York average visitors 2,200 daily (December 1995) average visitors 50,000 daily (December 1996) average visitors 80,000 daily (December 1997) in November 1998 alone, there were 8,000,000 visits which work out to around 267,000 daily

market leader

inventory of 2.5 million books

competitive prices

superior customer service

stock value USD 300 m

USD 15 b in market capitalization

defensible market position

Stock performance

IPO in May 1997 @ USD 18 per share

Share price rose to USD 31 before closing @ 23.5, a 30% premium

Share price once rocketed to USD 220 per share (April 1999) and the low and high for the past two years was around 5 to 25 USD respectively

Best performing stocks

STOCK ANNUALIZED RETURN

Amazon.com +496%Yahoo +214%MindSpring +152%EarthLink +143%@Home +135%CMG +108%Onscale + 93%Broad Vision + 57%Mecklermedia + 52%

Net Profit/Loss to Sales

-200

-100

0

100

200

300

400

500

600

700

1995 1996 1997 1998

sales

net profit/loss

Net Profit/Loss to Sales

sales net loss

1998 610m 124m

1999 1310m 720m

2000 2760m 1410m

2001 3120m 567m

1Q2002

2Q2002

3Q2002

847m

806m

851m

23m

94m

35m

Losses despite increasing sales

• Losses were expected for the first five years, accumulated losses already reached 3 b USD

• Low margins on sales due to competitive pricing and superior customer service

• Technology investments and overheads such as aggressive advertising

• Commitment to gain market share at the expense of profitability

Challenges ahead

• It’s all about the long term• Must establish itself as the dominant

player before the internet becomes crowded with competitors

• Although online retailers do not have the burden of maintaining physical stores, this is precisely current and new competitors can launch new sites easily and take away a share

Information broker

co

products customers

consumers looking for booksbooks

publishers looking for consumers

More than books

• Publishers and traditional book retailers cannot easily obtain demographic and behavioral data about customers, limiting opportunities for direct marketing and personalized services.

• Online retailers are taking the advantage of increase functionality, accessibility and overall usage of the Internet.

• Amazon.com added CDs in 1999. Videotapes, audiotapes, digital video discs and computer games were than added later. Next were electronics and software.

• Go to the website www.amazon.com to see the wide varieties of merchandise and its design.

Components of successful online sells

– specialty services– customer privacy– timely customer response– follow-up (e-mail)– more than sell books, offers information about

books such as customer reviews and author interviews

– customer reviews, input information on customers’ tastes

– discounts in various forms

Competition from online & traditional bookstores

Internet Bookshop www.bookshop.co.uk 1.4 m titles Bookstacks www.books.com 4 m titles (taken over by Barnes & Noble ) Barriers to internet entry are minimal. Current and new competitors can launch new sites at a relatively

low cost. The big names in the retail industry, Barnes & Noble Borders Books have devoted substantial brick-and-mortar resources

to online commerce. (www.bn.com or www.barnesandnoble.com and www.borders.com)

Note that www.borders.com has been taken over by amazon.com

Into the future

• More than books• Acquisitions: online bookseller Bookpages (UK) online bookseller Telebook (Germany) Internet Movie Database (UK) US web-based companies Junglee & PlanetAll• Improve distribution & delivery• From a go-to site to a go-through site• Aspirations:

– Wal-Mart of the internet– to become an e-commerce

Resources & Reading Materials

Chapters 2, 3 and 4 of textbooks.

www.spring.gov.sg

www.sdf.gov.sg

www.amazon.com