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1Prentice Hall, 2003

Chapter 11

E-Strategy,Internet Communities,

and Global EC

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Learning Objectives

Describe the importance and essentials of businessand EC strategies

Describe the strategy planning and formulationprocess for EC

Understand how EC applications are discovered,justified, and prioritized

Describe strategy implementation and assessmentincluding the use of metrics

Understand EC failures and lessons for success

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Learning Objectives (cont.)

Describe the role and impact of virtual

communities on ECEvaluate the issues involved in global EC

Analyze the impact of EC on small businesses

Describe the relationship between EC and BPR,knowledge management, and virtual corporations

Describe the future of EC

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IBMs E-

Business Strategy (cont.)

The Solution is based on four goals:

Lead IBMs strategy to transform itself into e-business

Act as a catalyst to help facilitate thattransformation

Help business units become more effective intheir use of the Internet/intranet

Internally

With their customers

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IBMs E-Businesss Strategy (cont.)

Establish a strategy for the corporate Internetsite

Including definition of how it should look,feel and be navigated

Create an online environment mostconducive to customers doing business withIBM

Leverage the wealth of e-businesstransformational case studies within IBM tohighlight the potential of e-business to IBMscustomers

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IBMs E-


E-commerce

E-care for customers

E-care for businesspartners

E-care for influencersE-care for employees

E-procurement

E-marketingcommunications

IBM focused on seven key initiatives:

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IBMs E-


The Results

Implementation of an e-procurement system

that spans IBM globallySaved IBM almost $5 billion over a 3-yearperiod

Electronic invoicing:

Reduces the number of paper invoices

Enables fast, competitive tendering fromits suppliers

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IBMs E-Business Strategy (cont.)

IBMs evaluation of the procurement processdetermined where the use of the Web addsvalue

Identification of more than 20 initiatives toreduce costs and improve purchasingincluding:

Collaboration with suppliers

Online purchasingKnowledge-management-basedapplications

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E-Strategy: Concepts & Overview

Strategysearch for revolutionary actionsthat will significantly change the current

position of a company, shaping its futureFinding the position in a marketplace that bestfits the firms skills

Companys choice of new position that mustbe driven by its ability to find new trade-offsand leverage a new system of complementaryactivities into sustainable advantage

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Types of E-Strategies

EC strategy (e-strategy)an organizations

strategy for use of e-commerce or e-businessClick-and-mortar companies that use manyEC applications

Click-and-mortar companies that use onlyone or two EC applications

Click-and-mortar companies that use one ECapplication that fundamentally changes alltheir business

Pure-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 meansthat opportunities and threats can change in aminute

Company must consider EC strategy that includes

contingency plans to deal with changesMay be too costly not to have one

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Charles Schwabs EC Strategy

In 1998 Schwab launched schwab.comone of the first click-and-mortar

stockbrokersChanged the company pricing structureradically

Took a short-term revenue loss

Looking toward a long-term strategicgain

EC strategy fit well with companys overallstrategy emphasizing a one-to-onerelationship with its customers

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Charles Schwab (cont.)

Schwab had first-mover advantage in securingkey partnerships

Schwab and Nextel agreed to build an infrastructureallowing investment opportunities over mobilephones or wireless handheld devices

Initial target was existing off-line customers withincomes over $150,000 a year and who buy andhold

Key benefits:Innovative products Superior service

Low 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 online

Community and personalized services

Financial model composed of three parts:

The revenue model

The value model

The growth model

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

Cybertrader features include:

Nasdaq Level II quotes

Direct Access trading capabilities

Risk management toolsGraphical decision support modules

Streaming News

Intelligent order routing

Direct options routing

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E-Strategy Landscape

Strategy initiation: organization prepares

information about its vision,mission,purpose,andthe contribution that EC could make to thebusiness

Strategy formulation:

Identification of EC applicationsCost-benefit analysis

Risk analysis

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E-StrategyL

andscape (cont.)

Strategy implementation:

Organizations resources are analyzed

A plan is developed for attaining the goals

Strategy assessment:

Organization periodically assesses progresstoward the strategic goals

Involves the development of EC metrics

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Exhibit 11.1

The

Landscape of EC Strategy

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StrategyInitiation

Strategy initiationthe initial phase of e-strategyin which an organization prepares information

about its vision, mission, purpose, and thecontribution that EC could make

1. Review the organizations business and IT visionand mission

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

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Industry Assessment

What industry is the ECinitiative related to?

Who are the customers?What are the currentpractices of selling andbuying?

Who are the major

competitors? (Howintense is thecompetition?)

What e-strategies areused, by whom?

How is value addedthroughout the valuechain?

What are the majoropportunities andthreats?

Are there any metricsor best practices in

place?What are the existingand potentialpartnerships for EC?

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Company AssessmentThe organizationinvestigates its own:

Business strategyPerformance

Customers

Partners

It looks at everythingthat has an impact on

its operationsProcesses

People

Information flows

Technologysupport

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Industry, Company, and

Competitive Analysis

SWOT analysisa methodology that surveys theopportunities and threats in the externalenvironment and relates them to the organizationsparticular strengths and weaknesses

SWOT Analysis

Strengths

Opportunities

Weaknesses

Threats

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Exhibit 11.2

SWOT

M

atrix

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Competitive Intelligence on the Internet

Internet can play a major role as a sourceof competitive information (competitive

intelligence)Review competitors Web sites

Examine publicly available financial documents

Ask the customersaward prizes to those whobest describe your competitors strengths andweaknesses

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Competitive Intelligence

on 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 Internet

Known as push technologiesCorporate research companies provideinformation about your competitors:

Examine chat rooms

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Issues in Strategy Initiation

Advantages

Chance to capturelarge markets

Establishing a brandname

Exclusive strategicalliances

Disadvantages

Cost of developing ECinitiative is usually veryhigh

Chance of failure is high

System may be obsoleteas compared to secondwave arrivals

No support services areavailable at the beginning

To be a first mover or a follower?

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Should You Have a Separate

Online Company?

AdvantagesReducing or eliminatinginternal conflicts

Providing more freedomto management inpricing, advertising, etc.

Can create new brandsquickly

Take the e-business to anIPO and make a fortune

Disadvantages

May be very costly

and riskyCollaboration withoff-line businessmay be difficult

Lose expertise of

business functionsunless you use closecollaboration

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Strategy Formulation

Strategy formulation

Development of long-range and strategic plans to

exploit opportunities and manage threats in thebusiness environment in light of corporate strengthsand weaknesses

Includes examining or redefining EC mission

Specifying achievable objectivesDeveloping strategies

Setting implementation guidelines

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Discovering EC Opportunities

3 common mistakes in allocating ECinvestment

Let a thousand flowers bloomfund manyprojects indiscriminately

Bet it allput everything on a single high-stakeinitiative

Trend-surffollow the crowd toward the nextbig thing

Any of the above can be risky and costly

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Discovering EC Opportunities (cont.)

Approaches to identifying EC opportunitiesProblem-driven

Technology-driven

Market-drivenwaiting to see what thecompetitors will do

Fear or greed-drivenAfraid if they do not practice EC they will bebig losers

Think they can make lots of money going intoEC

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Determining an Appropriate

EC Application Portfolio

Find the most appropriate portfolio in order to sharelimited resources

Combine long-term speculative investments in newpotentially high-growth business

With short-term investments in existing, profit-making businesses

Boston Consulting Groups matrixCash cows Questionable projects

Starts Dogs

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EC Application Portfolio

Strategy based on

company fit (assessed byfive levels from high tolow)

Alignment with corecapabilities

Alignment with other

company initiativesFit with organizationalstructure

Fit with companysculture and values

Ease of technicalimplementation

Projects viability

assessed by 4 criteriaMarket value potential

Time to positive cashflow

Personal

requirementsFunding requirements

Tjans portfolio strategyInternet portfolio map

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Exhibit 11.4

Tjan 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 majordriverdiscarded because they had a successfulbusiness model with products matchingdistribution systems

Spawn a secondary business model around EC;

go directly to consumersdid not want tointerrupt their relationships with agents andbrokers

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Chubb Corp. (cont.)

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

Helped Chubb further differentiate productsand services by providing superb customerservice over the Internet

Opened several Web sitesone for eachspecialty group (e.g., for wine collectors)

Enables superb communication with agentsand business partners

Allows business expansion into 20 countries

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Making the Business Case for EC

Business casewritten document that isused by managers to garner funding for

specific applications or projects byproviding justification for investments

Provides foundation for tactical decisionmaking and technology by management

Helps clarify the companys use of itsresources to accomplish the e-strategy

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Content of an E-Business Case

Business case for EC approach for garneringfunding for projects used to:

Provide justification for investments

Provides bridge between EC plan and theexecution

Provides foundation for tactical decision makingand technology risk management

Clarifies how the organization will use resourcesto accomplish the e-strategy

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Content of an E-Business Case (cont.)

Content of an E-business case

Strategic justificationwhere are we going?Generational justificationhow will we getthere?

Technical justificationwhen will we get there?

Financial justificationwhy will we win?

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Cost-Benefit and Risk Analysis

How to conduct an

e-business case

Develop goalstatement

Set measurable goals

Develop short- andlong-term action

plansGain approval andsupport

Revenue modelProperly plannedrevenue model is a

critical successfactor

Revenues fromsales depend oncustomer

acquisition cost andadvertisement

Must be figured intothe analysis

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Cost-Benefit and Risk Analysis (cont.)

It is difficult to justify EC investment due to

many intangible variablesReturn on investment (ROI)

Discounted cash flow

Two common methods

Value proposition

Risk analysis

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Value Proposition

Value propositionthe benefit a companycan derive from implementing a new

project, such as EC, usually by increasingits competitiveness and by providingbetter service to its customers

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Risk Analysis

Risk analysis programshould

Identify allpotential risks

Assess potentialdamage

Evaluate possibilityof protection

(insurance)Evaluate cost ofprotection vs.benefits

E-business risks

Strategic risks

Financial risksOperational risks

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Issues in Strategy Formulation

How to handle channel conflicts

Let established old-economy-type dealershandle e-business fulfillment

Sell some products only online

Help your intermediaries (e.g., build portals)

Sell online and off-line

Do not sell online

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Issues in Strategy Formulation (cont.)

How to handle conflict between off-line and

online businessesClear support of top management

Use of innovative processes that supportcollaboration

Clear strategy of what and how

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Issues in Strategy Formulation (cont.)

Pricing strategySetting prices lower than off-line business maylead to internal conflict

Setting prices at the same level may hurtcompetitiveness

Should you get financing from big venturecapital firms?

Venture capital financing causes loss of controlover business

Benefit: access to various VC experts and getthe cash you need

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Strategy Implementation

Strategy implementation--The execution ofthe e-strategy plan, in which detailed,short-term plans are developed forattaining strategic goals

Establish a Web team that continues the

execution of the planStart with a pilot project

Planning for resources

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Strategy Implementation (cont.)

Strategy implementation issues

Evaluating outsourcingBuild an in-house EC infrastructure

Purchase a commercial EC software packageor EC suite

Use a Web hosting companyPartners strategy

How to coordinate B2B and B2C

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Strategy and Project Assessment

Strategy assessmentthe periodic formalevaluation of progress toward the organization'sstrategic goals; may include needed actions and

strategy reformulationObjectives of assessment

Find out if EC project delivers what it was supposed todeliver

Adjust plans if necessaryDetermine if EC project is still viable

Reassess initial strategy in order to learn frommistakes and improve future planning

Identify failing projects as soon as possible and

determine reasons for failure

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Measuring Results & Using Metrics

Metrica measurable standard or a target againstwhich actual performance is compared

Response time to customers enquiriesResponse quality

Security/trust level

Download time,

Timeliness of fulfillmentHow up-to-date information

Availability

Site effectiveness, ease of use, and navigability

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Measuring Results &

Using Metrics (cont.)

Balanced scorecarda structuredmethodology for measuring performancein organizations, using metrics in fourareas

Finance

Customers assessmentsInternal business processes

Learning and growth

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Measuring Results &

Using Metrics (cont.)

Performance dashboarda structured

methodology proposed by Rayport andJaworski (2001) for measuring EC performanceusing:

Desired outcomes

Corresponding metrics

Leading and lagging indicators of performance

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EC Failures & Lessons Learned

E-Tailing failuresLack of funding

Incorrect revenue model

Exchange failuresRevenue growth too slow

Need to move to new business model

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

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Success Stories &

Lessons Learned (cont.)

Asian CEOs CSFs:

Select robust business models

Understand dot-com futureFoster e-innovation

Evaluate a spin-off strategy

Co-brand

Employ ex-dot-com staffersFocus on the e-generation as your market

Get the technology right, avoid expensivetechnology and technology malfunctions

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Virtual Communities

Virtual communitya group of people with similarinterests who interact with one another using the

InternetElements of interaction:

Communicationbulletin boards, chatrooms/threaded discussions, e-mail and instant

messagingInformationdirectories and yellow pages, searchengine, member-generated content

EC elementse-catalogs, shopping carts, ads,

auctions of all types

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Virtual Communities (cont.)

Communities oftransactionsfacilitate

buying and sellingCommunities ofinterestpeopleinteract with each

other on a specifictopic

Communities ofrelations (practice)

organized aroundcertain lifeexperiences

Communities of

fantasyshareimaginaryenvironments

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Commercial aspects of community:Understand a particular niche industry

Build a site that provides valuable information

Site should mirror the steps a user goesthrough in the information-gathering anddecision-making process

Build a community that relies on the site fordecision support

Start selling products and services that fit intothe decision-support process

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Exhibit 11.9

Value Creation in E-Communities

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Financial viability of communitiesBased on sponsorship and advertisement

Expenses are very high because of the need toprovide:Fresh content

Free services

Free membership

This model did not work well, many companiessustained heavy losses in 2000-2001; too fewmembers, too few purchases

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Key strategies for successful online communities1. Increase traffic and participation

2. Focus on the needs of the members (facilitatorsand coordinators)

3. Encourage free sharing of opinions and information

4. Financial sponsorship is a must

5. Consider the cultural environment

6. Provide tools and activities for member use

7. Community members involved in activities andrecruiting

8. Guide discussions, provoke controversy, and raise

sticky issues

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Going Global

Decision to go global is a strategic one

Geographical borders are falling

Artificial borders are being erected through

Local language preferences,

Local regulations

Access limitations

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Benefits and Extent of Operations

Major advantage of ECability to do business anytime, anywhere, rapidly at a reasonable cost

Success storiesE*TRADE or boom.com as your broker for stocktrading

Amazon.com

Small companies sell to hundreds of customersworldwide (virtualvine.com)

Increasing number of out-of-the-country vendorsparticipate in electronic requests for quotes

Successful employees recruitment

Successful collaboration in B2B exchanges

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Barriers to Global Electronic Commerce

Legal IssuesUncoordinated actions must be avoided and aninternational policy of cooperation should be

encouraged

Market Access IssuesCompanies starting e-commerce need to evaluatebandwidth needs by analyzing the data required, timeconstraints, access demands, and user technologylimitations

Financial IssuesCustoms and taxation

Electronic payment systems

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Small Business Goes Global

Cardiac Sciencetrying to break into theinternational market for years

Within 2 years after Internet inception in thecompany, it was shipping its products to 46countries

Today, 85 percent of the companys revenueis 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)

Cardiacs CEO crafting a solid export strategytakes a lot more commitment than putting up a

snazzy Web site and waiting for the world toshow up at our door. Its all about buildingrelationships.

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Barriers to Global

Electronic Commerce (cont.)

Other Issues

Language and translationPrimary problems are cost, speed, inaccuracy

Localization

Adapt local business practices

CultureMultiple cultures warrant different marketingapproaches

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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 customers

Target audience uses Japanese-only Web

search engines

Alert companies when logos or themes arelikely to strike a sour chord with Japanese

sensibilities

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Japanese Customers (cont.)

Japanese respond well to symbols orcharacters

Product should be geared to Japanese

males in their twenties and thirtiesAjpr.com also provides helptoJapanesecompanies developEnglish versions of theirsites

Provides localization adviceAdvertising

Document translation

Consulting services

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Breaking down the

Global EC Barriers

Value the humantouch

Be strategicKnow your audience

Be a perfectionist

Remember, its the

WebIntegrate properly

Keep the site flexibleand up-to-date

Synchronize contentOECD (oecd.org) read

Dismantling theBarriers to Global EC

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EC in SMEs

Advantages/benefits of EC in SMEs

Inexpensive

Source of informationAdvertising

Conducting market research

Build (or rent) a storefront

Low transaction costsNiche markets are best

Provide catalogs

Way to reach worldwide customers

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EC in SMEs (cont.)

Disadvantages/risksInability to use EDI, unless it is EDI/Internet

Lack of resources to fully exploit the WebLack of expertise in legal issues, advertisement

Less risk tolerance than a large company

Disadvantage when a commodity is the product

(for example, CDs)No more personal contact, which is a strong pointof a small business

No advantage to being in a local community

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Critical Success Factors for SMEs

Capital investment must be small

Inventory should be minimal or non-existent

Electronic payments schemePayment methods must be flexible

Logistical services must be quick and reliable

The Web site should be submitted to directory-based

search engine servicesJoin an online service or mall and do banner exchange

Design a Web site that is functional and provides allneeded 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:businesscenterDigitals virtual stores

Microsofts Personal Web Server (PWS)

U.S. government at ecommerce.govGartner Group provides access to onlineresearch material at gartner.com

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Business Process Reengineering (BPR)

Organizational transformationtheprocess of completely or drasticallytransforming an entire organization to anew mode of operation

Business process reengineering (BPR)a

methodology for comprehensive redesignof an enterprises processes

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BPR(cont.)

Redesign of the enterprise process and BPRDoes not make sense to automate poorly designedprocessso restructure

Necessary to change processes to fit commerciallyavailable software

Fit is required between systems and processes ofdifferent companies

Change processes to fit procedures and standards of

public e-marketplacesAdjust procedures and processes to align withavailable services (logistics, payments, security)

Changes to assure flexibility and scalability

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Workflow Technologies

Workflow systemsoftware programs thatmanage all the steps in a business process

from start to finish, including all exceptionconditions

Two categories:

Collaborative workflowproducts addressproject-oriented and collaborative processes

Production workflowtools address mission-critical, transaction-oriented processes

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Virtual Corporations

Virtual corporationan organization composed ofseveral business partners (some of whom may bepure-play EC players) sharing costs and resourcesfor the production or purchasing of a product orservice

Major attributes of VCs:

Utilization ExcellenceOpportunism Lack of borders

Trust Adaptability to change

Technology

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EC Technology Trends

Clients

Embedded clientsServers

Networks

Wirelesscommunications

EC software and

servicesSearch engines

P2P technology

Integration

Wearable devices

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The Digital Divide

Digital dividethe gap between those whohave and those who do not have the

ability to access electronic technology ingeneral, and the Internet and EC inparticular

I t ti

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Integrating

Marketplace and Marketspace

Click-and-mortar organization

How to cooperate in planning, advertising,

logistics, resource allocationHow to align the strategic plans

B2C ordering systems

The impact of EC on our lives may be asmuch as, or more than that of theIndustrial Revolution

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Managerial Issues

What is the strategic value of EC to theorganization?

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 EC

The strategy planning and formulationprocess

Application discovery, justification, andprioritization

EC strategy implementation and assessment

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Summary (cont.)

Understanding failures and learning fromthem

The role and impact of virtual communities

Issues in global EC

Small businesses and EC

Restructuring and virtual organizations

The future of EC

PPT_11 (2)

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