September 2001Chapter 1: A Framework for e- Commerce 1 A Framework for e-Commerce Key questions...

September 2001 Chapter 1: A Framework for e-Commerce

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A Framework for e-Commerce

Key questions covered in this chapter:• What are the categories of e-commerce?• What are the new views of strategy in the new- or

networked-economy?• What is the framework for the field of e-commerce?• Why does a manager need to know all four

infrastructures?• What are the roles and responsibilities of senior e-

commerce managers?• What are the key challenges of senior leaders today?


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e-Commerce as the New EconomyThe new economy business traits can be summarized as:

• Create value largely through gathering, synthesizing and distribution of information

• Formulate strategies that make management of the enterprise and technology convergent

• Compete in real time rather than in “cycle time” • Operate in a world characterized by low barriers to entry,

near-zero variable costs of operation and shifting competition

• Organize resources around the demand side than supply side• Manage better relationships with customers


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How Do We Define e-Commerce?

Technology-mediated exchanges between parties as well as electronically-based intra- or inter-organizational activities that facilitate such exchanges


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Table 1- 1: Four Categories of e-Commerce

B2B B2B C2B C2B

B2C B2C C2C C2C

Business Consumers

Business originating from . . .

Business

Consumers

And selling to . . .


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Distinct Categories of e-Commerce• Business to business(B2B) refers to the full spectrum of e-

commerce that can occur between two organizations. This includes purchasing and procurement, supplier

management, inventory management, channel management, sales activities, payment management &service and support.

Examples: FreeMarkets, Dell and General Electric • Business to Consumer(B2C) refers to exchanges between

business and consumers, like the ones managed by Amazon Yahoo and Charles Schwab & Co.

The activities tracked are consumer search, frequently asked questions and service and support.


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Distinct Categories of e-Commerce(cont’d)

• Consumer to Consumer(C2C) exchanges involve transactions between and among consumers. These can include third party involvement, as in the case of the auction website Ebay.

Examples: www.numberoneclassifieds.com

• Consumer to Business(C2B) involves when consumers band together to present themselves as a buyer in group.

Example: www.speakout.com


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Exhibit 1- 1: Convergence of e-Commerce Categories

Publishers order paper supplies from paper

companies

Amazon orders from publishers

Publishers order paper supplies from paper

companies

Amazon orders from publishers

Consumers aggregate to bulk purchase from

Amazon

Consumers aggregate to bulk purchase from

Amazon

Consumers buy thousands of Harry Potter books from

Amazon

Consumers buy thousands of Harry Potter books from

Amazon

Consumers resell copies on eBay

Consumers resell copies on eBay

Business Consumers

Business originating from . . .

Business

Consumers

And selling to . . .


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Strategy Making in a Rapidly Changing Environment

How can a company faced with the changing online environment set a strategy?

Classical Strategic planning

• This begins with the specification of the mission and vision of the firm.

• A careful balance of internal and external analysis leads to a choice of strategy for the company as a whole called “corporate strategy”.

• Strategies that relate to specific divisions within a company are termed as “business-unit strategies”.


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Exhibit 1- 2: Classical Framework for Strategic Management

ImplementationImplementation

Internal (Company)

Analysis

Internal (Company)

Analysis

External Analysis

External Analysis

Control and

Monitoring

Control and

Monitoring

Strategy Formulation

Strategy Formulation

Corporate Business Unit Functional Operating

ObjectivesObjectives

MissionMission


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New Views of e-Commerce Strategy

• Speed of change and adaptation must be figured into the classical strategic management equation.


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New Views of E-Commerce Strategy(cont’d)

Sense and respond paradigm:

• It provided an approach to strategic thinking that was intuitive, actionable and easy to implement.

• It made companies focus on listening in a new manner to customers to reduce the high levels of uncertainty.

• Its very reactive and the starting point is always the customer.

• This is more appropriate for traditional offline companies.


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New Views of E-Commerce Strategy(cont’d)

Strategy as rules: Focus on “simple rules” than complex strategic planning exercises.

• Simple rules help the senior e-commerce manager recognize positive (or negative) situations and react accordingly.


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Three Approaches to Strategy• Position approach: “Where should we be vs. our

competition?”

• Resources approach: “what resources should we possess?”

• Simple rules approach: “What processes should we follow?”


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T ab le 1 - 2 : T h ree A p p ro ach es to S tra teg y

P o s itio n R e s o u rc es S im p le R u le s

S tra te g ic L o g ic E sta b lish p o s ition L e ve ra ge re so u rce s P u rsu e o p po rtun itie s

S tra te g ic S te p s

Id e n tify a n a ttra c tivem a rke t

L o ca te a d e fe n s ib lep o s itio n

F o rtify a nd de fen d

E sta b lish a v is io n B u ild re sou rce s L e ve ra ge a cro ss m a rke ts

Ju m p in to the con fu s io n K e e p m o vin g S e ize o p po rtu n itie s F in ish s tro n g

S tra te g ic Q ue s tio n W here sh ou ld w e b e? W hat sho u ld w e b e? H o w sh o u ld w e p ro ce e d?

S o u rc e o f Ad va n ta g e U n iqu e , va lu a b le p o s itio n

w ith tigh tly in te g ra te da c tiv ity sys te m

U n iqu e , va lu a b le ,in im ita b le re sou rce s

K e y p ro ce sse s a n d u n iqu es im p le ru le s

W o rk s B e s t In S lo w ly ch a n g in g , w e ll-

s tru c tu re d m a rke ts M o d e ra te ly ch a n g in g , w e ll-

s tru c tu re d m a rke ts R a p id ly ch a n g in g ,

a m b igu ou s m a rke ts

D u ra tio n o f A d va n ta g e S u sta ine d S u sta ine d U n p re d ic tab le

R is k It w ill b e to o d iff icu lt to

a lte r p o s itio n a s con d itio n sch a n ge

C o m pa n y w ill b e to o s lo wto bu ild n e w re so u rce s a sco n d ition s cha n ge

M a n a ge rs w ill b e to ote n ta tive in e xe cu tin g o np ro m is in g o pp o rtun itie s

P e rfo rm a n ce G o al P ro fita b ility L o n g-te rm d om in an ce G ro w th

S ource : K a th lee n M . E ise nhard t a nd D o na ld S o ll (2001 ), “S tra teg y A s S im p le R u le s,” H a yw a rd B us ine ss R e v iew . (Ja nuary ) p . 109


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Factors of Consumer Behavior in the Online Environment

The 2 key factors that are of paramount importance in the online environment are:

• Customization: This refers to the personalization of communications between users and a website.

• Interactivity: is defined as the user’s ability to conduct two-way communications. This includes use to user and firm to user communication.


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Exhibit 1- 3: A Comprehensive Framework

MediaInfrastructure

MediaInfrastructure

MediaInfrastructure

MediaInfrastructure

Technology Infrastructure

Technology Infrastructure

CapitalInfrastructure

CapitalInfrastructure

e-CommerceStrategy

e-CommerceStrategy


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The Strategy Formulation Process

There are six interrelated, sequential decisions to strategy:

• Market opportunity analysis

• Business Model

• Customer interface

• Market communications and branding

• Implementation and

• Evaluation


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Exhibit 1- 4: e-Commerce Strategy

Metrics Metrics Implementation Implementation

MarketCommunicationand Branding

MarketCommunicationand Branding

Customer Interface

Customer Interface

Business Model

Business Model

Framing the Market

Opportunity

Framing the Market

Opportunity


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The Context of Strategy Formulation:The Four Infrastructures

• Technology infrastructure: This is both an enabler and driver of change.The hardware backbone of computers, routers, servers, fiber optics, cables, modems, etc. provide half of the technology equation.The other half includes the software and communication standards including the core protocols for the www.

• Capital Infrastructure: Deals with getting the money to launch new businesses and finding the right people to build the business plan and seek funding sources.


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The Context of Strategy Formulation:The Four Infrastructures(cont’d)

• Media infrastructure: The e-commerce managers must make choices about the types of media employed(e.g., print, audio , video), the nature of the media and editorial policy(including style, content, look and feel).

• Public Policy Infrastructure: All the decisions related to strategy, technology, capital and media are influenced by laws and regulation, i.e., public policy decisions. It not only affects specific business but also direct and indirect competitors.


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What Are the Roles and Responsibilities of a Senior e-Commerce Manager?

Senior managers need to have the basic business skill set of traditional managers but must also incorporate new knowledge, skills and capabilities. The roles and responsibilities include:

• Cross Discipline, Integrative position: Entrepreneurship is at the heart of any online business.The manager should be able to make strategic decisions quickly and authoritatively.He should be trained in a variety of disciplines including marketing, logistics, accounting finance, tech. sophistication and media knowledge.


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Exhibit 1- 5: Relevant Disciplines for a Senior e-Commerce Executive

Entrepreneurship Entrepreneurship

Strategic Management

Strategic Management

Technology Technology New Media New Media

Accounting Accounting Operationsand Logistics

Operationsand Logistics

Finance Finance Marketing Marketing

Note: Shaded boxes reflect new capabilities


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What Are the Roles and Responsibilities of a Senior e-Commerce Manager?(cont’d)

• The day to day responsibilities of a senior e-commerce manager include:

• Provide vision for the online business.

• Set process and outcome goals by specifying clear performance targets.

• Formulate strategic direction and choice by making concrete choices- and associated tradeoffs- related to each phase of the e-commerce strategy process, including market opportunity, business model specification and design of the customer interface.


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Exhibit 1-6: A Flow Diagram of the Strategic Responsibilities

Set Vision Set Vision

Establish Goals Establish Goals

Formulate Strategy Formulate Strategy

Drive Implementation

Drive Implementation

Be Accountablefor Performance

Be Accountablefor Performance


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What Are the Roles and Responsibilities of a Senior e-Commerce Manager?(cont’d)

• Drive implementation: Strategy implementation is about making the right choices related to people, structure, systems and processes to execute the strategy.

• Accountable for performance: The senior manager is responsible for the performance of the organization.


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Location of the Sr. Manager in the Organization

• Line Executive: The senior manager may be a line executive who is responsible for the profit and loss of an online initiative.

• Staff Executive: A staff executive does not have formal profit and loss responsibility for a business. Her role is to support the efforts of the line executives in the execution of their strategy.


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T a b le 1 - 4 : W h ere to F in d S en io r e -C o m m erce M a n ag e rs w ith in E x is tin g B ric k a n d M o rta r C o m p a n ie s

C o rp o ra te B u s in ess U n it S tan d -A lo n e

L in e E xecu tive

C orpo ra te s ite m anagem en t

C ross bus iness un it in teg ra tion s ite

R eport to G M o f bus iness un it

S epa ra te bus iness from co rpora te pa ren t

S ta ff E xecu tive S uppo rts co rpo ra te -

w ide in itia tives

S uppo rts and advises S B U e -C om m erce in itia tives

—

N ote : L ine e xec ut ive s a re acco untab le fo r p ro f it a nd lo ss o f the bus in e ss;S ta ff pe rsonne l p ro v ide support se rv ice s to line pe rso nne l


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Key Challenges for Senior Leadership in Today’s Environment

• Understanding customer evolution: The challenge here is to invest heavily in understanding the customer needs and invest in advance so that the launch of the innovation coincides exactly with the customer needs.

• Charting Changing Technology: The senior executive must be well schooled in the basic and emergent technologies. Picking the right technologies and investing ahead of the curve is a constant, high-stakes gamble for the senior management team.


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Key Challenges for Senior Leadership in Today’s Environment(cont’d)

• Balancing irrational exuberance and irrational doom.The executive must continually reassure that the business model makes sense, spell out the path to profitability and paint a vision that can rally all relevant stake holders, including partners, customers and employees.

• Integration of offline and online activities.Customer- facing activities need to be made ready for the web.

• Identifying the key levers of competitive advantage: the best senior leaders are able to reallocate their resources and capabilities in anticipation of evolving competitive landscape.

September 2001Chapter 1: A Framework for e- Commerce 1 A Framework for e-Commerce Key questions...

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