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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-
Business Strategy (cont.)
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-
Business Strategy (cont.)
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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Virtual Communities (cont.)
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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Virtual Communities (cont.)
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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Virtual Communities (cont.)
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
8/8/2019 PPT_11 (2)
86/86
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
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