ELC 200

Day 26

Agenda

Questions from last Class? Assignment 6, 7 & 8 all posted

Assignment 6 Corrected 6 A’s, 5 B’s, 1 C, 1 F (late) and 1 MIA

Assignment 7 due Today Will have them back to you on Thursday

Assignment 8 due May 8 @ 8AM EBiz plan and presentations

Send your plans and PowerPoints to me in WebCT by 8AM on May 8

More information in assignments section of WebCT Today we will the discussing eCommerce Strategies.

E-Strategy Landscape

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

Strategy formulation: Identification of EC applications Cost-benefit analysis Risk analysis

E-Strategy Landscape (cont.)

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

Strategy assessment: Organization periodically assesses progress

toward the strategic goals Involves the development of EC metrics

Exhibit 11.1The Landscape of EC Strategy

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 EC

3. Begin with industry and competitive analysis

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?

Company Assessment

The organization investigates its own: Business strategy Performance Customers Partners

It looks at everything that has an impact on its operations Processes People Information flows Technology support

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 weaknesses

SWOT Analysis Strengths Opportunities Weaknesses Threats

Exhibit 11.2SWOT Matrix

Verizon 1.Top wireless provider in the U.S. serving 49 of the top 50 markets2.High-speed data network in all major markets3.Largest provider of local, long distance, data, and broadband services in 2/3 of the top 100 markets in the U.S.4.Leading print and on-line directory publisher with 2100 in U.S. and 13 other countries5.Verizon invested 12 billion in 2002 in 400,000 miles of fiber-optic cable.6.Marketing campaign – brand awareness

1.49 billion dollars in long term debt2.Lack of international presence3.Revenue only increased 4 percent since year end 2000.

S-O Strategies W-O Strategies

1.141 million possible investors in Europe, UK, and Germany2.Strengthening foreign currencies vs dollar- Euro advantages 3.Increased usage in wireless services4.Small wireless providers are consolidating with larger providers due to increased competition5.Increased desire for high-speed internet service

1.Expand wireless services into Europe, UK and/or Germany (S1, O1, O3)2.Expand high speed internet service in Europe, UK and/or Germany (S2,O5)3.Acquire small domestic wireless providers such as Powertel or Aerial (S1, O4)4.Invest capital into fiber optic cable to compete with cable companies. (S5, O5)

1.Purchase international wireless providers such as MMO2 (W2, O4)

2.Offer services to people in Europe to increase revenue due to the difference in foreign currency (W1, O2)

S-T Strategies W-T Strategies

1.New regulatory complaints (new phone # portability)2.Rising costs of healthcare3.Global unrest- economic monetary and financial4.Consumer privacy rights being attacked5.Weak Consumer spending6.Decreasing demand for traditional voice lines and fixed lines7.Increasing overlap of telecommunication territories8.Increasing competition for providers of web search directories9.Increasing providers of wireless services10.Brand recognition

1.Enter into a joint venture with MCI to offer a package deal (S1, T12)2.Proceed with legal battles to serve local markets to increase traditional voice and fixed lines.(S3, T7)

1.Expand globally in Europe (W2, T7)2.Liquidate the Telecommunications Services such as fixed lines and traditional lines business to reduce long-term debt. (W1, T6)

Competitive Intelligence on the Internet

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

Review competitors’ Web sites Examine publicly available financial

documents Edgar Online, Valueline

Ask the customers—award prizes to those who best describe your competitors’ strengths and weaknesses

Competitive Intelligenceon the Internet (cont.)

Analyze related discussion groups Find out what people think about a company and its

products and competitor's products Reaction to new ideas and products

Use information delivery services Find out what it published on the Internet Known as push technologies

Corporate research companies provide information about your competitors:

Examine chat rooms

Issues in Strategy Initiation

Advantages Chance to capture

large markets Establishing a brand

name Exclusive strategic

alliances

Disadvantages Cost of developing EC

initiative is usually very high

Chance of failure is high System may be obsolete

as compared to second wave arrivals

No support services are available at the beginning

To be a first mover or a follower?

Should You Have a SeparateOnline Company?

Advantages Reducing or eliminating

internal conflicts Providing more freedom

to management in pricing, advertising, etc.

Can create new brands quickly

Take the e-business to an IPO and make a fortune

Disadvantages May be very costly

and risky Collaboration with off-

line business may be difficult

Lose expertise of business functions unless you use close collaboration

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 objectives Developing strategies Setting implementation guidelines

Discovering EC Opportunities

3 common mistakes in allocating EC investment Let a thousand flowers bloom—fund many

projects indiscriminately Bet it all—put everything on a single high-stake

initiative Trend-surf—follow the crowd toward the next

“big thing”

Any of the above can be risky and costly

Discovering EC Opportunities (cont.)

Approaches to identifying EC opportunities Problem-driven Technology-driven Market-driven—waiting to see what the

competitors will do Fear or greed-driven

Afraid if they do not practice EC they will be big losers

Think they can make lots of money going into EC

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 matrix

Cash cows Questionable projects Starts Dogs

20

BCG Matrix

Dogs

IV

Cash Cows

III

Question Marks

I

Stars

II

Relative Market Share PositionHigh1.0

Medium.50

Low0.0

Ind

us

try

Sa

les

Gro

wth

Ra

te

High+20

Low-20

Medium0

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 management Helps clarify the company’s use of its resources

to accomplish the e-strategy

Content of an E-Business Case

Business case for EC approach for garnering funding for projects used to: Provide justification for investments Provides bridge between EC plan and the

execution Provides foundation for tactical decision making

and technology risk management Clarifies how the organization will use

resources to accomplish the e-strategy

Content of an E-Business Case (cont.)

Content of an E-business case Strategic 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?”

Cost-Benefit and Risk Analysis

How to conduct an

e-business case Develop goal

statement Set measurable goals Develop short- and

long-term action plans Gain approval and

support

Revenue model Properly planned

revenue model is a critical success factor

Revenues from sales depend on customer acquisition cost and advertisement

Must be figured into the analysis

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 methods Value proposition Risk analysis

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

Risk Analysis

Risk analysis program should Identify all potential

risks Assess potential

damage Evaluate possibility of

protection (insurance) Evaluate cost of

protection vs. benefits

E-business risks Strategic risks Financial risks Operational risks

Issues in Strategy Formulation

How to handle channel conflicts Let established old-economy-type dealers

handle e-business fulfillment Sell some products only online Help your intermediaries (e.g., build portals) Sell online and off-line Do not sell online

Issues in Strategy Formulation (cont.)

How to handle conflict between off-line and online businesses Clear support of top management Use of innovative processes that support

collaboration Clear strategy of “what and how”

Issues in Strategy Formulation (cont.)

Pricing strategy Setting prices lower than off-line business may

lead to internal conflict Setting prices at the same level may hurt

competitivenessShould you get financing from big venture

capital firms? Venture capital financing causes loss of

control over business Benefit: access to various VC experts and get

the cash you need

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 plan Start with a pilot project Planning for resources

Strategy Implementation (cont.)

Strategy implementation issues Evaluating outsourcing

Build an in-house EC infrastructure Purchase a commercial EC software package or EC

suite Use a Web hosting company

Partners’ strategy How to coordinate B2B and B2C

Strategy and Project Assessment

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

Objectives of assessment Find out if EC project delivers what it was supposed to

deliver Adjust plans if necessary Determine if EC project is still viable Reassess initial strategy in order to learn from mistakes

and improve future planning Identify failing projects as soon as possible and determine

reasons for failure

Measuring Results & Using Metrics

Metric—a measurable standard or a target against which actual performance is compared Response time to customers’ enquiries Response quality Security/trust level Download time, Timeliness of fulfillment How up-to-date information Availability Site effectiveness, ease of use, and navigability

Measuring Results & Using Metrics (cont.)

Balanced scorecard—a structured methodology for measuring performance in organizations, using metrics in four areas Finance Customers’ assessments Internal business processes Learning and growth

Measuring Results & Using Metrics (cont.)

Performance dashboard—a structured methodology proposed by Rayport and Jaworski (2001) for measuring EC performance using: Desired outcomes Corresponding metrics Leading and lagging indicators of performance

Performance Dashboard

EC Failures & Lessons Learned

E-Tailing failures Lack of funding Incorrect revenue model

Exchange failures Revenue 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 and retailers put pressure on the company not to compete with their brick-and-mortar outlets

Success Stories & Lessons Learned

Reasons for success: Brick-and-mortar companies add online

channels Mergers and acquisitions Peter Drucker:

Analyze the opportunities Go out to look keep it focused Start small (one thing at a time) Aim at market leadership

Success Stories & Lessons Learned (cont.)

Asian CEOs CSFs: Select robust business models Understand dot-com future Foster e-innovation Evaluate a spin-off strategy Co-brand Employ ex-dot-com staffers Focus on the e-generation as your market

Get the technology right, avoid expensive technology and technology malfunctions

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 messaging

Information—directories and yellow pages, search engine, member-generated content

EC elements—e-catalogs, shopping carts, ads, auctions of all types

Virtual Communities (cont.)

Communities of transactions—facilitate buying and selling

Communities of interest—people interact with each other on a specific topic

Communities of relations (practice)—organized around certain life experiences

Communities of fantasy—share imaginary environments

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 goes

through in the information-gathering and decision-making process

Build a community that relies on the site for decision support

Start selling products and services that fit into the decision-support process

Exhibit 11.9Value Creation in E-Communities

Virtual Communities (cont.)

Financial viability of communities Based on sponsorship and advertisement Expenses are very high because of the need to

provide: Fresh content Free services Free membership

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

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 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 and recruiting

8. Guide discussions, provoke controversy, and raise sticky issues

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

Benefits and Extent of Operations

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

Success stories E*TRADE or boom.com as your broker for stock trading Amazon.com Small companies sell to hundreds of customers

worldwide (virtualvine.com) Increasing number of out-of-the-country vendors

participate in electronic requests for quotes Successful employees recruitment Successful collaboration in B2B exchanges

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 Issues Customs and taxation Electronic payment systems

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 countries

Today, 85 percent of the company’s revenue is international, much of this is executed at (cardiacscience.com)

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.”

Barriers to Global Electronic Commerce (cont.)

Other Issues Language and translation

Primary problems are cost, speed, inaccuracy Localization

Adapt local business practices Culture

Multiple cultures warrant different marketing approaches

Breaking down theGlobal EC Barriers Value the human

touch Be strategic Know your audience Be a perfectionist Remember, it’s the

Web Integrate properly

Keep the site flexible and up-to-date

Synchronize content OECD (oecd.org)

read

“Dismantling the Barriers to Global EC”

EC in SMEs

Advantages/benefits of EC in SMEs Inexpensive

Source of information Advertising Conducting market research Build (or rent) a storefront Low transaction costs Niche markets are best Provide catalogs Way to reach worldwide customers

EC in SMEs (cont.)

Disadvantages/risks Inability to use EDI, unless it is EDI/Internet Lack of resources to fully exploit the Web Lack 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

point of a small business No advantage to being in a local community

Critical Success Factors for SMEs

Capital investment must be small Inventory should be minimal or non-existent Electronic payments scheme Payment methods must be flexible Logistical services must be quick and reliable The Web site should be submitted to directory-based search

engine services Join an online service or mall and do banner exchange Design a Web site that is functional and provides all needed

services to consumers

Supporting Small Business

Technical support from IBM (for a fee of only $25 per month) at ibm.com.search:businesscenter

Digital’s virtual storesMicrosoft’s Personal Web Server (PWS)Gartner Group provides access to online

research material at gartner.com

Business Process Reengineering (BPR)

Organizational transformation—the process of completely or drastically transforming an entire organization to a new mode of operation

Business process reengineering (BPR)—a methodology for comprehensive redesign of an enterprise’s processes

BPR (cont.)

Redesign of the enterprise process and BPR Does not make sense to automate poorly designed

process—so restructure Necessary to change processes to fit commercially

available software Fit is required between systems and processes of

different companies Change processes to fit procedures and standards of

public e-marketplaces Adjust procedures and processes to align with

available services (logistics, payments, security) Changes to assure flexibility and scalability

Workflow Technologies

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

Two categories: Collaborative workflow—products address

project-oriented and collaborative processes Production workflow—tools address mission-

critical, transaction-oriented processes

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 service

Major attributes of VCs: Utilization Excellence Opportunism Lack of borders Trust Adaptability to change Technology

The Future of EC (CSF’s)

Internet usage Opportunities for buying M-commerce Purchasing incentives Increased security and

trust Efficient information

handing Innovative organizations Virtual Communities

Payment systems Business-to-business B2B exchanges Auctions Going global E-government--

comprehensive Intrabusiness EC E-learning

EC Technology Trends

Clients Embedded clients Servers Networks Wireless

communications

EC software and services

Search engines P2P technology Integration Wearable devices

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

90% of all Internet computers are where 15% of the world’s population live

Integrating Marketplace and Marketspace

Click-and-mortar organization How to cooperate in planning, advertising,

logistics, resource allocation How to align the strategic plans B2C ordering systems

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