1 Prentice Hall, 2002 Chapter 16 EC Strategy and Implementation (modified for class 16.04.02) Judith...

Prentice Hall, 2002 1

Chapter 16

EC Strategy and Implementation

(modified for class 16.04.02)Judith Molka-Danielsen


Learning Objectives

EC strategiesEssentialsplanning processstrategy formulation processApplications - discovery and prioritize

Role of CSFs and justification of ECImplementationReassessmentMetricsFailures and lessons learned


IBM’s E-Business Strategy

Mission20 initiatives defined, begin with 7Separate EC divisionUse existing strengthsTie to business processesDecide to be an EC-leader Selection criteria (ROI)


Need for a Strategy

Cases of e-strategyClick-and-mortar companies that use

several EC applications (comprehensive strategy)only one or two EC applications (add on, additional selling channel)one EC application that fundamentally changes all their business (changes business strategy, cannot go back, ie. Rosenbluth)

Pure-play EC companies


Need for a Strategy (cont.)

Why does a company need an e-strategy?Fast changes in business and technology means opportunities and threats can change in a minuteCompany must consider EC strategy that includes contingency plans to deal with changesMay be too costly not to have oneThese are questions the business needs to answer for its investors


(Strategy) - The Business Plan (from Jim Willams lecture)

What Offerings (services, products)?Who are the customers?Who is the competition?How will the services be delivered?What technologies can be utilized?What is the cost of delivering service?What resources are required to deliver and support the services?


(Strategy) -The Business Plan from Jim Williams lecture (cont.)

What system architecture is required?What processes, functions, procedures, etc. are needed?What are the capacities and volumes of the resources needed?What Financial Resources are Needed?The Economic Model


Essentials of a Business Strategy

Strategy— what is the plan to compete?

What is the firms position in the marketplace?How does it keep its strategic position?What is it good at doing?What other activities will leverage its position to sustain competitive advantage?


Essentials of a Business Strategy (cont.)

Levels of strategyCorporate (all) strategyIT strategyEC strategyEC functional strategies

Types of strategyStrategic planning – future, long term

Strategic response – to innovations, what-ifStrategic innovation – proactive, introduce new


Figure 16-1EC Strategy Alignment


Essentials of a Business Strategy (cont.)

Elements of a strategyForecastingResource allocationCore competencyStrategy formulationEnvironmental analysisCompany analysis

Strategy landscape1. Strategy initiation –

vision, mission, purpose

2. Strategy formulation – applications, risk analysis, cost analysis

3. Strategy implementation – resources analysis, budgets, milestones established

4. Strategy assessment – based on milestones, reformulate


Figure 16-2The Landscape of EC Strategy


1. Strategy Initiation

Vision and Mission – vague but springboard for specific goals and objectives. Industry Analyze - position of the company in its industry and the competition

Required for assessing the changes that EC project may introduce and its chances for successIndustry, Company, Competitive Assessments.


Industry Assessment – understand the industry

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?


Figure 16-3Company Analysis (Assessment)

Source: Hackbarth and Kettinger (2000), p. 85. Reprinted with permission of William J. Kettinger.


Competitive Analysis

Monitoring, evaluating, disseminating of information from the external and internal environmentsSWOT Analysis

Strengths (internal)Opportunities (external)Weaknesses (internal)Threats (external)


Strengths (S) Weaknesses (W)

Opportunities (O)

Threats (T)

INTERNAL FACTORSEXTERNAL

FACTORSSO Strategies

Generate strategies here that use

strengths to take advantages of opportunities

WO Strategies Generate strategies here that take

advantage of opportunities by

overcoming weaknesses

ST Strategies Generate strategies

here that use strengths to avoid

threats

WT Strategies Generate strategies here that minimize

weaknesses and avoid threats

Figure 16-4SWOT Diagram


In class example of SWOT. Based on (Ch.02 Shapiro & Varian) Electronic Publishing. Below

is Britannica 2002 Comparison Chart

Britannica 2002 Comparison Chart for Windows VersionsFEATURE

StandardCD-ROM

(WIN/MAC)

DeluxeCD-ROM

(WINDOWS)

EXPANDEDDVD

(WINDOWS)

Total Articles 80,000 85,000 85,000

Encyclopedia, Dictionary, Atlas Entries - Word Count

55 million 56 million 56 million

Visual Tours 44 44

Photos, Illustrations, Tables & Maps 5,400+ 12,100+ 18,500+

Videos & Sound 114 clips, over 30 minutes 131 clips, over 1 hour 517 clips, over 7 hours

Indexed References 613,000+ 613,000+ 613,000+

Web Links 300,000+ 300,000+ 300,000+

Merriam-Webster's Dictionary 200,000+ entries 200,000+ entries 200,000+ entries

Interactivities & Animations 13+ 105+ 105+

Timelines 14 categories, 4,100+

entries14 categories, 4,100+

entries


Competitive Intelligence on the Internet

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

Review competitors’ Web sitesAnalyze related newsgroupsExamine publicly available financial documentsAsk the customers—award prizes to those who best describe your competitors’ strengths and weaknesses


Competitive Intelligenceon the Internet (cont.)

Information delivery servicesNewsgroupsInformation about your competitors and their products

Known as push technologies

Corporate research companies provide information about your competitors:

Risk analysisStock market analysts’ reports

Examine chat roomsShould not substitute for in-depth background research. Some do this.


Issues in Strategy Initiation

AdvantagesChance to capture large marketsEstablishing a brand nameExclusive strategic alliances

DisadvantagesCost of developing EC initiative is usually very high (Are there common standards and best practices?) Chance of failure is highSystem may be obsolete as compared to second wave arrivalsNo support services are available at the beginning

To be a first mover or a follower?


What Do You Need an EC For?

Enhancing the sell channel by advertisement and salesEnhancing the buy (procurement channel)Enhancing the customer service channelGoing global

Facilitating value-chain integrationProviding for new products and servicesGoing into specialty markets (niche)Going to mass customization


Should You Have a Separate(spin-off) Online Company or Not?

Advantages (new IPO)Reducing or eliminating internal conflictsProviding more freedom to management in pricing, advertising, etc.Can create new brands quicklyTake the e-business to an IPO and make a fortune

DisadvantagesMay be very costly and riskyCollaboration with off-line business may be difficultLose expertise of business functions unless you use close collaboration


2. Strategy Formulation

Strategy formulation – for the effective management of opportunities and threats given strengths and weaknesses

Development of long-range plans

Organization’s missionPurpose or reason for the organization’s existence

3 main reasons for establishing Web siteMARKETING, CUSTOMER SUPPORT, and SALES

Products with good fit for ECShipped easily or transmitted electronicallyTargets knowledgeable buyersPrice falls within certain optimum ranges


EC Critical Success Factors – indispensable factors that help the firm achieve its goals.

Special products or services tradedTop management supportProject team representing various functional areasAppropriate technical infrastructureMust have customer acceptanceUser-friendly Web interfaceIntegration with the corporate legacy systems


EC Critical Success Factors (different list for every firm)

Security and control of the EC systemCompetition and market situationConduct pilot project and capture corporate knowledgeUse promotion and internal communicationCost of the EC project must be reasonableNeed sufficient level of trust between buyers and sellers


Critical Factors for Success (from Jim Williams lecture on BroadStreet Inc.)

In real estate the 3 critical factors are:

Location, Location, and Location

In Telecommunications the 3 critical factors are:

Execute, Execute, and Execute


EC Opportunities

3 common mistakes in allocating EC investment

Let a thousand flowers bloom—fund many projects indiscriminatelyBet it all—put everything on a single high-stake initiativeTrend-surf—follow the crowd toward the next “big thing”

All of the above can be risky and costly


EC Opportunities (How do they pick the important EC initiatives?)

Problem-driven—attempt to solve a problem such as:

Excess inventoryDelivery delays

Technology-driven—trying to use existing applications

Find problems no one knew existedUsed by first movers

Market-driven—waiting to see what the competitors will doFear or greed-driven –to lose, or make big money.


Figure 16-5Approaches for Finding EC Opportunities


Examples of Opportunities for EC businessesMatchmaking—matching buyers’ needs from seller without a prior knowledge of either oneAggregation of services—combines several existing services to create a new serviceBid/ask engine—creates a demand/supply floating pricing systemNotification service—tells you when the service becomes available, or when it becomes cheaper

Uncovering Specific ECOpportunities and Applications (cont.)


Uncovering Specific ECOpportunities and Applications (cont.)

Smart needs adviser—if you want …, then you should…Negotiation—price, quantity, or features are negotiatedUp-sell—suggests an additional product or serviceConsultative adviser—provide tips on using the product


Methods for Finding IT Applications

BrainstormingSoliciting help of expertsReview what the competitors are doingvendors suggestions

Read the literature Use analogies from similar industries or business processesUse a conventional IS requirement analysis approach


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, current profit-making businesses

Boston Consulting Group’s matrixCash cows Questionable projectsStarts Dogs

Generic approaches (portfolio analysis)


EC Application Portfolio

Tjan’s portfolio strategy—Internet portfolio mapStrategy based on company fit (assessed by 5 levels, high to low)

Alignment with core capabilities, Org. initiatives, Org. structure, Org. culture&values, Ease of technical implementation.

Project’s viability —assessed by 4 criteriaMarket value potentialTime to positive cash flowPersonal requirementsFunding requirements

An EC-specific method


Cost-Benefit and Risk Analysis

Business case for EC approach for garnering funding for projects used to:

Provide justification for investmentsProvides bridge between EC plan and the executionProvides foundation for tactical decision making and technology risk managementClarifies how the organization will use resources to accomplish the e-strategy


Cost-Benefit and Risk Analysis (cont.)

Content of an E-business caseStrategic justification—”where are we going?” (goal statement)Generational justification—”how will we get there?” how to execute, (measurable goals)Technical justification—”when will we get there?” (short term and long term plan)Financial justification—”why will we win?” (revenue plan, costs of acquiring and maintaining customers)


Cost-Benefit and Risk Analysis (cont.)

It is difficult to justify EC investment due to many intangible variablesMethods used for analysis

Value analysis and propositionRate of return of investment (ROI) and/or discounted cash flowReal options valuation and analysisManagement by maximInformation economics


A Value Analysis ApproachValue chain—a series of activities a company performs to achieve its goal(s)Value added (to profit, using many channels) (Customers’ value proposition)

Can I realize significant margins by consolidating parts of the value chain to my customers?Can I create significant value for customers by reducing the number of entities they have to deal with in the value chain?

Value Analysis and Proposition


Value Analysis and Proposition (cont.)

Value Analysis Questions (cont.)Representative question for creating new values

Can I offer additional information of transaction services to my existing customer base?Can I use my ability to attract customers to generate new sources of revenue, such as advertising or sales of complementary products?


Return on Investment and Risk Analysis

Return on Investment (ROI)

A ratio of resources required and benefits generated by an EC project

Includes both quantifiable items (cost of resources, computed monetary savings) and Non-quantifiable items (intangibles)

Some intangible benefitsEffective marketing channelIncreased salesImproved customer service


Return on Investment and Risk Analysis

IT valuesFinancial values —measurable to some degreeStrategic values —competitive advantage in the market and benefits generated by business proceduresStakeholder values —reflections of organizational redesign, organizational learning, empowerment, information technology architecture of a company, etc.


Return on Investment and Risk Analysis (cont.)

IT risks Competitive strategy risk—external, due to joint venture, alliances or demographic changes among othersOrganizational risk and uncertainty—internal to company


Figure 16-7Real Option Analysis (option valuation, option pricing)

(Rayport & Jaworski, 2001)

Source: Rayport and Jaworski (2001); Exhibit 8-8; pg. 304.


Risk Analysis

Risk analysis program should

Id all potential risksAssess potential damageEvaluate possibility of protection (reduce loss or uncertainty) (backup, insurance)Evaluate cost of protection vs. benefits (of applying protection)

E-business risksStrategic risks (e.g., competitive environment, wrong strategic direction)Financial risks (e.g., currency management and changes, unclear tax situations)Operational risks (e.g., technological changes and use of poor technology, security)


EC Scenarios (Scenario Analysis)

Scenario planning is a methodology used in planning situations that involve much uncertainty, like that of EC (“what-if”)

Several different scenarios are createdA team compiles several future events as possible influences on the outcomeSecurities are assessed and future projections are madeScenarios are compared (does not reduce uncertainty)


EC Scenarios (cont.)

Four scenarios described by Hutchinson:1. Open, global commerce scenario—removal

of intermediaries flattens the value chain2. Members-only subnet scenario—applies to

B2B3. Electronic middlemen scenario—make

products/services available through 3rd party distribution channels

4. Consumer marketing channels scenario—collapse marketing to a unified consumer-centric EC medium on the Internet


Strategic Planning Framework

EC appears in three levels:Level 1: Basic presence —company uses the Internet to feature company information and provide brochuresLevel 2: Prospecting—features added

Search engineExtensive product informationLinks to servicesAbility to interact with the companyBasic customer service


Strategic Planning Framework (cont.)

Level 3: Business integration—more features added

EC transaction capabilitiesCustomization and personalization servicesTools fostering creation of a community

Level 4: Business transformation—supplier and customer integration added

Multichannel integrationAdvanced customization and configurationSuperb customer service


Strategic Planning Framework (cont.)

Generic competitive strategy vs. cooperarative strategy

Competitive strategy assumes fighting against all competitors for the purpose of survival and winningCooperarative strategy plans for working together with specific competitors to gain advantage against other competitors


Generic Competitive Strategies

Offensive strategy— usually takes place in an established competitor’s market

Frontal Assault— attacker must have superior resources and willingness to persevere Flanking Maneuver— attack a part of the market where the competitor is weak

Defensive strategies— takes place in the firm’s own current market position as a defense against possible attack by a rival

Raise structural barriersLower the (draw) inducement for attack


Generic Cooperative Strategies

CollusionActive cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal)

Strategic AlliancePartnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial


Generic Cooperative Strategies (cont.)

Joint VentureA way to temporarily combine the different strengths of partners to achieve an outcome of value to both

Value-Chain PartnershipA strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage


Sviokla’s Strategy

What is the company’s digital business strategy?

new business model?business categories?

What is the best capital structure?

Capital markets reward innovative, buying the future, not the pastVery risky due to overvaluation

What is the right organizational structure?

Companies need to realign their structures:

Break functional “silos”Meet different business needs

What is the correct technology platform?

IT must design for a digital economyEC IT must integrate seamlessly with (back office):

Customer call centerBillingShipping systems


Mougayar’s Approach

What questions should a strategic plan answer?

How EC changes our business?

How uncover new business opportunities?How use e-linkages with customers and trading partners?Intermediaries be eliminated? Are we intermediaries?How bring more buyers together?How do we change the nature of our products and services?Why is the Internet affecting other companies more than ours?How do we manage and measure the evolution of our strategy?


Ware’s Approach

Ware et al.’s 7-step model e-strategy (see book):

Where are you along the continuum of possible EC applications? Want to go? How get there?

Kettinger and Hackbarth MethodologyInitate – top support, scheduleDiagnosis – SWOT, scan for best practises and technologiesBreakout – use IT to transform processes and better competeTransition – time, lack of resources, qualified people, gap strategy, steps towards breakout strategy


Issues in Strategy Formulation (cont.)

How to handle channel conflicts (alternative approaches)

Let established old-economy-type dealers handle e-business fulfillmentSell some products only onlineHelp your intermediaries (e.g., build portals)Sell online and off-lineDo not sell online


Handling channel conflict

Offline vs. OnlineClear support of top managementUse of innovative processes that support collaborationClear strategy of “what and how”

Pricing strategySetting prices lower than off-line business may lead to internal conflictSetting prices at the same level may hurt competitiveness


Issues in Strategy Formulation (cont.)

Where to compete: different roles on Supply Chain, who adds value?

Play different rolesInfomediary. Community creator, Aggregator, Content provider

Should you get financing from big venture capital firms?

VC financing causes loss of control over businessBenefit: access to various VC experts and get the cash you need

Should you join an exchange?Many costs and limitations, but it may give yousell-side or buy-side infrastructure you need.Which exchange to join?


3. Implementation EC Plan

project teampilot project (help discover problems early)

Implementing ECRedesigning existing business processesBack-end processes must be automated workflow applications by integrating EC into existing accounting and financial back-ends


Issues in Strategy Implementation

Evaluating Outsourcing (Ch. 12)Partners’ strategy

Many potential partners, may need severalCompanies that make B2B e-marketplaces consider:

LogisticsTechnologyE-payment partners

How to coordinate B2B and B2CSelling direct is creating a B2C businessCoordination done in different ways


4. Strategy and Project Assessment

Need for assessmentFind out if EC project delivers what it was supposed to deliverAdjust plans if necessaryDetermine if EC project is still viableReassess initial strategy in order to learn from mistakes and improve future planningIdentify failing projects as soon as possible and determine reasons for failure


Strategy and Project Assessment (cont.)

Measuring results; watch for:Goals may be unrealistic

Web server was inadequate to handle demandExpected cost savings were now realized

Exploding application requests from various functional areas in the company may follow

Review requirements and design documentsDevelop thorough checklistPose a set of questions to assess impact of EC project


Strategy and Project Assessment (cont.)

Finalization and adjustmentsActual ROI can be computed and compared to the projected oneIf sales expectations were not met, review marketing effortsWeb assessment based on collected information

Corrective steps might be requiredProduct offerings to pricing strategyWeb promotion to review software vendors


EC Metrics – the need for them

Metrics include benchmarks in different areas related to EC implementation and strategy

Define and refine business modelsCommunicate strategyTrack performanceIncrease accountabilityAlign objectives of individuals, departments, and organizations


EC Metrics (health of the company)

Balanced scorecard—managers focus on short-term financial results and look at

Finance— both short- and long-term measuresCustomers—how the customers view companiesInternal business process—areas to excelLearning and growth—sustain ability to change and expand


EC Metrics (cont.)

Scorecard approach to EC—seven sets of metrics (fig. 6-10 vertical)

FinancialCompetitive leadershipMarketingTechnology ServiceInternet siteBrand


EC Metrics (an EC model)

Performance dashcard (fig 6-11, horizontal)

Divided into 5 desired outcomes and 5 corresponding metricsMetrics are mapped with leading and lagging indicators of performance, leading to calculated targetsStrategies are then evaluated and reformulated


EC Failures and Lessons Learned

E-Tailing failuresLack of funding (burn cash before gaining enough customers)Incorrect revenue model (little ad money)

Exchange failuresRevenue growth too slowNeed to move to new business model

EC initiative failures (within firms, Levi’s)Other failures (comparison sites)


Table 16-3Critical Success Factors for EC


12 Truths About How the Internet Really Works

Internet not as disruptive to business as we thoughtIf it doesn’t make cents, it doesn’t make senseTime favors incumbents (channel confluence)Making a market is harder than it looksNo “Internet time”, venture take a long time to reach success“Branding” is not a strategy (brand recognition is a goal)


12 Truths About How the Internet Really Works (cont.)

Entrepreneurship cannot be systematizedInvestors are not your customersInternet still changes everythingInternet changes your job (intermediaries)Distinction between Internet companies and non-Internet companies is fading fastReal wealth creation is yet to come


Managerial Issues

Considering the strategic value of ECConsidering the benefits and risksIntegration is criticalMetrics are beneficialPilot projects are usefulImplementing policies and strategies must be written

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