BBA IT 2009 E-Strategy

8/2/2019 BBA IT 2009 E-Strategy

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E-business Strategy

BBA-IT: 2009-2012

A.G. Kotwal


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References

1. Corporate Information Strategy andManagement Applegate, Austin and

McFarlan; 7th Edition

2. Get the Right Mix of Bricks & Clicks

B Ran a Gulati and Jason Garino

(HBR: May-June 2000)

3. Strategy and the Internet by Michael

Porter (HBR, March 2001)4. Strategic Mgment and Business Policy

Wheelen, Hunger, Rangarajan (Pearson)


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E- business Strategy

Strategy defines the future directions and

actions of an organization

The direction and scope of an organizationover the long term which achieves its goals

through deployment of resources in a

changing environment to meet the needs ofmarkets and to fulfil stakeholder expectations

E-business strategy looks at application of the

Internet and other technologies to support

Corporate, Business Unit or Functional level

strategies


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Why does a company need strategic

planning for e-business?

A company faces several options:

Not go for E-commerce

Stay with passive advertisement

Open online stores in addition to existing Establish separate online division

Dissolve regular business become a pure

play company


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How does a Company decide?

E-strategy plan the purpose of preparing an

e-business strategy plan is to decide whatcourse of action the company must take. i.e.,

how to start e-business and sustain it

Example: IBM (it was only a brick company

till about 1990)


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IBMs E-business Strategy

Created an independent division

Introduced EC as a corporate culture Leveraged existing strengths

Re-en ineered rocesses

Started seven new initiatives

Decided to be an EC leader

Used ROI as a criteria to select projects


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IBMs Key EC Initiatives

1. Sell more on web (EC)

2. Online customer support (e-care)

3. Support for business partners (PRM)

4. Dedicated support for IT consultants /

analysts (e-service)

5. Support to employees (B2E)

6. E-procurement (B2B)7. E-marketing communications


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E-business Strategy

Corp Strategy

E-business Strategy

SCM Strategy Mktg/CRM Strategy

IS/IT Strategy


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IT and Strategy Key Concepts Strategy vs. Bus Model

Evolving Strategy Strategic Positioning

ener c ra eg es Strategic Shifts


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E-Strategy and Business Model A BM defines how an enterprise interacts

with its environment to define a unique

strategy, attract resources and build

capabilities to execute it and in the process

A successful BM aligns an organization

with its environment

The strategy defines the revenue and growthpotential of the organization


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E-Strategy and Business Model

Strategy => focuses on specific goals andprojects required to achieve them

Capabilities => built to achieve those goals atleast cost while responding quickly to change also define the revenue model => profitmodel

Profits => enables evolving strategy and newcapabilities this cycle is called the virtuouscycle

Poorly aligned business model can createvicious cycle causing business to spin outof control and destroy value


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Evolving Strategy


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E-Strategy Planning Cycle

1. Industry/Competitive Analysis: analyzeindustry environment and determinerelative/competitive positioning

2. Strategy Formulation: strategic objectivesthat will drive the strategy initiatives

Focus on customers, markets, competition andinternal operations

Justify projects measure ROI

3. Implementation

4. Performance assessment and strategyreassessment feedback loop


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1. Industry and Competitive Analysis

Means monitoring, evaluating anddisseminating information from external and

internal environments w.r.t. launching an

eBusiness project

Need to identify CSFs for the initiatives

Start with SWOT analysis: Internal strengths and weaknesses : Structure,

Culture, Resources

External opportunities and threats : Social

Environment- general forces, Task Environment-

industry analysis


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2. Strategy Formulation Develop long range/strategic plans for effective

management of environmental opportunities and threats

in the light of corporate strengths and weakness

Redefine corporate Mission (purpose for the

organization's existence)

Specify Objectives (SMART: Specific, Measurable,

, , -

Develop specific activities and plans for the selected

initiatives (Strategies)

Prepare implementation guidelines and milestones(Policies)

Examine Mission Statements and declared Strategies for

various companies


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2. E-Strategy Formulation

Steps for E-commerce Programs

1. Conduct education/training

2. Review current processes simplify, BPR

3. Determine what customers/partners expect4. Re-evaluate nature of products/services

.

6. Extend current systems to outside

7. Track new competition/market share

8. Develop web-centric marketing strategy

9. Develop virtual marketplace

10. Instill E-business management style


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2. Methodologies for Strategy Formulation

Critical Success Factor (Rockart)

Indispensable technology, business and human

factors that help achieve desired level of goals

Involves asking a series of Qs

a ue a ys s o e To assess desirability of a strategy/initiative,

assess added value of a series of activities

performed to achieve goals Value Analysis Qs


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2. Strategy Formulation (contd)

Amazon Strategy

?

?


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2. Strategy Formulation (contd)

Amazon Strategy:+ Stay on-line (pure play)

+ Product diversification

+ Personalization

Dell Strate

+ Direct marketing

+ Efficient supply chain

+ Technology based innovation


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3. Implementation of Strategy

Build an implementation plan (Program)

Get organized user teams, technical teams Pilot Project a risk mitigating strategy

Content management (Procedures)


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4. Performance Assessment

Need for strategy and projects assessment:

- Do the projects deliver what was aimed?- Projects still viable in changing environment?

-

- Determine reasons for failure

- Reassess strategy- learn from mistakes

Measuring Results

Corporate Performance Measurement


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4. Perf. Assessment: ROI and Risk Analysis

Creating added value through EB initiatives

requires resources

ROI is benefits in relation to costs

Costs are easier to uantif TCO

For IT initiatives:

Generic IT Values- Financial, strategic,

stake holdersGeneric IT Risks- Competitive strategy,

organizational strategy, uncertainty


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Impact of the Internet

The Internet is re-shaping the marketplace and

has changed the way customer, suppliers interact

It has changed the way cos work from internally Affects competition instead of just product

,

traditional value chain. The new marketplaces:

Trading exchanges (VerticalNet, TradeMatrix)

Industry sponsored exchanges (Covisint) Net Market Makers (e-Steel) value chain based


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Impact of the Internet

Trends1. Changing business models bus

transformation

2. New channels changing access and branding

3. Balance of ower shiftin to customer

4. Competition is changing more innovative

5. Pace of business is increasing drastically

6. Traditional organization boundaries arechanging

7. Knowledge is becoming a key asset


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Conclusion:CSFs

- u ne e


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E-business Strategy: Seven Steps

1. Align business strategy with Inet initiatives

2. Communicate vision

3. Identify core competence and key values

4. Develo ortfolio of EB initiatives

5. Evolve year by year objectives and plans

6. Implement change and set up measurements

7. Monitor overall plan, adjust and improve


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CSFs for E-business Projects

Top management support- internalcommunication

Project team representing functional areas

Technical infrastructure- skills, pilot project

Customer acceptance trust between

buyer se er User friendly web interface

Integration with legacy systems

Security and control

Competition/market situation

ROI


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Strategic Positioning

Michael Porter


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Strategic Positions

Strategic Positions - the result of choices in 4 areas:1. Market/Channel positioning: choice of

customers, the needs that will be met and

channels to reach those customers

2. Product positioning: choice of products

/services, their features and price3. Value chain/Value network positioning: role an

organization plays within the network of

suppliers, producers, distributors, partners

4. Boundary positioning: determines markets,

products and businesses you will not pursue


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Porter: Three Generic Strategies

Achieve proprietary advantage in an industry,three generic strategies:

Cost Leadership

Differentiation Focus

1. Lower cost and differentiate products/services? (competitive mechanism)

2. Target a broad market or a narrow one?(competitive scope)

Specific choices vary widely from industry to

industry


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Strategic Shift


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Strategic Shifts

Four key approaches that can be applied to thefour strategic positions (Product, Market/

Channel, Value Chain/Network, Boundary) +

the Business Model:

Enhance- incremental changes to any of four

Expand- new prod, market, channel, network(outsource)

Extend- new business or business model

Exit- drop a feature, prod, service, market,

channel, supplier/partner


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E-Strategy Concepts


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E-Strategy Key Concepts

Strategic Grid Analysis (McFarlan)

Internet and the Value Chain (Porter)

Internet and the Industr Structure

(Five Forces Model Porter)


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The Strategic Grid

Assessing Impact ofIT E-business

(Warren McFarlan)


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Strategic Grid: Impact of IT

Impact of IT on:

Core operations (e.g., stock markets require

zero defect network operations)

Core strategy (steady stream of technology

innovations drive the company growth examples, Amex, Google, )

Strategic Grid


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Strategic Grid AnalysisCOMPANY CLASSIFICATIONS

H core operations L

factory strategic

support turnaround

L core strategy H

IMPACT OF IT ON CORE OPERATIONS/STRATEGY


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Strategic Grid Analysis

FACTORY (Ops-H, Strategy-L): (e.g., Banks)

Goals: Improve performance of core processes

Leadership: Business Unit executive

Project management: Process reengineering

SUPPORT (Ops-L, Strategy-L): (e.g., University)

Goals: Improve local performance

Leadership: Local level oversight

Project management: Grassroots experimentation


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STRATEGIC (Ops-H, Strategy-H): (e.g., Dell, Amazon )

Goals: Transform organization/industry

Leadership: Senior executive and board

Project management: Change management

TURNAROUND (Ops-L, Strategy-H): (Google,Facebook)

Goals: Identify and launch new ventures

Leadership: Venture incubation unit

Project management: New venture development



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Strategic Grid Analysis The Search for Opportunities

Can IT

Be used to reengineer core value activities?

Can IT change the basis of competition? Change relationship and balance of power between

buyer and seller?

Build or reduce arriers to entry?

Increase or reduce switching costs?

Add value to existing products/services or create newones?

S i G id A l i


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SGA Helps cos choose approach to organizingand managing IT enabled business

Key questions to guide strategic decision makingwhen evaluating the impact of IT on coreo e a o s a co e s a egy

These questions also are indicative of theopportunities that IT creates for businesstransformation


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Porters Value Chain Model


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The Value Chain Set of activities through which a

product/service is created and delivered Supply Chain comprises of a complex set

of trade relationshi s

Also called value chain as each stage addsvalue to the product/service

Measurement of value (generally the

difference between the price and the cost)


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PORTERS GENERIC VALUE CHAIN

FIRM INFRASTRUCTURE

HR MANAGEMNET

TECHNOLOGY DEVELOPMENT

Support Activities

MARGIN

Primary Activities

InboundLogistics

OperationsOutboundLogistics

Marketing& Sales

Service

Generic Value Chain Model


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Generic Value Chain Model

Three basic primary activities Inbound logistics

Operations

Outbound logistics Two additional primary activities

Service Support

Procurement

Technology development

HR management

Firm infrastructure

Value Chain Model contd


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Value Chain Model cont d

Specific value chains for each activity

analyze sub activities and linkages

Analysis of cost and value addition for eachactivity gives the overall efficiency of the

value chain

Every activity involves the creation,processing and communication of

information IT has a pervasive influence

on the value chain

V l Ch i M d l td


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Value Chain Model contd The physical value chain and the information

value chain go hand in hand

Logistics Operations Mktg SalesValue

Info and IT sources of new prod/services

Every business is information business

Business strategy and info strategy need to be

integrated

Value Chain Model (contd)


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Value Chain Model (cont d)

VC Model a useful analysis tool fordefining a firms core competence andactivities in which it can pursue competitive

advantage as follows: Cost advantage: by better understanding

cost and s ueezin them out of the value

adding activities Differentiation: by focusing on the

activities associated with core

competencies and capabilities in order toperform them better than the competition

Information Management Equivalence?

I A li i i h V l Ch i


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Internet Applications in the Value Chain

Inbound Logistics

Real time integrated scheduling, shipping,warehouse management, demand management,

planning across the company and suppliers

Disseminating real time inbound and in-

company Operations

Integrated information exchange, scheduling

and decision making Real time available-to-promise info to sales

force and channels

I A l i h V l Ch i C d


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Inet Applns in the Value Chain Contd

Outbound Logistics

Real time transactions of orders

Automated customer contracts

Customer and channel access to productdevelopment

o a orat ve customer orecast ng system

Marketing and Sales

Web sites, online sales channels, marketplaces

Real time access to customer databases Online product configurator

Customer profiling, customer feedback

Push advertising

I t A l i th V l Ch i C td


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After-Sales Service

Support for service representatives

E-mail management, billing integration,chat, ..

Self service applications Field service access

CRM



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Procurement

Demand planning, fulfillment systems

Integration with purchase, inventory andforecasting systems with suppliers

Automated requisition-to-pay

rocurement v a exc anges, auct ons,marketplaces and buyer-seller matching

Technology Development

Collaborative product design, PLM

Knowledge directories

R&D access to RT sales and service info



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HR Management

Self service benefits and personnel

management Web-based training, e-learning

Time and expense reporting

Firm Infrastructure

Web-based ERP and financial systems Online investor relations (broadcasts,

conference calls, info dissemination)


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Internet and the Industry

Structure

Michael Porter

(HBR: March 2001)

Industry Structure and Attractiveness


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y

Every industry has intrinsic attractiveness opportunities or limits for how muchprofitability you can achieve

In evolving strategy for an enterprise, it is

The factors affecting industryattractiveness are largely environmental

Innovation can help you go beyond theestablished boundaries but to an extent

Michael Porters Five Forces Model


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Threat of substitute products

and services

Bargaining Rivalry

Bargaining power

power of

suppliers

among existing

competitors

o c anne s

users (buyers)

Barriers to entry

Impact of the Internet on Strategy


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Impact of the Internet on Strategy

General belief that Internet had renderedall the old rules about competitionobsolete

This has led to several bad decisions:Companies have moved away from

quality/features/ service to price drivenstrategy or created misguidedpartnerships affecting the overall

attractiveness of the Industry Need to take a clearer view of the

Internet

Impact of the Internet on Strategy contd


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Impact of the Internet on Strategy cont d

Need to move away from clichs like,Internet Industry, e-bus strategy,

New Economy !!! Internet:

p w u u

wisely or unwisely in any industry

How will the pool of value created by

Internet be shared Who will capture the economic benefits

that Internet creates

Strategy/Internet Lessons Learnt


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The question is not whether to deployInternet but how, as it provides better

opportunity to establish distinctive

strategic positioning

effective strategy

Successful cos will be those that use Inet

as complement to traditional ways ofcompeting (not as separate initiatives)

Inet makes strat. more essential than ever

Internet Distorted Market Signals


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g

(contd)

The dot.com boom:

Companies could raise capital withoutdemonstrating viability

Excess venture capital in the market Proliferation of companies indicative of low

barrier to entry always a danger sign !

Internet Return to Fundamentals


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Two conclusions from experience to date: Many businesses are competing by artificial means

propped up by venture capital

As market forces play out, the old rules regain theircurrency the creation of true economic value

revenue, cost reduction or stock values)

Only when use of Internet generates sustainable

revenue and savings in excess of cost ofdeployment can technology investments be

further justified

Internet Return to Fundamentals


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To understand how Internet can createvalue, need to look at two factors thatcreate profitability:

Industry structure that determines theprofitability of the average competition

Susta nab e compet t ve a vantage w callows a company to out-perform theaverage competition

The above factors vary widely byindustry and supra-industry classifications(like, B2B and B2C) are meaningless

Internet and Industry Structure


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Internet has created some new industrieslike, auctions and digital marketplace/exchanges. However, maximum impact

has been to reconfigure existing industriesconstrained by high cost of

communicating, information gatheringand accomplishing transactions

The structural attractiveness of the

industry is determined by five underlyingforces of competition

Michael Porters Five Forces Model


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Threat of substitute products

and services

Bargaining Rivalry

Bargaining power

power of

suppliers

among existing

competitors

o c anne s

users (buyers)

Barriers to entry

Internet and Five Forces Model


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RivalryRivalryamong existingamong existing

competitorscompetitors

(-) Reduces differences among competitors

- gra es compe on o pr ce

(-) Widens geographic market

(-) Increases the number of competitors

(-) Lowers the variable costs relative to fixed

cost, increasing pressure for price

discounting



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(-) The proliferation of Internet approaches

Threat of substitute productsThreat of substitute productsand servicesand services

crea es new su s u e rea s

(+) By making the overall industry more

efficient, the internet can expand the

size of the market



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(-) Reduces barriers to entry, such as the need

Barriers to entryBarriers to entry

or a sa es orce, p ys ca asse s, access

to channels

(-) Internet applications are difficult to keep

proprietary from new entrants

(-) A flood of new entrants has come into

many industries



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(+) Procurement over Internet raises bargainingpower over suppliers

- Gives su liers access to more customers

Bargaining Power of suppliersBargaining Power of suppliers

(-) Reduces the leverage of intermediaries(-) Gives all companies equal access to suppliers and

gravitate procurement to standardized

products that reduce differentiation

(-) Reduced barrier to entry and proliferation of

competition downstream shifts power to suppliers



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(+) Eliminates powerful channels or improvesbargaining power over traditional

Bargaining power of channels/usersBargaining power of channels/users(Buyers)(Buyers)

c anne s

(-) Shifts bargaining power to end consumers

(-) Reduces switching costs


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Strategic PositioningMichael Porter

Strategic Positions


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Strategic Positions - the result of choices in 4 areas:1. Market/Channel positioning: choice of

customers, the needs that will be met and

channels to reach those customers

2. Product positioning: choice of products

/services, their features and price

3. Value chain/Value network positioning: role an

organization plays within the network of

suppliers, producers, distributors, partners4. Boundary positioning: determines markets,

products and businesses you will not pursue

Porter: Three Generic Strategies

Achieve proprietary advantage in an industry,


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Achieve proprietary advantage in an industry,

three generic strategies:

Cost Leadership

Differentiation Focus

1. Lower cost and differentiate products/services? (competitive mechanism)

2. Target a broad market or a narrow one?(competitive scope)

Specific choices vary widely from industry to

industry


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End

-strategy

BBA IT 2009 E-Strategy

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