Chapter 5E-business strategy

Learning outcomes• Follow an appropriate strategy process model

for e-business;• Apply tools to generate and select e-business

strategies;• Outline alternative strategic approaches to

achieve e-business.

Strategy• Strategy

Definition of the future direction and actions of a company defined as approaches to achieve specific objectives

The direction and scope of an organization over the long term

– “Defines how we will meet our objectives”

– “Sets allocation of resources to meet goals”

– “Selects preferred strategic options to compete within a market”

– “Provides a long-term plan for the development of the organization”.

Agenda

• E-business development step-by-step

• E-business strategy

• Implementation Planning

E-business development step-by-step

Planning Implementation Operation

 1. Research and Strategy

2. . Planning

3. Information Architecture

E-business development step-by-step

What are the steps to success ?

STEP 1 – e-Business strategy

STEP 2 – Implementation plan

STEP 3 - Implementation

STEP 4 - Operation

Planning

Implementation

Operation

E-Business StrategyFundamental questions …..

How to develop e-business ?

What type of e-business?

Why you want to develop that type of e-business ?

E-business strategy

….and answers.

Implementation plan

Why you want to develop that type of e-business ?

What type of e-business?

• B2B , B2C , B2B/C

•Brokerage Brokers can facilitate consumer-to-consumer, consumer-to-business or business-to-business markets

•Infomediary entails capturing and sharing information

• Advertising works in the same way as the convention media broadcast version

• Merchant / Affiliate offers products or services whenever people may surf on the Web

Brokerage• Bringing together buyers and sellers

– Market Exchange (charge seller a fee; e.g., Metalsite)– Business Trading Community (vertical web community)– Buyer aggregator (buying group; Mobshop)– Distibutor (multi-vendor catalog; NECX)– Virtual Mall (hosts merchants via portal; Yahoo! Stores)– Auction Broker (conducts auctions for sellers; eBay)– Reverse auction (broker can earn spread; Priceline)– Classifieds (price may or may not be specified)– Search Agent (seeks goods/prices; MySimon)

Infomediary

• Collect and sell information– Recommender System (users exchange

information about products/services; Deja.com; ePinions)

– Content site, free to viewers; NYTimes.com)

Advertising

• Extension of traditional broadcasting model– Generalized Portal (high-volume;) Yahoo! , google– Attention/Incentive Marketing (pay for viewing;

CyberGold, IWon)

Merchant Model

• Classic wholesalers & retailers (auction or fixed price)– Virtual Merchant (Amazon; OnSale)– Catalog Merchant (Mail order migrated to the

web; Levenger)– Click and Mortar (traditional + Web; Gap, Lands

End; B&N)

How to develop e-business

1. Propose you future situation

2. Assess your current situation (internal/external)

3. Choose your strategy

Environment$$$

Now Future

E-Business strategyPropose you future situation

• Should be specific (time and figures)

• Profit oriented

“Increase revenue by 30% in 2 years”

“Increase market share by 50% in 1 year”• Cost oriented

“Reduce cost by 20% in 1 year”• Client oriented

“Increase client satisfaction by 50% in 2 years”

Market

Efficiency

Improve customer services

Assess your current situation

• Internal factorsStrengthsWeaknesses

• External factorsOpportunitiesThreats

E-Business strategy

E-Business strategyTo conduct the SWOT Analysis you should

consider:• What is your business sector?• 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?• What are the major opportunities and threats?• What are the existing and potential partnerships

for developing e-Business?

E-Business strategySWOT Analysis

• Internal factors

Strengths Original productPopular productHigh quality

Weaknesses Lack of IT expertise

• External factorsOpportunities

External marketNew trendB2B market places

Threats Competitors

Strengths (S)Original productPopular product

High quality

Weaknesses (W)Lack of IT expertiseNo WEB presence

Opportunities (O)External market

New trendB2B market places

Threats (T)Competitors

INTERNAL FACTORS

EXTERNAL FACTORS

SO Strategies Generate strategies

here that use strengths to take

advantages of opportunities

WO StrategiesGenerate 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

SWOT Diagram

Issues in e-Business Strategy

• Advantages– Chance to capture

large markets– Establishing a brand

name– Exclusive strategic

alliances

• Disadvantages– Cost of developing 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?

Issues in e-Business StrategyShould you join an e-Business Portal?

– Several benefits

– Costs and limitations

– E-Marketing

– sell-side and buy-side infrastructure

Cost and Fee on Alibaba

• Currently, we provide both free membership and Gold Supplier Membership.

• As for free membership, there is no membership fee.

• As for Gold Supplier, the membership fee is USD2,999.

• Alibaba.com only charges for annual fee of our Gold Supplier. If you are our free member outside China (mainland), you can sell your product free of charge.

E-Business strategy

How to know if the strategy will achieve the

proposed result?

“Increase revenue by 30% in 2 years”

Business Case• Business case is used to:

– Provide justification for investments

– Provides bridge between plan and the execution

– Clarifies how the organization will use resources

to accomplish the e-strategy

Cost-Benefit and Risk Analysis• 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• Costs

– Implementation and operation costs• Recover the investment

– Should be able to recover the investment in up to 3 years

E-Business Strategy• Outputs:

– Where you want to be in the future– Business case

• Estimated Time• Estimated Cost

27

How to implement e-business

Implementation planning

• Start– Estimated scope– Estimated time– Estimated cost

• End• Planned Activities• Planned schedule• Human resources• Planned

procurement• Planned budget• Manage Risks

Regional Training Workshop for Enterprise Support Agencies to Promote E-business for SMEs in the Greater Mekong Subregion (GMS), 26-28 June 2006, Bangkok

Implementation planning

Refine Scope

Break the outputs in

small piecesIdentify

Activities

Identify Resources

Develop Schedule

Manage Risks

Plan procurement

Plan Budget Project Plan

Refining Scope• Example:

– One initial page with the basic information regarding the company and links to other pages with further information on its products, the company itself, and contact information.

• Try to get the details– Building an Order: shopping cart size, history– Tax and Shipping: calculated before purchase?– Payment options: credit cards, purchase orders

• Priorities1. Must have2. Nice to have3. Maybe in the future• These priorities are also influenced by budget, development time, etc

Work Breakdown Structure (WBS)e-business

e-business web site

Off-line infrastructure

Web site layout

Web site Content

Web service infrastructure

Network ready

Web server ready

Hardware installed

Webserver installed

Web site text ready

Product ‘s images ready

Internal capacity on e-business

operation

Internal capacity on communications with

foreign clients

Intermal capacity on maintenance of web content

Intermal capacity on maintenance of web service

31

Identify ActivitiesOutcomes Activities

Web site layout - Develop web site layout

Web site text ready - Develop content of web site

Product’s images ready - Obtain images of green cooperative’s products- Process the images to post in the web site

Network ready - Install Internet access

Hardware installed - Install web server (Hardware)

Web server installed - Install web server software

Internal capacity on maintenance of web content

- Install software for content management- Develop internal capacity on maintenance of web content

Internal capacity on maintenance of web service

- Develop internal capacity on maintenance of web service

Internal capacity on communications with foreign clients

- Develop procedures for communications with foreign clients- Develop templates for communications with foreign clients- Develop internal capacity to deal with foreign clients

Regional Training Workshop for Enterprise Support Agencies to Promote E-business for SMEs in the Greater Mekong Subregion (GMS), 26-28 June 2006, Bangkok

Identify ResourcesTasks Resources Required skills

- Develop web site layout - External - Web design

- Develop content of web site - 1 Internal staff – 2 hours per day, for up to 3 months

- English language, cooperative’s history, products and services.

- Obtain images of green cooperative’s products

- 1 Internal staff - Photo shooting

- Process the images to post in the web site

- External - Web design

- Install Internet access - External - Data Network

- Install web server (Hardware) - External - Hardware installation

- Install web server software - External - Web server installation and configuration

- Install software for content management

- External - Content management configuration

Develop Schedule# Activity Predeces

sorMonths

1 2 3 4 5 6 7 8 9 10 11 12

1 Develop content of web site                          

2 Obtain images of green cooperative’s products

                         

3 Process the images to post in the web site

2                        

4 Develop web site layout                          

5 Install Internet access                          

6 Install web server                          

7 Install web server software 6                        

8 Install software for content management

6                        

Procurement Plan• Conduct your own research to be prepared to purchase.

It includes things such as current technologies and possible companies to contract.

• To plan the procurement you should know basically what to purchase and when to purchase

Budget Plan

• Add costs of internal and external resources

• Estimate the monthly expenditure

Manage Risk

• Identify risks– ISP, e-market Portal, Web developers– Financial

• What to do?– Avoid

• Revise planning (scope, activities, schedule, budget)

– Mitigate• Reduce impact• Reduce probability

Project Plan• The project plan is the compilation of all planning

documents developed. It describes how the project will be implemented and it should be used is a guidding tool.

• Should not be considered a static document. Make sure that the project is implemented according to the plan but also conduct the on-going planning and update the project plan to reflect the changes.

• It is a good practice to keep the baselines regarding time (initial schedule), cost (Budget plan), and scope (Scope statement). They will be useful tools to monitoring the implementation of the project.

38

Cost Benefit Analysis

• Identify & evaluate all costs & benefits• Discount• Assess project(s) by calculating

– Benefit/Cost Ratio (B/C)– Net Present Value (NPV)– Internal Rate of Return (IRR)

39

Discounting

• Policies & projects last a long time• Frequently costs & benefits occur at different

times• Money has a time value, i.e. ceteris paribus,

current dollars are more valuable than future dollars

• Thus, we need to place current & future costs & benefits on an equal basis for comparison

Discount Rate v. Interest Rate

• $100,000 invested at a 3% interest rate today will be worth roughly $115,927 in five years

• $100,000 in anticipated benefits five years from now is worth roughly $86,260 today, when discounted by 3%

40

The Discount Rate Matters

• $100,000 in anticipated benefits five years from now is worth roughly $86,260 today, when discounted by 3%

• $100,000 in anticipated benefits five years from now is worth roughly $78,352 today, when discounted by 5%

• The difference grows larger as– Multiple years are accounted for– Benefits accrue further into the future

41

What To Use As A Discount Rate?

• There are various approaches to selecting one– “Givens” (i.e. some authority imposes one)– Bank interest rates– Rates of return on certain investments (e.g.

government bonds)– “Social” discount rates

42

43

Net Present Value

• The difference between total discounted benefits and total discounted costs

• NPV = (PVB PV‑ c)

• NPV: decision criteria– For a single project, a positive NPV indicates

acceptability– For multiple (competing) projects, the project(s)

with the highest NPVs should receive highest priority

44

Benefit/Cost Ratio

• B/C = (PVB / PVC)

• Benefit/Cost ratio: decision criteria– For a single project, a B/C ratio which is greater than 1 indicates

acceptability– For multiple (competing) projects, the project(s) with the

highest B/C ratios (greater than 1) should receive highest priority

Internal Rate of Return

• The discount rate at which the present value of benefits is equal to the present value of costs

• Internal Rate of Return: decision criteria– For a single project, an IRR which is greater than

the selected (for B/C and/or NPV analysis) discount rate indicates acceptability

– For multiple (competing) projects, the one with the largest IRR is the most desirable

45

Summary• Planning, implementing and operating• Planning = strategy + implementation plan• Strategy = Future, now (internal/external), choices• Strategy will reach the target? Business case• Implementation plan

– Scope– Activities– Resources– Schedule– Procurement– Risks– Project Plan