1

Information Systems: the Foundation of E-Business (CIS 108)

1) Frameworks & Tools 2) Safeguarding the Competitive Advantage (Strategic Approach)

Lecture FIVE (7th February 2005)

Amare Michael Desta

2

Strategic Planning - tools

1) Frameworks & Tools

a) the SWOT model [Kenneth Andrews]

b) PEST Analysis

3

SWOT Analysis: Strengths,

Weakness, Opportunities & Threats

Why use the tool?

It is effective way to: to identify Strengths and Weaknesses, to examine Opportunities & Threats org. have to

face.

SWOT framework helps: to focus the activities into areas where the org.are strong and to explore where the greatest O lie.

4

SWOT Analysis (Contd…)

Analyse Strengths 1st: What are your advantages? What do you do well? What relevant resources do you have? What do other people see as your strengths?

Rem: Consider the questions from the org.point of view and from the point of viewof the people you deal with.

Don't be modest BUT be realistic.

5

SWOT Analysis (Contd…)

Analyse Weaknesses 2nd

What could you improve? What do you do badly? What should you avoid?

Consider this from an internal/external basis Do other seem to perceive W that you do not see? Are the competitors doing any better than you?

It is better to be realistic now, and face anyunpleasant truths ASAP

6

SWOT Analysis (Contd…)

Analyse Opportunities 3rd:

Where are the good opportunities facing you? What are the interesting trends you are aware of?

Useful opportunities can come from: Changes in technology/markets on a broad/narrow

scale Changes in govt. policy related to your business Changes in social patterns, population profiles,

lifestyle changes, economic conditions etc. Local Events

7

SWOT Analysis (Contd…)

Analyse Opportunities 3rd:

A useful approach to identify an opportunities are: to look at your strengths and to ask yourself whether these open up anyopportunities.

Alternatively, to look at your weaknesses and to ask yourself whether you could open up

opportunities by eliminating them

8

SWOT Analysis (Contd…)

Analyse Threats 4th: What obstacles do you face? What is/are your competitor(s) doing? Are the required specifications for your job,

products or services changing? Is changing tech. threatening your position? Do you have bad debt/cash-flow problems? Could your W seriously threaten your business?Carrying out this analysis will often be illuminating- both in terms of pointing out what needs to be

done, and in putting problems into perspective.

9

SWOT Analysis (Contd…)

E.g. A start-up small consultancy

business A small consultancy business might carry out the following SWOT analysis and may conclude:Strengths: We are able to respond very quickly as we have no red tape, no need for higher management approval, etc. We are able to give really good customer care, as the current small amount of work means we have plenty of time to

devote to customers Our lead consultant has strong reputation within the market We can change direction quickly if we find that our marketing is not working We have little overhead, so can offer good value to customers Weaknesses: Our company has no market presence or reputation We have a small staff with a shallow skills base in many areas We are vulnerable to vital staff being sick, leaving, etc. Our cash flow will be unreliable in the early stages Opportunities: Our business sector is expanding, with many future opportunities for success Our local council wants to encourage local businesses with work where possible Our competitors may be slow to adopt new technologies Threats: Will developments in technology change this market beyond our ability to adapt? A small change in focus of a large competitor might wipe out any market position we achieve The consultancy might therefore decide to specialize in rapid response, good value services to local businesses.

Marketingwould be in selected local publications, to get the greatest possible market presence for a set advertising budget.

10

SWOT Analysis (Contd…)

Eg. A start-up small consultancy (Contd…)

The consultancy might therefore decide to specialize in rapid response, good value services to local

businesses.

Marketing would be in selected local publications, to get the greatest possible market presence for a set

advertising budget. The consultancy should keep up-to-date with changes in technology where possible.

As mentioned above - useful approach to identify an opportunities are: to look at your strengths and to ask yourself whether these open up anyopportunities.

Alternatively, to look at your weaknesses and to ask yourself whether you could open up opportunities by eliminating them

11

PEST Framework – Understanding the environment

12

PEST Framework: Political Factors

Political arena has a huge influence:1. upon the regulation of businesses and 2. on spending power of consumers/other

businessesWe must therefore consider issues such as: How stable is the P environment? Will govt. policy influence laws that regulate or

tax the business? What is the govt. position on marketing ethics? What is the govt. policy on the economy? Is the govt. involved in trading agreements

such as NAFTA, ASEAN, COMESA etc….

13

PEST Framework: Economic

factors

Marketers need to consider the state of atrading economy in the short and long-terms.

This is especially true when Marketers need toconsider the state of a trading economy

You therefore need to look at: Interest rates The level of inflation Employment level per capita Long-term prospects for the economy (GDP)

14

PEST Framework: Socio-cultural

factors

This S influences on businesses vary fromcountry to country but we must consider:

1. What is the dominant culture/religion? 2. What are attitudes to various local/foreign

products/services?3. Are there any barriers upon the diffusion

of products onto markets? 4. Do the population have a strong/weak

opinion on political/green or issues?

15

PEST Framework: Technological

factors

T is vital for CA & is major driver for Globalisation

Therefore consider the following points: 1.Does T allow for products/services to be made

more cheaply/to a better standard of Quality?2.Does the T offer consumers/businesses more

innovative products/services3.What type of T is in use? For what end?4.Is the T used to communicate with consumers/

work force etc? If so, why/how?

16

Safeguarding the Competitive Advantage

(strategic approach)

17

What is IT/IS Strategy planning?

IS strategy planning requires understanding of:1. nature of the org., its goals objective2. where it is going, its culture, & how it thinks 3. type of IT what is available, how IT is changing, what

the potential uses are; 4. info. needs, what/how it flows through the org. what

decisions are made, how info. Supports BP; 5. the role(s) people play in the org. what their

objectives and motives are, how they implement business processes;

6. the org .environment, what influences the org. legislation, markets, technology, media.

18

What is IT/IS Strategy planning? (Contd…)

To put IT/IS Strategy in practice – it: - requires technical & managerial understanding; - planning the details & thinking holistically; - rational/analytical know-how & political sensitivity

Main/prime obj. is then an alignment to ensure that1) the IS provision matches the business needs as well as:2) how it does it (process) & when it does it (timing)

19

What is IT/IS Strategy planning? (Contd…)

Alignment is a TWO way process: - the business determines the IS needs BUT also IS influences the business.

As we all know:  IT/IS is changing the way business operates; E-commerce changes the way transactions are

done and customers communicated with etc…..

20

What is IT/IS Strategy planning? (Contd…)

Alignment may be:

Reactive- following after the businessstrategy or

Proactive - leading the business strategy,proposing new ideas

 

21

Business and IS Alignment

22

Safeguarding the Competitive Advantage (CA)

Once the strategy is articulated, the org.must decide how to implement it.

and then find a mechanism to safeguard it:

See the offensive and defensive moves

23

Safeguarding CA & Core Competence - Offensive Moves Offensive Moves are:

… are actions taken when an organization tries to exploit and strengthen its competitive position through attacks on a competitor's position.

See the examples on the following slide

24

Safeguarding CA & Core Competence - Offensive Moves 1. Frontal assault2. Attack a competitor’s

weaknesses3. All-out attack4. Maneuvering around

competitors5. Guerilla tactics

25

Safeguarding CA & Core Competence - Offensive Moves 1) Frontal assaultGoing head to head against a competitorin price, promotion, product features, anddistribution channels.

But the org. must have the financial &marketing strength to do this.

26

Safeguarding CA & Core Competence - Offensive Moves

2) Attack a competitor’s weaknessesThis is a good strategy for many businesses too

They can place their products in geographic areaswhere their competitors do not compete.

Also, they can serve market segments thatcompetitors do not serve at all or do not serve well.

27

Safeguarding CA & Core Competence - Offensive Moves

3) All-out attackCoke and Pepsi are battling it out in this fashion inthe supermarkets, vending machines, and

restaurantchains

But this moves requires significant Financialresources and may result in market share at theexpense of profits.

28

Safeguarding CA & Core Competence - Offensive Moves

4) Maneuvering around competitorsA clever competitor sometimes can find a way tochange the rules of the game and circumvent itsopponents.

This may involve:changing the features of the product, such asCompaq adding a button on its personal

computersto access the Internet

29

Safeguarding CA & Core Competence - Offensive Moves

5) Guerrilla tactics: Small, intermittent, seemingly random attacks canwear down a competitor just accumulated bodyblows slow an opponent in a boxing match

The constant stream of coupons offered by fast foodoutlets do not serve well as a CA. Because they areso easily copied. But they do Keep competitors busycountering and defending their positions

30

Safeguarding CA & Core Competence – Defensive Moves

An org. will not always be on the attack.

Sometimes it will be under attack by competitors,needing to defend its competitive advantage andcore competences . This is when it will needdefensive moves.

See the examples on the following slide

31

Safeguarding CA & Core Competence – Defensive Moves

1. Don’t give competitors anything to attack

2. Make competitors believe they will suffer if they attack

3. Counterattacks4. Lower the incentive to attack

32

Safeguarding CA & Core Competence – Defensive Moves

1) Don’t give competitors anything to attack

If a firm offers a full and competitive productline, protects its products with patents, and hasexclusive contracts with suppliers, it does notleave much for competitors to attack.

Coke & Pepsi cover many bases by having broad product lines, heavy marketing, & control overBottlers – but rem. they are so balanced in power

33

Safeguarding CA & Core Competence – Defensive Moves

2) Make competitors believe they willsuffer if they attack

Public signals that a competitor 's move will meetwith strong retaliation may prevent the competitorfrom executing its plans.

E.g. if a firm announces plans to build a new plant,that signals a competitor that it should rethink itsplans to attack that firm's market segment. Matchinga competitor's price is a good signal too – price war

34

Safeguarding CA & Core Competence – Defensive Moves

3) CounterattacksIf a vital market segment is under attack, someform of counterattack may be necessary. Anorganization's strategists should choose thei battles carefully, though, because retaliationcan be expensive.

They should be sure the attacker is strong enoughto do harm before spending too much to defend.

35

Safeguarding CA & Core Competence – Defensive Moves

4) Lower the incentive to attack:Most attacks are launched because the attackingfirm believes that the high profits will result. Thereare ways for a defender to alter that belief.

Some firms reduce the incentive for attack byconstantly lowering costs so that price can dropwhile profit margins remain constant. Managers inthe attacking firm should know that their costs willbe higher for some time.

36

The Internet & E-Commerce

Impact of the INTERNET

What is the difference between E-COMMERCE & E-BUSINESS

37

Impact of the Internet E-commerce and e-business existed before

the Internet burst onto the business scene. However it is the ubiquitous nature of the

Internet which gives it much of its power. It is ubiquitous because it is affordable

technology. Therefore it opens up new opportunities to

small and large firms alike. (true or false?)

38

E-Commerce & E-Business

This is a much disputed topic. It has been argued that there is little

or no meaningful difference between the two.

However, there is a plethora of definitions in the literature.

We therefore must define what it is

39

E-Commerce

‘E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for production and procurement of indirect operating-expense items, such as office supplies.

It involves new business models and the potential to gain new revenue or lose some existing revenue to new competitors.’

[Bartels 00]

40

E-Business (i)

E-business includes e-commerce but also coversinternal processes such as production, inventorymanagement, product development, risk mangt. ,,finance, knowledge management & human resources

E-business strategy is more complex, more focusedon internal processes, and aimed at cost savings andimprovements in efficiency, productivity and costsavings.’

[Bartels 00]

41

E-Business (ii)

“E-Business is what happens when you combine the broad reach of the Internet with the vast resources of traditional information technology systems. It is dynamic and interactive.”

(IBM)

42

To avoid confusion we will adopt the convention:

E-COMMERCE = E-BUSINESS

43

E-Commerce STRATEGY

The Internet opens up NEW STRATEGIC OPTIONS regarding how and where firms compete and how they organise.

Porter’s Five Forces reveals some of the threats and opportunities

44

The CompanyTraditional

Rivals

Threats of New Entrants

Threats ofSubstitute Products

& services

Bargaining Power of Customers

Bargaining Powerof Suppliers

Porter’s Five Forces Model

45

EC Strategy: Concepts & Overview

The e-difference Reach – access and connection Richness depth & detail of information

are possible Barriers to entry are reduced Market niches abound

46

Selling is not easy on the Internet – because of

- Large number of sites - 80% of Internet revenue from limited sites- Profitability still out of reach of majority of Internet retailers.- Provide all information for a sale.- Security is paramount- Link E-commerce to back office processes.- Brand is of key importance

47

E-Commerce strategy – main issues

We need to think about:- New business strategies which incorporate e-b- Changing org. structure including IT business links;- Correct technology platform;- Benching marking against other sites;- Maintenance and on-going management and development of site;- Relationship management with customers, suppliers and allies.