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Chapter ThreeChapter Three
Digitizing the Business: e-Business Patterns
www.ebstrategy.com- 2 -© e-Business Strategies, Inc.
e-Channele-Channel
e-Portale-Portal
e-Market Makere-Market Maker
e-Business Patterns: e-Business Patterns: The Structural FoundationThe Structural Foundation
Pure-E “Digital Products”Pure-E “Digital Products”
Click-and-BrickClick-and-Brick
Table of ContentsTable of Contents
www.ebstrategy.com- 3 -© e-Business Strategies, Inc.
e-Business Patterns: Structural Foundatione-Business Patterns: Structural Foundation
In dynamic market environment, manager’s challenge is how to tell forest from trees
– Are we investing in the right business opportunity?– Are these opportunities ever going to be useful?– Are we using the right business model to attack
these opportunities?
The Scoop: New, Web-enabled firms eating into large, old-economy companies’ businesses
So: Managers of old-economy companies need right support tools to make strategic moves, allocate scarce resources, and manage risk
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e-Business Patterns: Structural Foundatione-Business Patterns: Structural Foundation
But: Choosing target strategy complex– To move online, large brick-and-mortar
corporations either swallow a startup or go at it alone. Which is the right approach?
Implication: With focus shifting from physical to digital assets, managers must monitor macroeconomic and customer trends
– To trigger new e-business structural designs– Resulting new business models form the basis for
next gen corporate strategic planning
Sadly: Many companies still not taking the digital world seriously
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e-Business Patterns: Structural Foundatione-Business Patterns: Structural Foundation
Bottom line: We are still in early stages of the e-Business revolution
– There have been and will be moments of extreme optimism; also moments of extreme pessimism
– What is certain is that it is creating opportunities for companies willing to adapt
– For others, it represents a destabilizing threat to the status quo of business-as-usual
– When all is said and done, we’ll find big corporate winners join ranks of premiere companies in the world
Aim of this chapter – Help identify winners– Discuss characteristics leading to their success– Analyze discernible patterns for better understanding
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Going DigitalGoing Digital
First step in identifying an e-business leader– Look at companies asking the innovative questions that are
transforming the rules of today’s business game
When innovative companies change the types of strategic questions that they ask themselves, the result is business revolution
– In 1970s, the Japanese posed new questions and changed rules of the Auto industry
• Not gas-guzzlers, how do we create fuel-efficient cars?• Not cars that break down, how can we create a high-
quality car with few manufacturing defects?• Not piles of “just-in-case” inventory, how can we create a
“just-in-time” inventory process?
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Going DigitalGoing Digital
In mid 1980s, it was Wal-Mart– Not what business are we in, what business should we be
in?– Wal-Mart turned from retailer into supply chain expert– Offered right product mix at right store
In mid 1990s, it was new entrants who rose to challenge almost every leading company
– Questions about customer and business model, not processes, thus challenging sentiment of early 1990s among leading companies
– AOL vs. CompuServe and Prodigy– Dell vs. Compaq and IBM– EMC vs. IBM and StorageTek– Sun Microsystems vs. HP and Silicon Graphics
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Going DigitalGoing Digital
In the 2000s, the questions for today’s business leader will be on the speed with which his/her firm implements e-business solutions powered by recent innovations
– How fully digital can we make our customers’ experience?
– Our supply chain?– Our internal operations and processes?– Intuit transformed from a stand-alone PC-based
business model into an online financial services portal when the Internet emerged to threaten it’s business
www.ebstrategy.com- 9 -© e-Business Strategies, Inc.
Going DigitalGoing Digital
Startups continue to shape the direction of today’s business by taking advantage of recent technological innovations
E-Business can change the way companies interact with customers, communicates, sells, purchases, manufactures, and develops products
Asking a new question not only produces new answers but also reinvents the game
Result: a cost advantage that’s not 10 percent better than competitor’s but rather many fold.
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• What models are better suited to take advantage of new business opportunities?• What business processes need to change?• How do you move from existing model to an e-model reflecting your firm’s organizational readiness?• What are the challenges management must face when executing the new business model?
Analyzing the EnvironmentAnalyzing the Environment
• What is the new opportunity based on certain customer and market trends?• What are the macro-economic drivers of the business change?• Which digital technologies are going to dominant your industry?
e-Business Models
The strategic framework allows you
to compete in the game
e-Business Patterns
The structural foundation sets the
new rules of the game
• Who are your target customers?• What is your value proposition?• How do you make money?• How to finance the company? • How do you get and retain customers?• How to attract and retain talented people?
e-Business Designs
A specific strategy for what you need to do in
the marketplace
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Focusing on the Whole PictureFocusing on the Whole Picture
• Basic efficiency, effectiveness enhancements as the selling becomes E-enabled
• Selling goods/services
• Payment/settlement enhancements
• Traditional business transferred to the Net
• Rise of new intermediaries
• New forms of supply chain integration
• Consolidation/transformation of intermediary industry
• Customer Expects “E” everywhere
• Fundamental re-design of business
• New structures to allow market making, trading and virtual warehousing
Begins as a Channel, But Extends to Total Transformation of Business
Pure E
E-Portal(B2C)
E-Market-Makers (B2B)
e-Channel
Click and Brick
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e-Channele-Channel
e-Portale-Portal
e-Market Makere-Market Maker
e-Business Patterns: e-Business Patterns: The Structural FoundationThe Structural Foundation
Pure-E “Digital Products”Pure-E “Digital Products”
Click-and-BrickClick-and-Brick
Table of ContentsTable of Contents
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Transaction Transaction EnhancementEnhancementTransaction Transaction
EnhancementEnhancement
e-Channele-ChannelCompressionCompression
e-Channele-ChannelCompressionCompression
e-Channele-ChannelExpansionExpansione-Channele-ChannelExpansionExpansion
e-Channele-ChannelInnovationInnovatione-Channele-ChannelInnovationInnovation
e-Channele-Channel
Table of ContentsTable of Contents
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Transaction EnhancementTransaction Enhancement
Augments or replaces the old transaction method– Home Depot
In most cases, does not alter other aspects of the process
Sometimes, more technically savvy companies may gain business from other firms, thereby altering the identify of players in the channel
– Dell– Gap
Consumer
Electronic Transaction
Manufacturer
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E-Channel CompressionE-Channel Compression
Eliminates redundant steps in the channel– When value added by channel is less than cost of
the channel– Cisco partner/reseller “always on” e-channels– Southwest eliminated the ticketing agent “link” by
moving information sharing and transaction processing online
– Online stock trading– Amazon.com
Consumer
Electronic Transaction with Disintermediation
ManufacturerX
www.ebstrategy.com- 16 -© e-Business Strategies, Inc.
E-Channel ExpansionE-Channel Expansion
• Lengthens the legacy channel
• Counterintuitive? Inefficiencies in the marketplace can make this approach a necessity
• Infomediaries – Carpoint in automotive market– Intuit in financial services
• Vstore.com
Consumer Manufacturer
Electronic Transaction, Metamediation
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E-Channel InnovationE-Channel Innovation
Pioneering new channels to satisfy and to anticipate unmet and potential customer desires
– E-Stamp
Given the high stakes, companies everywhere want to make it easier and more enjoyable for customers to do business with them
– In every industry, customer base is fragmented into multiple segments, each with its own behavior and needs
– Diversity of customer tastes and needs has led to a revolution in where, when and how customers buy the products and services they seek
– Winner will take all!
www.ebstrategy.com- 18 -© e-Business Strategies, Inc.
e-Channele-Channel
e-Portale-Portal
e-Market Makere-Market Maker
e-Business Patterns: e-Business Patterns: The Structural FoundationThe Structural Foundation
Pure-E “Digital Products”Pure-E “Digital Products”
Click-and-BrickClick-and-Brick
Table of ContentsTable of Contents
www.ebstrategy.com- 19 -© e-Business Strategies, Inc.
The Click-and-Brick PatternThe Click-and-Brick Pattern
Brick and mortar + Click and order = Click and Brick
The C&B pattern allows an existing offline business to profit from partnering with an emerging online presence.
– Charles Schwab
Established retailers are creating new C&B patterns.
– Land’s End
A new variation in C&B strategy
– Amazon.com and Toys “R” Us
Brick & Mortar
• Localized inventory
• In-store shopping experience
• Immediacy (try, buy, take home)
• Service (returns, repairs, exchanges)
Click
• Infomediation• Speed• Direct, one-to-
one experience• Personalized
content• Automation
(assistants, alerts)
Click & Brick
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Why the Click-and-Brick PatternWhy the Click-and-Brick Pattern
Physical stores offer convenience and personal service– Order online but return at store for an exchange
Established retailer’s clout should procure higher-quality merchandise for its Web sites than a start up
– Exceptions: commodity items, ex. books
Efficient branding of Web sites through store fronts– Established retailers’ storefronts are living, 3-D billboards
Traditional retailers have serious cost advantages– Spend half as much to acquire each new customer as do
Web-only retailers
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WebvanWebvan
Discuss with Ravi the purpose and nature of this case, now that Webvan is out of this business
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Management ChallengesManagement Challenges
• Lack of merchandise selection on site
• Lack of communication and mgmt collaboration between the Web site and store staffs and separate channels for fulfilling orders and resolving customer and process problems
• Hiring second-tier talent to staff the Web sites
• Continuing to invest millions of dollars on Web commerce initiatives w/o generating a positive ROI (return on investment)
www.ebstrategy.com- 23 -© e-Business Strategies, Inc.
e-Channele-Channel
e-Portale-Portal
e-Market Makere-Market Maker
e-Business Patterns: e-Business Patterns: The Structural FoundationThe Structural Foundation
Pure-E “Digital Products”Pure-E “Digital Products”
Click-and-BrickClick-and-Brick
Table of ContentsTable of Contents
www.ebstrategy.com- 24 -© e-Business Strategies, Inc.
The e-Portal PatternThe e-Portal Pattern
Portals are “Killer” apps of e-business
An intermediary or middleman offering an aggregated set of services for a specific well-defined group of users
– Yahoo! Organizes collections of news, search and communication services for consumers
– E-Bay, E-Loan, and E*Trade for business activities related to auctioning, loan financing, and stock trading, respectively
Portals occur when new players succeed in positioning themselves between customers and suppliers
– Customer focused, enter chain to address specific customer dissatisfaction with current way of doing business
– Either add value-added services to market channel or decrease transaction costs of customer/supplier relationship
www.ebstrategy.com- 25 -© e-Business Strategies, Inc.
Eyeball Aggregators Eyeball Aggregators Or SuperportalsOr Superportals
Eyeball Aggregators Eyeball Aggregators Or SuperportalsOr Superportals
Auction PortalsAuction PortalsAuction PortalsAuction Portals
MegatransactionMegatransactionPortalsPortals
MegatransactionMegatransactionPortalsPortals
e-Portale-Portal
Table of ContentsTable of Contents
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Eyeball Aggregators or SuperportalsEyeball Aggregators or Superportals
Attract and direct consumer traffic with free content and service offerings
– Deliver customers to retailers for a fee (advertisement based or % of transaction)
Retailers leery of superportals
– Disintermediation, especially of repeat buyers
Yet the mass buying power of superportals considerable
– Forcing online retailers to bid for a superportal’s business Search Engine
Sticky Content (GeoCities Acquisition)
Commerce Portal
Communications Portal
Media Network
Content Portal
www.ebstrategy.com- 27 -© e-Business Strategies, Inc.
Auction PortalsAuction Portals
• Enable buyers and sellers to engage in transactions across geographic and demographic boundaries
• More than just marketplaces– Unique community of collectors and hobbyists
• Similarity with traditional auctions– Highest bidder wins
• What is different– Online auction does not have the physical merchandise
• eBay
www.ebstrategy.com- 28 -© e-Business Strategies, Inc.
Megatransaction PortalsMegatransaction Portals
Category killers – Lock up portal real estate and create a critical mass of customers– Travelocity in online travel and Hoovers for financial news
Online travel services portals– Killing traditional agencies
• Reduced agent commissions; Consumers’ acceptance of paperless transactions; Ease of use of completing online transactions
– Expect to see consolidation and integration in online travel• Expedia offers airline tickets, hotel rooms, air/hotel packages
– Travel services portals to consolidate along two segments• Full-service and off-price discount
– Keys to success• Automation of the look-to-book process• Channel synchronization
www.ebstrategy.com- 29 -© e-Business Strategies, Inc.
e-Channele-Channel
e-Portale-Portal
e-Market Makere-Market Maker
e-Business Patterns: e-Business Patterns: The Structural FoundationThe Structural Foundation
Pure-E “Digital Products”Pure-E “Digital Products”
Click-and-BrickClick-and-Brick
Table of ContentsTable of Contents
www.ebstrategy.com- 30 -© e-Business Strategies, Inc.
The e-Market Maker PatternThe e-Market Maker Pattern
Online intermediary, connects disparate buyers and sellers within a common vertical industry
– Eliminates channel inefficiencies; aggregates offerings from many sellers or matches buyers and sellers
– Buyers: lower purchasing costs; reach new suppliers
– Suppliers: lower sales cost; reach new customers
Revenue models: – % of transaction, subscription, mark-up
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The e-Market Maker PatternThe e-Market Maker Pattern
Major role for e-Market makers in industries with these characteristics:
– Large market size– Fragmented supply chain– Unrecognized vendor or product differentiation– High information-search costs– High product-comparison costs– High workflow costs
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The Pure E-Digital Products PatternThe Pure E-Digital Products Pattern
New innovations in s/w, h/w and communications placing digital content at center of business
– software, music, video, news– digital goods produced, delivered, consumed and licensed
electronically– delivery of digital goods already changing; delivery as a
service
Growth of digital products due to– proliferation of Internet devices– cheap and abundant availability of bandwidth– inexpensive PCs, more free PC programs– industry standardization of APIs– XML permitting interface between data and speech and
other systems
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The Pure E-Digital Products PatternThe Pure E-Digital Products Pattern
3 types of entrepreneurial activity characterize digital-goods market
– high-quality end user technologies, services and products
– s/w and h/w platforms– distribution infrastructure
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High-Quality, High Speed Content to High-Quality, High Speed Content to Consumers: Digital MusicConsumers: Digital Music
Internet altered how music will be distributed
– “Collapse of the middle” pattern
– Artists bypassing major labels to reach audience directly
– Business as usual will soon mean no business at all for many of the industry’s middlemen
– New companies and peer-to-peer technologies emerging to meet needs of the digital music download business: MP3.com, Napster, Gnutella, Pointera
www.ebstrategy.com- 35 -© e-Business Strategies, Inc.
New Platforms for Digital-Media DeliveryNew Platforms for Digital-Media Delivery
Market for delivery of Internet services through handheld devices new and evolving rapidly
– PDAs and mobile phones
WAP standard emerging for delivery of Internet-based services to mass-market wireless phones
WML for Internet apps and content for wireless phones
Next gen mobile delivery systems include voice browsers and speech-recognition systems
– TellMe and HearMe
www.ebstrategy.com- 36 -© e-Business Strategies, Inc.
New Infrastructure Services for Digital New Infrastructure Services for Digital Content DeliveryContent Delivery
New infrastructure services required to support faster content distribution
– Content delivery or congestion mgmt services• Digital Island and Akamai Techologies
– Caching services• Inktomi and CacheFlow
– Outsourcing services• Exodus or Level 3
Supported by different business models– Content delivery vendors paid by Web site owners
but
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