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Dave Chaffey, E-Business and E-Commerce Management, 4th Edition, © Marketing Insights Limited 2009

E-business strategy

Chapter 5

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Learning outcomes

• Follow an appropriate strategy process model for e-business

• Produce and select e-business strategies

• Outline alternative strategic approaches to achieve e-business goals.

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Management issues

• How does e-business strategy differ from traditional business strategy?

• How should we integrate e-business strategy with existing business and IS strategy?

• How should we evaluate our investment priorities and returns from e-business?

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Michael Porter on the Internet

• The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it

Porter, M. (2001) Strategy and the Internet, Harvard Business Review, March 2001, 62–78.

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Definitions of Strategy

• What is strategy?• A plan of action designed to achieve a

particular goal. -wikipedia– ‘Defines how we will meet our objectives’– ‘Sets allocation of resources to meet goals’– ‘Selects preferred strategic option to

compete within a market’– ‘Provides a long-term plan for the development

of the organization’

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Figure 5.1 Different forms of organizational strategy

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Sell-side e-commerce strategy (Chapters 8 & 9)

• Sell-side e-commerce is a channel strategy• Objectives for online contribution percentage

should drive our strategy• Our e-commerce strategy defines how we should

• Hit our channel leads and sales targets– Acquisition, Conversion, Retention, Service, Profitability

• Communicate benefits of using this channel• Prioritize products available through channel• Prioritize audiences targeted through channel• Select partners for this channel

• Channel strategy thrives on differentials• BUT, need to manage channel integration

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Buy-side e-commerce strategy (Chapters 6 & 7) or e-supply chain management strategy

• Buy-side e-commerce strategy is about maximizing operational efficiencies while improving customer service quality

• Operational efficiency KPIs should drive our strategy• Our buy-side e-commerce strategy defines how we

should• Automate internal processes• Link internal resource management systems with

external purchasing systems • Prioritize suppliers / partners collaborating using this

channel• Prioritize applications for E-SCM – create a roadmap

• Involves selection of appropriate strategic partners

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Figure 5.2 Relationship between e-business strategy and other strategies

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What happens where there is no e-business strategy?

• Missed opportunities for additional sales on the sell-side and for more efficient purchasing on the buy-side

• Fall-behind competitors in delivering online services – may become difficult to catch-up, for example, Tesco, Dell

• Poor customer experience from poorly integrated channels

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Figure 5.3 BA communicates its online value proposition (www.britishairways.com)

Source: Based on Revolution (2005)

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Figure 5.4 A generic strategy process model

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Figure 5.5 Dynamic e-business strategy modelSource: Adapted from Kalakota/Robinson, EBUSINESS 2.0 © 2001, 1999 Pearson Education, Inc. Reproduced by permission of Pearson Education, Inc.

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Strategic Analysis

• Collection and review of information about the external environment and internal resources– Immediate competition– Wider environment– Internal resources

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Figure 5.6 Elements of strategic situation analysis for the e-business

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Stage Models of e-Business Development

• Earlier in chapter 1 a stage model was presented, which could be helpful in assessing the business’s position and resources

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Figure 1.13 A simple stage model for buy-side and sell-side e-commerce

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Portfolio Analysis

• Portfolio analysis is helpful for assessing current e-business capability and future e-business strategies

• The next slide show an example for B2B case

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Figure 5.7 Summary applications of a portfolio analysis for an example B2Bcompany

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SWOT Analysis

• Strengths, weaknesses, opportunities, and Threats analysis is a useful tool for analyzing the current situation and for formulating strategies

• Next slide shows an example of e-business SWOT analysis

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Figure 5.8 SWOT analysis

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Balance Internal and External

• A e-Business strategy must be based on the balance between internal capability and external forces

• Next slide presents different options based on such a balance

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Figure 5.9 Matrix for evaluation of external capability against internal capabilitySource: Perrott (2005)

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Competitive Environment AnalysisPorter’s five forces

Power ofsuppliers

Bargainingpowers ofcustomers

Extent of rivalrybetween

competitors

Threat ofsubsitutes

Threat of newentrants

The business

Source: adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from COMPETITIVE STRATEGY: Techniques for Analyzing Industries and Competitorsby Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved

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Activity – Impact of Internet

• For one of the industries below, assess how the Internet has changed the competitive forces, for example, has it increased or decreased power of suppliers and customers?

• Industries:– Banking– Supermarkets– Retail– Travel– Oil industry– Rail industry

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Figure 5.11 Elements of strategic objective setting for the e-business

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How can e-business create value

• Following methods were proposed– Adding values—better quality products and

services– Reducing cost—making the business process

more efficient– Managing risks—improve information flow and

availability– Creating new reality—create new way that

products and or services

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Figure 5.12 An evaluation tool relating information to business value. An organization’s use of information on each axis can be assessed from 1 to 10 Source: Marchand et al. (2002)

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E-Business and Competitive Advantage

• Read Case Study 5.1 on pages 286-287• Discuss questions on p.287

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SMART Objectives

• The 2nd phase of strategy development process will produce objectives.

• The objectives should be SMART– Specific– Measurable—both efficient and effective– Actionable– Relevant– Time-Related

• Example—ref. p. 289, table 5.6

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Figure 5.13 Arena Flowers (www.arenaflowers.com)

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SMART Objectives

• Online Revenue Contribution--% of company revenue directly generated through online transactions

• B2B should consider indirect revenue• Conversion Modeling for B2C

– Using various conversion rates to measure the effectiveness of e-marketing

– Ref. p. 291 Box 5.5

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Figure 5.14 An example of conversion modelling for an online retailer

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Case Study

• Read page 292-293 Case study 5.2 • Answer the questions on page 293

• Activity 5.2, pages 293

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Figure 5.15 Grid of product suitability against market adoption for transactionale-commerce (online purchases)

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Scorecard for Objective Setting

• Scorecard is a comprehensive framework for setting and monitoring business performance.

• Metrics includes– Customer issues– Internal efficiency– Financial, and – Innovation

• Example—p. 295, table 5.8

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Figure 5.16 Elements of strategy definition for the e-business

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Strategy Definition

• Various models were suggested for defining e-business strategies

• Ref. pp.296-297• The next slide shows a strategy selection

model based on portfolio analysis proposed by EConsultancy

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Figure 5.17 Matrix for evaluating e-business strategy alternativesSource: Econsultancy (2008a)

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D. 1 Channel Priority

• “Getting the right mix of bricks and clicks”• The next slide shows various options

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Figure 5.18 Strategic options for a company in relation to the importance of theInternet as a channel

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D. 1 Channel Priority

• Right-Channeling– Integrate different channels to reach the right

person at the right time using the right channel with a relevant offer, product or message

• Right-channeling example– Ref. pp. 299-300, table 5.9

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D.2 Market and Product Development

• A key strategic considering is which market to target and using what products

• The next slide shows a matrix with different options to grow market and product development

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Figure 5.19 Using the Internet to support different growth strategies

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D.3 Positioning and Differentiation

• Once the market is identified, we need to define the best position of our e-commerce services relative to competitors.

• Research suggests that customer brand perception is determined by this formulaValue = (product quality * service quality)/(price * fulfillment time)

• Strategies can be developed around this formula

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D.3 Positioning and Differentiation

• Commonly used Criteria that customers use to benchmark e-tailor performance is presented in table 5.10 on p. 304

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Activity

• Read Activity 5.3 on pages 305-306• Discuss the questions 1 and 2 on page 305

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D.4 Business, Service and Revenue Model

• Review business model (ch2)• This decision is closely related or similar to

D3. However, here it emphasizes new models, e.g., Amazon

• “Only the paranoid will survive” (Andy Grove)

• Also need to notice that many companies are successful by sticking to a single business model not far from their original vision

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D.5 Marketplace Restructuring

• Companies should also look at the new opportunities created by Internet in this regard– Disintermediation– Re-intermediation– Counter-mediation

• Mini Case Study 5.4 3M on pp. 308-309• What did 3M do in taking advantages of

market restructuring?

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D.6 SCM Capabilities

• This might be considered together with decision 5 but could be examined on its own – How to interact more closely with suppliers?– What to be covered in this e-relationship?– Participate in marketplace to reduce cost?

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D.7 Internal KM Capabilities

• What is knowledge?• Patterns, rules, and contexts that provide a

framework for creating, evaluating, and using information.

• Can be tacit (undocumented) or explicit (documented) knowledge

• What is knowledge management?• Set of processes to create, store, transfer, and

apply knowledge

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D.8 Organizational Resources and Capabilities

• What changes does the organization need to make?

• Available options– In-house division (integration)– Joint venture (mixed)– Strategic partnership (mixed)– Spin-off (separation)

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• Questions & Discussion– What are the pros and cons for in-house

option?– When the separation option would be a good

choice?

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• Other changes to be examined– Strategy process and performance

improvement– E-commerce infrastructure– Senior management support– Market integration– Online market focus

• An e-commerce capability maturity model– Ref. p. 311, Table 5.11

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Figure 5.20 Elements of strategy implementation for the e-business

Strategy Implementation

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Failed e-Business Strategies

Some reasons were articulated– Overestimate the speed that the marketplace

adopts the dot.com innovation– Timing errors– Lack of creativity– Free services– Over ambition

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Failed e-Business Strategies

• Usually there are more fundamental problems than surfaced

• Major problems occurred at the strategy development and implementation process – Situation Analysis—insufficient research on

demand and completive forces– Object setting—no objectives or unrealistic– Strategy definition—poor business models– Implementation—problems with customer

services and product quality, etc.

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Implementation Success Factors for SMEs

• Content—effective presentation• Convenience—usability • Control—manageable and under control• Interaction• Community• Price sensitivity• Brand image• Commitment• Partnership• Process Improvement• Integration

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Case Study

• Read the case study on pages 316-318• Answer the questions on page 318

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IS Strategy and e-Business Strategy

• These two are closely related.• Business-alignment approach—top down. Start

with business strategy and make IS strategy so that it aligns with business strategy

• Business-impact approach—bottom up. Examine new IS opportunities to see if they can bring positive impact to business strategy

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The Productivity Paradox

• Research indicates that there is a week or poor correlation between IS investment and business performance

• It’s agreed that IT investment has a strong positive relationship with sales, assets and equity but not with net income.

• Investment on IT staff and user training does show positive relationship on income

• It’s strongly recommended that more attention should be paid to business process change when implementing e-business strategy

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Next Class

• Read the Econsultancy interview on pages 606-608 of chapter 11

• Answer the following questions• What is Arena Flowers’ business model?• How competitive is Arena Flowers on the market

and Why?• Is this a business of bricks & mortar, bricks &

clicks, or pure play? Are they planning to change that soon and why?

• Do they do cross-selling? How successful and why?

• Is their site developed and maintained in-house or outsourced?

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Next Class

• Econsultancy interview (Continues)• Is their site developed and maintained in-house

or outsourced?• What’s the pros and cons of their approach?• What else can we learn from this interview?

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