TOPIC 5: EC Strategy and Global EC

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Module: Competing in the Network Economy

TOPIC 5: EC Strategy and Global EC

5.1 Strategic planning process

5.2 Impact of EC on the strategic planning process

5.3 Formulation and justification of EC applications

5.4 Strategy implementation and assessment

5.5 E-strategy and project assessment

5.6 Global EC

5.7 Impact of EC on small and medium-sized enterprises

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• Independent travelers use Lonely Planet guidebook to– Help them get to their destination– Where to sleep– The best places to eat– What to see and do– At a price they can afford

• LP’s principal assets are:– Global brand name– Dedication of its writers and editorial staff– Vast library of text, maps, photos, and images– Community of global travelers who buy LP products and

contribute to the company’s knowledge base

C.S.: Lonely Planet Travels from Place to Space

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The Problem• LP has been successful in the physical marketplace and

is now migrating to the electronic marketspace, it must:– Apply electronic technologies to its vast library of travel

information to reinvent the travel guide

– Sell its content electronically and not create channel conflicts

– Make changes in the way it collects information, stores it, and uses it to publish travel guides


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The Solution• LP’s current combination of business models that make

up value proposition and revenue model:– Content provider

– Virtual community

– Direct to consumer


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• Online LP launched these initiatives:– Online LP store, access to brief destination overviews – Free updates to currently published guides– Various forms of travel news – A traveler’s bulletin board– Links to related sites – eKno (ekno.lonelyplanet.com) is a joint venture with

eKit.com to provide an interactive communications service for international travelers

– CitySyn (citysync.com) is branded “the personal digital guide to urban adventure.” It allows owners of handheld computers to load their devices with LP city guides


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• Knowledge Bank is an internal knowledge management project that aims to transfer all of LP’s intellectual property into a standardised and centralised digital database


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The Results• Lonely Planet seeks to use the Internet to “reinvent the

travel guide”

• Award-winning Web site offers a successful sales and information distribution channel to its customer base

• LP must decide how to generate revenue and further promote its branded products, but at the same time avoid channel conflict and ally anxiety

• Knowledge Bank – increased internal efficiencies in information handling – offers numerous long-term business possibilities


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• What we can learn…– Marketplace-to-marketspace strategies

– Takes the company’s core business and envisions its future in Cyberspace

– LP avoided schemes outside its scope

– Initiatives are incremental steps into the marketspace

– Strategic experiments that have not distracted the company from its core business

– Leadership from the top is essential

– Successfully avoided channel conflict and ally alienation


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• Strategy: – A broad-based formula for how a business is going

to compete, what its goals should be, and what plans and policies will be needed to carry out those goals

– Strategy is also about making tough decisions about what not to do.

• E-Commerce strategy (e-strategy): – The formulation and execution of a vision for how a

new or existing company intends to do business electronically.

5.1: Organisational Strategy: Concepts & Overview

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• Profitability and economic value is determined by establishing a unique value proposition that enables a company to offer unique value to its customers

• Therefore strategy is focused on questions about:– organisational fit

– trade-offs

– profitability

– value

• Value proposition: – The benefit that a company’s products or services provide to

customers; the consumer need that is being fulfilled

5.1: Organisational Strategy: Concepts & Overview

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5.1: Organisational Strategy

• The process of strategy

according to Tjan (2001):

– Initiation

– Formulation

– Implementation

– Assessment

Exhibit 14.2:

The Strategic Planning Process

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• Strategy initiation: – The initial phase of strategic planning in which the

organisation examines itself and its environment

• Outcomes from strategy initiation – Company analysis (including value proposition, vision,

mission, strengths, weaknesses, etc)– Core competencies (the unique combination of resources

and experience of a firm)– Forecasts (identifying business, technological, political,

economic, etc that are currently affecting or likely to affect the business)

– Competitor (direct, indirect, and potential) analysis


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• Strategy formulation: – The development of strategies to exploit opportunities and

manage threats in the business environment in light of corporate strengths and weaknesses

• Specific activities & outcomes from strategy formulation– Business opportunities– Cost-benefit analysis– Risk analysis, assessment, and management– Business plan (identifies the company’s goals and outlines

how it intends to achieve the goals).

• Question: How is an e-business plan different from a traditional business plan? What is a business case?


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• Strategy implementation:– The development of detailed, short-term plans for

carrying out the projects agreed on in strategy formulation.

• Specific activities and outcomes from strategy implementation phase:– Project planning– Resource allocation– Project management


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• Strategy assessment: – The continuous evaluation of progress toward the

organisation’s strategic goals, resulting in corrective action and, if necessary, strategy reformulation

– Specific measures called metrics are used to assess the progress of the strategy


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• Strategic planning tools1. SWOT analysis:

• A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses


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• Strategic planning tools2. Competitor analysis grid:

• A strategic planning tool that highlights points of differentiation between competitors and the target firm

3. Scenario planning: • A strategic planning methodology that generates

plausible alternative futures to help decision makers identify actions that can be taken today to ensure success in the future


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• Strategic planning tools4. Return on investment (ROI):

• A ratio of required costs and perceived benefits of a project or an application

5. Balanced scorecard: • An adaptive tool that assesses organisational progress

toward strategic goals by measuring performance in a number of different areas


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• Role of Internet in setting organisational strategy– According to Ward and Peppard (2002), strategy setting begins

with the business strategy

– Then the information systems (IS) strategy is set, primarily by determining what information and associated information systems are required to carry out the business strategy.

• Business strategic planners, IS strategists and ICT planners treatment of the Internet and EC – IS strategists need to consider the Internet as a tool for collecting and

distributing information to where it is required. ICT planners will need to plan the integration of the Internet-based technologies into the existing ICT infrastructure. Thinking about and planning for the Internet should be subsumed into each of the three strategy levels (McKay and Marshall 2004).

5.2: EC Strategy: Concepts and Overview

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• Issues in e-strategy initiation1. Be a first mover or a follower?

• Size of the opportunity• Commodity products• Be the best

– Is there a real advantage to being the first mover in an industry or market segment?

• In e-commerce, does “the early bird get the worm”? Or does the old saying about pioneers— “they are the ones with arrows in their backs”—apply to EC?

• The answers to these questions are far from clear.

5.2: EC Strategy Initiation

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• Issues in e-strategy initiation2. Born-on-the-Net and move-to-the-Net firms

• Both start with substantial assets and liabilities that influence their ability to formulate and execute an e-commerce strategy

• The difference between success and failure is the company’s ability to utilise its strengths effectively

• Example: LP is a move-to-the-Net firm that is using its strengths - a superb reputation, a community of independent travelers, an immense database of maps and travel information - to find new opportunities on the Internet.


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• Issues in e-strategy initiation3. Determining scope

• When determining scope, the organisation considers the number of products or services it sells

• The most efficient way to expand an organisation’s scope is to introduce new products or services into new or existing markets without increasing production facilities or staff.

• This strategy is usually most effective when the expanded scope is consistent with the firm’s existing core competencies and value proposition to its customers.

• Example: Almost all of Google’s expanding scope is based on its core competency in search technology unlike Sears’ failure (see EC Application Case 14.2)


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• Issues in e-strategy initiation4. Have a Separate Online Company?

• Advantages of creating a separate company – Reduction or elimination of internal conflicts

– More freedom for the online company’s management in pricing, advertising, etc.

– Ability to create a new brand quickly

– Opportunity to build new, efficient information systems that are not burdened by the legacy systems of the old company

– Influx of outside funding if the market likes the e-business idea and buys the IPO of stock

5.2: EC Strategy Initiation Issues

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• Issues in e-strategy initiation4. Have a Separate Online Company?

• Disadvantages of creating an independent division – May be very costly and/or risky

– Expertise vital to the existing company may be lost to the new firm

– New company will not benefit from the expertise and spare capacity in the business functions unless it gets superb collaboration from the parent company


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• Issues in e-strategy initiation5. Have a separate online brand?

• Companies with strong, mature, international brands will want to retain and promote that brand online

• Firms with a weak brand or a brand that does not reflect the intent of the online effort may decide to create a new brand


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• Based on the results of the company and competitive analyses, the company is ready to evaluate potential EC strategies and select a small number for implementation.

• Strategy formulation activities include evaluating specific EC opportunities and conducting cost-benefit and risk analyses associated with those opportunities.

5.3: EC Strategy Formulation

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• Common mistakes made in selecting EC projects (Tjan, 2001):– Let a thousand flowers bloom—funding many projects

indiscriminately

– Bet it all—bets everything on a single high-stakes initiative

– Trend-surf—follow the crowd toward the most fashionable new idea

– Being fear- or greed-driven—thinking they can make lots of money by rushing into EC


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• Selecting EC opportunities– Approaches that have propelled strategy formulation:

• Problem driven (best when an organisation has a specific problem that can be solved with an EC application)

• Technology driven

• Market driven

– e-business maturity model (PWC and Carneige-Mellon)• Evaluates online initiatives within the context of established

business criteria

• Designed to help companies think of what’s necessary to implement an e-business solution


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• Determining an appropriate EC application portfolio– Internet portfolio map: Based on company fit and

project viability (Tjan, 2001)• Viability is assessed by:

– market value potential– time to positive cash flow– time to implementation– funding requirements

• Fit is evaluated by metrics:– alignment with core capabilities– alignment with other company initiatives– fit with organisational structure– ease of technical implementation


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– Internet portfolio map: • If both viability and fit are low—the project is rejected

• If both are high—the project is adopted

• If fit is high but viability is low—the project is redesigned

• If the fit is low but the viability is high—the project is sold


Exhibit 14.7 Internet Portfolio Map

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5.3: EC Strategy Formulation: Risk Analysis

• E-commerce (EC) risk: – The likelihood that a negative outcome will occur in

the course of developing and operating an EC strategy

• The first step in any risk assessment is risk analysis– Identifying and evaluating the sources of risk

• Four sources of business risk in an EC strategy:– Competitive risk

– Transition risk

– Customer-induced risk

– Business partner risk

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– The next step is risk management• To put in place a plan that reduces the threat posed

by the risk

• Taking steps to:– Reduce the probability that the threat will occur

– Minimising the consequences if it occurs anyway

– Both

5.3: EC Strategy Formulation: Risk Analysis

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5.3: EC Strategy Formulation: Issues

• How to handle channel conflict?– Let the established distributors handle e-business

fulfillment – Provide online services to intermediaries (e.g., by

building portals for them) and encourage them to reintermediate themselves in other ways

– Sell some products only online– Avoid channel conflict entirely by not selling online.

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• How to handle conflict between the off-line and online businesses?

– The allocation of resources between off-line and online activities can create difficulties

– It is essential that top management support both• off-line and online operations

• a clear strategy of “what and how” each unit will operate are essential


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• Traditional methods for determining price: – Cost plus means adding up all the costs involved—material, labor,

rent, overheads, and so forth—and adding a percentage mark-up as profit.

– The competitor model determines price based on what competitors are charging for similar products in the marketplace

• Pricing strategy– Price comparison is easier

– Buyers sometimes set the price

– Online and off-line goods are priced differently

– Differentiated pricing can be a pricing strategy. • Versioning: Selling the same good, but with different selection and

delivery characteristics


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1. Create a Web team– In creating a Web (project) team, the organisation should

carefully define the roles and responsibilities of the team leader, team members, Web master, and technical staff.

– The purpose of the Web team is to align business goals and technology goals to implement a sound EC plan with available resources.

[Project champion: • The person who insures the EC project gets the time,

attention, and resources required, as well as defending the project from detractors at all times

• Ideally a senior executive]

5.4: EC Strategy Implementation: 4 steps

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2. Start with a pilot project– Implementing EC often requires significant

investments in infrastructure• A good way to start is to undertake one or a few small EC

pilot projects• Pilot projects help uncover problems early, when the plan

can be easily modified before significant investments are made


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3. Allocate resources– The resources required for EC projects depend on

information requirements and capabilities of each project

• Some resources will be new and unique to the project or application

• Even more critical for the project’s success is effective allocation of infrastructure resources that are shared by many applications

4. Manage the project


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• Application development– Should site development be done internally, externally,

or in combination?

– Should the software application be built or will commercially available software be satisfactory?

– If a commercial package will suit, should it be purchased from the vendor or rented from an ASP?

– Will the company or an external ISP host the Web site?

– If hosted externally, who will be responsible for monitoring and maintaining the information and system?

5.4: EC Strategy Implementation: Issues

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• Partners’ strategy– Outsourcing:

• The use of a third-party vendor to provide all or part of the products and services that could be provided internally

• Many potential business partners with different organisational cultures and their own EC strategies and profit motives, such as:

– ASPs– ERP vendors and consultants– ISPs

• A key criterion in choosing an EC partner is finding one whose strategy aligns with or complements the company’s own


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• Business Alliances– Virtual corporation (VC)

• An organisation composed of several business partners sharing costs and resources for the production or utilisation of a product or service

– Co-opetition• Two or more companies cooperate together on some

activities for their mutual benefit, even while competing against each other in the marketplace


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5.4: Example Partnership and Alliances

SalesInformation Systems

coordinationcontents

Bankpayment

Clearance Credit card

Authormarketing

Affiliatesales

Customerbuy

content

Distributorinventory

Shippingtransporttracking

order

deliver

sales

order sales

critics

deliverreturns

MasterCardMasterCard

DHLDHLDHLDHLINGRAMINGRAMBOOK GROUP

JoinAssociates

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• Redesigning business processes– Business process reengineering (BPR):

• A methodology for conducting a comprehensive redesign of an enterprise’s processes

– Decisions in Redesigning Business Processes• To fix poorly designed processes• To change processes so that they will fit commercially

available software • To produce a fit between systems and processes of

different companies that are partnering in e-commerce• To align procedures and processes with e-services such as

logistics, payments, or security


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5.5: E-Strategy and Project Assessment

• The Objectives of Assessment– Measure the extent to which the EC strategy and ensuing

projects are delivering what they were supposed to deliver – If they are not delivering, apply corrective actions to ensure

that the projects are able to meet their objectives– Determine if the EC strategy and projects are still viable in the

current environment– Reassess the initial strategy in order to learn from mistakes

and improve future planning– Identify failing projects as soon as possible and determine

why they failed to avoid the same problems on subsequent projects.

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• The need for assessment– Strategy assessment includes both the continual assessment of

EC metrics and the periodic formal evaluation of progress toward the organisation’s strategic goals.

• Measuring results and using metrics– Metric: A specific, measurable standard against which

actual performance is compared – Each company measures success or failure by a different set

of standards. Some companies may find that their goals were unrealistic, that their Web server was inadequate to handle demand, or that expected cost savings were not realised.


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• Metrics can:– Define the value proposition of the business model

– Communicate the strategy to the workforce through performance targets

– Increase accountability when metrics are linked to performance-appraisal programs

– Align the objectives of individuals, departments, and divisions to the enterprise’s strategic objectives actual performance is compared


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• Axon Computertime metrics implementation obtained results in:– Revenue growth

– Cost reduction—selling costs and expenditures

– Cost avoidance

– Customer fulfillment

– Customer service

– Customer communications

• Web analytics– The analysis of click-stream data to understand visitor

behavior on a Web site.


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5.6: Global E-Commerce

• Benefits and extent of operations– The drivers behind global EC are the ability to do business at

any time, from anywhere, and at a reasonable cost.

– Globalisation provides the opportunity for EC businesses to grow and to serve potentially the entire world

• Barriers to global EC– Authentication of buyers and sellers (Ch. 11)

– Generating and retaining trust (Ch. 4 & 7)

– Order fulfillment and delivery (Ch. 13)

– Security (Ch. 11)

– Domain names (Ch. 16)

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• Barriers to global EC in the CAGE framework


ultural – language and cultural differences, preferences

dministrative – legal issues, trade barriers, privacy protection

eographical – logistics, bandwidth

conomic – taxation, regulation, payment systems

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• Breaking down the barriers to global EC– Be strategic– Know your audience– Localise– Think globally, act consistently– Value the human touch– Clarify, document, explain– Offer services that reduce barriers


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5.7: EC in Small and Medium-Sized Enterprises

• SMEs moved onto the Web because they realised there were opportunities in:– marketing– business expansion– business launches– cost cutting– tighter partner alliances

• Disadvantages/risks of EC for small businesses– There are several potential disadvantages, the largest

being the inability to compete at a large scale, and potential high entry costs.

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• Critical Success Factors for SMEs:– Product is critical

– Appropriate capital investment

– Low inventory levels

– Secure electronic payments

– Flexible payment methods

– Appropriate logistical services

– Search engine placement

– Membership in online mall

– Proper web site design


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• Supporting SMEs– Most countries have a government agency devoted to

helping SMEs become more aware of and able to participate in EC

– Vendors have set up a variety of service centers that typically offer a combination of free information and fee-based support

• ibm.com/businesscenter• Microsoft’s bcentral.com

– Professional associations, Web resource services• smallbusiness.yahoo.com• workz.com


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1. What is the strategic value of EC to the organisation?

2. What are the benefits and risks of EC?

3. What metrics should we use?

4. What staffing is required?

5. How can we go global?

6. Can we learn to love smallness?

7. Is e-business is always beneficial?

Managerial Issues

TOPIC 5: EC Strategy and Global EC

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