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Chapter 16
EC Strategy and Implementation
(modified for class 16.04.02)Judith Molka-Danielsen
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Learning Objectives
EC strategiesEssentialsplanning processstrategy formulation processApplications - discovery and prioritize
Role of CSFs and justification of ECImplementationReassessmentMetricsFailures and lessons learned
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IBM’s E-Business Strategy
Mission20 initiatives defined, begin with 7Separate EC divisionUse existing strengthsTie to business processesDecide to be an EC-leader Selection criteria (ROI)
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Need for a Strategy
Cases of e-strategyClick-and-mortar companies that use
several EC applications (comprehensive strategy)only one or two EC applications (add on, additional selling channel)one EC application that fundamentally changes all their business (changes business strategy, cannot go back, ie. Rosenbluth)
Pure-play EC companies
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Need for a Strategy (cont.)
Why does a company need an e-strategy?Fast changes in business and technology means opportunities and threats can change in a minuteCompany must consider EC strategy that includes contingency plans to deal with changesMay be too costly not to have oneThese are questions the business needs to answer for its investors
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(Strategy) - The Business Plan (from Jim Willams lecture)
What Offerings (services, products)?Who are the customers?Who is the competition?How will the services be delivered?What technologies can be utilized?What is the cost of delivering service?What resources are required to deliver and support the services?
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(Strategy) -The Business Plan from Jim Williams lecture (cont.)
What system architecture is required?What processes, functions, procedures, etc. are needed?What are the capacities and volumes of the resources needed?What Financial Resources are Needed?The Economic Model
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Essentials of a Business Strategy
Strategy— what is the plan to compete?
What is the firms position in the marketplace?How does it keep its strategic position?What is it good at doing?What other activities will leverage its position to sustain competitive advantage?
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Essentials of a Business Strategy (cont.)
Levels of strategyCorporate (all) strategyIT strategyEC strategyEC functional strategies
Types of strategyStrategic planning – future, long term
Strategic response – to innovations, what-ifStrategic innovation – proactive, introduce new
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Figure 16-1EC Strategy Alignment
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Essentials of a Business Strategy (cont.)
Elements of a strategyForecastingResource allocationCore competencyStrategy formulationEnvironmental analysisCompany analysis
Strategy landscape1. Strategy initiation –
vision, mission, purpose
2. Strategy formulation – applications, risk analysis, cost analysis
3. Strategy implementation – resources analysis, budgets, milestones established
4. Strategy assessment – based on milestones, reformulate
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Figure 16-2The Landscape of EC Strategy
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1. Strategy Initiation
Vision and Mission – vague but springboard for specific goals and objectives. Industry Analyze - position of the company in its industry and the competition
Required for assessing the changes that EC project may introduce and its chances for successIndustry, Company, Competitive Assessments.
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Industry Assessment – understand the industry
What industry is the EC initiative related to?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?
How is value added throughout the value chain?What are the major opportunities and threats?Are there any metrics or best practices in place?What are the existing and potential partnerships for EC?
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Figure 16-3Company Analysis (Assessment)
Source: Hackbarth and Kettinger (2000), p. 85. Reprinted with permission of William J. Kettinger.
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Competitive Analysis
Monitoring, evaluating, disseminating of information from the external and internal environmentsSWOT Analysis
Strengths (internal)Opportunities (external)Weaknesses (internal)Threats (external)
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Strengths (S) Weaknesses (W)
Opportunities (O)
Threats (T)
INTERNAL FACTORSEXTERNAL
FACTORSSO Strategies
Generate strategies here that use
strengths to take advantages of opportunities
WO Strategies Generate 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
Figure 16-4SWOT Diagram
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In class example of SWOT. Based on (Ch.02 Shapiro & Varian) Electronic Publishing. Below
is Britannica 2002 Comparison Chart
Britannica 2002 Comparison Chart for Windows VersionsFEATURE
StandardCD-ROM
(WIN/MAC)
DeluxeCD-ROM
(WINDOWS)
EXPANDEDDVD
(WINDOWS)
Total Articles 80,000 85,000 85,000
Encyclopedia, Dictionary, Atlas Entries - Word Count
55 million 56 million 56 million
Visual Tours 44 44
Photos, Illustrations, Tables & Maps 5,400+ 12,100+ 18,500+
Videos & Sound 114 clips, over 30 minutes 131 clips, over 1 hour 517 clips, over 7 hours
Indexed References 613,000+ 613,000+ 613,000+
Web Links 300,000+ 300,000+ 300,000+
Merriam-Webster's Dictionary 200,000+ entries 200,000+ entries 200,000+ entries
Interactivities & Animations 13+ 105+ 105+
Timelines 14 categories, 4,100+
entries14 categories, 4,100+
entries
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Competitive Intelligence on the Internet
Internet can play a major role as a source of competitive information (competitive intelligence)
Review competitors’ Web sitesAnalyze related newsgroupsExamine publicly available financial documentsAsk the customers—award prizes to those who best describe your competitors’ strengths and weaknesses
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Competitive Intelligenceon the Internet (cont.)
Information delivery servicesNewsgroupsInformation about your competitors and their products
Known as push technologies
Corporate research companies provide information about your competitors:
Risk analysisStock market analysts’ reports
Examine chat roomsShould not substitute for in-depth background research. Some do this.
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Issues in Strategy Initiation
AdvantagesChance to capture large marketsEstablishing a brand nameExclusive strategic alliances
DisadvantagesCost of developing EC initiative is usually very high (Are there common standards and best practices?) Chance of failure is highSystem may be obsolete as compared to second wave arrivalsNo support services are available at the beginning
To be a first mover or a follower?
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What Do You Need an EC For?
Enhancing the sell channel by advertisement and salesEnhancing the buy (procurement channel)Enhancing the customer service channelGoing global
Facilitating value-chain integrationProviding for new products and servicesGoing into specialty markets (niche)Going to mass customization
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Should You Have a Separate(spin-off) Online Company or Not?
Advantages (new IPO)Reducing or eliminating internal conflictsProviding more freedom to management in pricing, advertising, etc.Can create new brands quicklyTake the e-business to an IPO and make a fortune
DisadvantagesMay be very costly and riskyCollaboration with off-line business may be difficultLose expertise of business functions unless you use close collaboration
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2. Strategy Formulation
Strategy formulation – for the effective management of opportunities and threats given strengths and weaknesses
Development of long-range plans
Organization’s missionPurpose or reason for the organization’s existence
3 main reasons for establishing Web siteMARKETING, CUSTOMER SUPPORT, and SALES
Products with good fit for ECShipped easily or transmitted electronicallyTargets knowledgeable buyersPrice falls within certain optimum ranges
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EC Critical Success Factors – indispensable factors that help the firm achieve its goals.
Special products or services tradedTop management supportProject team representing various functional areasAppropriate technical infrastructureMust have customer acceptanceUser-friendly Web interfaceIntegration with the corporate legacy systems
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EC Critical Success Factors (different list for every firm)
Security and control of the EC systemCompetition and market situationConduct pilot project and capture corporate knowledgeUse promotion and internal communicationCost of the EC project must be reasonableNeed sufficient level of trust between buyers and sellers
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Critical Factors for Success (from Jim Williams lecture on BroadStreet Inc.)
In real estate the 3 critical factors are:
Location, Location, and Location
In Telecommunications the 3 critical factors are:
Execute, Execute, and Execute
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EC Opportunities
3 common mistakes in allocating EC investment
Let a thousand flowers bloom—fund many projects indiscriminatelyBet it all—put everything on a single high-stake initiativeTrend-surf—follow the crowd toward the next “big thing”
All of the above can be risky and costly
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EC Opportunities (How do they pick the important EC initiatives?)
Problem-driven—attempt to solve a problem such as:
Excess inventoryDelivery delays
Technology-driven—trying to use existing applications
Find problems no one knew existedUsed by first movers
Market-driven—waiting to see what the competitors will doFear or greed-driven –to lose, or make big money.
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Figure 16-5Approaches for Finding EC Opportunities
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Examples of Opportunities for EC businessesMatchmaking—matching buyers’ needs from seller without a prior knowledge of either oneAggregation of services—combines several existing services to create a new serviceBid/ask engine—creates a demand/supply floating pricing systemNotification service—tells you when the service becomes available, or when it becomes cheaper
Uncovering Specific ECOpportunities and Applications (cont.)
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Uncovering Specific ECOpportunities and Applications (cont.)
Smart needs adviser—if you want …, then you should…Negotiation—price, quantity, or features are negotiatedUp-sell—suggests an additional product or serviceConsultative adviser—provide tips on using the product
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Methods for Finding IT Applications
BrainstormingSoliciting help of expertsReview what the competitors are doingvendors suggestions
Read the literature Use analogies from similar industries or business processesUse a conventional IS requirement analysis approach
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Determining an AppropriateEC Application Portfolio
Find the most appropriate portfolio in order to share limited resources
Combine long-term speculative investments in new potentially high-growth business With short-term investments in existing, current profit-making businesses
Boston Consulting Group’s matrixCash cows Questionable projectsStarts Dogs
Generic approaches (portfolio analysis)
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EC Application Portfolio
Tjan’s portfolio strategy—Internet portfolio mapStrategy based on company fit (assessed by 5 levels, high to low)
Alignment with core capabilities, Org. initiatives, Org. structure, Org. culture&values, Ease of technical implementation.
Project’s viability —assessed by 4 criteriaMarket value potentialTime to positive cash flowPersonal requirementsFunding requirements
An EC-specific method
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Cost-Benefit and Risk Analysis
Business case for EC approach for garnering funding for projects used to:
Provide justification for investmentsProvides bridge between EC plan and the executionProvides foundation for tactical decision making and technology risk managementClarifies how the organization will use resources to accomplish the e-strategy
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Cost-Benefit and Risk Analysis (cont.)
Content of an E-business caseStrategic justification—”where are we going?” (goal statement)Generational justification—”how will we get there?” how to execute, (measurable goals)Technical justification—”when will we get there?” (short term and long term plan)Financial justification—”why will we win?” (revenue plan, costs of acquiring and maintaining customers)
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Cost-Benefit and Risk Analysis (cont.)
It is difficult to justify EC investment due to many intangible variablesMethods used for analysis
Value analysis and propositionRate of return of investment (ROI) and/or discounted cash flowReal options valuation and analysisManagement by maximInformation economics
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A Value Analysis ApproachValue chain—a series of activities a company performs to achieve its goal(s)Value added (to profit, using many channels) (Customers’ value proposition)
Can I realize significant margins by consolidating parts of the value chain to my customers?Can I create significant value for customers by reducing the number of entities they have to deal with in the value chain?
Value Analysis and Proposition
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Value Analysis and Proposition (cont.)
Value Analysis Questions (cont.)Representative question for creating new values
Can I offer additional information of transaction services to my existing customer base?Can I use my ability to attract customers to generate new sources of revenue, such as advertising or sales of complementary products?
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Return on Investment and Risk Analysis
Return on Investment (ROI)
A ratio of resources required and benefits generated by an EC project
Includes both quantifiable items (cost of resources, computed monetary savings) and Non-quantifiable items (intangibles)
Some intangible benefitsEffective marketing channelIncreased salesImproved customer service
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Return on Investment and Risk Analysis
IT valuesFinancial values —measurable to some degreeStrategic values —competitive advantage in the market and benefits generated by business proceduresStakeholder values —reflections of organizational redesign, organizational learning, empowerment, information technology architecture of a company, etc.
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Return on Investment and Risk Analysis (cont.)
IT risks Competitive strategy risk—external, due to joint venture, alliances or demographic changes among othersOrganizational risk and uncertainty—internal to company
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Figure 16-7Real Option Analysis (option valuation, option pricing)
(Rayport & Jaworski, 2001)
Source: Rayport and Jaworski (2001); Exhibit 8-8; pg. 304.
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Risk Analysis
Risk analysis program should
Id all potential risksAssess potential damageEvaluate possibility of protection (reduce loss or uncertainty) (backup, insurance)Evaluate cost of protection vs. benefits (of applying protection)
E-business risksStrategic risks (e.g., competitive environment, wrong strategic direction)Financial risks (e.g., currency management and changes, unclear tax situations)Operational risks (e.g., technological changes and use of poor technology, security)
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EC Scenarios (Scenario Analysis)
Scenario planning is a methodology used in planning situations that involve much uncertainty, like that of EC (“what-if”)
Several different scenarios are createdA team compiles several future events as possible influences on the outcomeSecurities are assessed and future projections are madeScenarios are compared (does not reduce uncertainty)
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EC Scenarios (cont.)
Four scenarios described by Hutchinson:1. Open, global commerce scenario—removal
of intermediaries flattens the value chain2. Members-only subnet scenario—applies to
B2B3. Electronic middlemen scenario—make
products/services available through 3rd party distribution channels
4. Consumer marketing channels scenario—collapse marketing to a unified consumer-centric EC medium on the Internet
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Strategic Planning Framework
EC appears in three levels:Level 1: Basic presence —company uses the Internet to feature company information and provide brochuresLevel 2: Prospecting—features added
Search engineExtensive product informationLinks to servicesAbility to interact with the companyBasic customer service
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Strategic Planning Framework (cont.)
Level 3: Business integration—more features added
EC transaction capabilitiesCustomization and personalization servicesTools fostering creation of a community
Level 4: Business transformation—supplier and customer integration added
Multichannel integrationAdvanced customization and configurationSuperb customer service
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Strategic Planning Framework (cont.)
Generic competitive strategy vs. cooperarative strategy
Competitive strategy assumes fighting against all competitors for the purpose of survival and winningCooperarative strategy plans for working together with specific competitors to gain advantage against other competitors
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Generic Competitive Strategies
Offensive strategy— usually takes place in an established competitor’s market
Frontal Assault— attacker must have superior resources and willingness to persevere Flanking Maneuver— attack a part of the market where the competitor is weak
Defensive strategies— takes place in the firm’s own current market position as a defense against possible attack by a rival
Raise structural barriersLower the (draw) inducement for attack
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Generic Cooperative Strategies
CollusionActive cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal)
Strategic AlliancePartnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial
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Generic Cooperative Strategies (cont.)
Joint VentureA way to temporarily combine the different strengths of partners to achieve an outcome of value to both
Value-Chain PartnershipA strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage
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Sviokla’s Strategy
What is the company’s digital business strategy?
new business model?business categories?
What is the best capital structure?
Capital markets reward innovative, buying the future, not the pastVery risky due to overvaluation
What is the right organizational structure?
Companies need to realign their structures:
Break functional “silos”Meet different business needs
What is the correct technology platform?
IT must design for a digital economyEC IT must integrate seamlessly with (back office):
Customer call centerBillingShipping systems
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Mougayar’s Approach
What questions should a strategic plan answer?
How EC changes our business?
How uncover new business opportunities?How use e-linkages with customers and trading partners?Intermediaries be eliminated? Are we intermediaries?How bring more buyers together?How do we change the nature of our products and services?Why is the Internet affecting other companies more than ours?How do we manage and measure the evolution of our strategy?
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Ware’s Approach
Ware et al.’s 7-step model e-strategy (see book):
Where are you along the continuum of possible EC applications? Want to go? How get there?
Kettinger and Hackbarth MethodologyInitate – top support, scheduleDiagnosis – SWOT, scan for best practises and technologiesBreakout – use IT to transform processes and better competeTransition – time, lack of resources, qualified people, gap strategy, steps towards breakout strategy
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Issues in Strategy Formulation (cont.)
How to handle channel conflicts (alternative approaches)
Let established old-economy-type dealers handle e-business fulfillmentSell some products only onlineHelp your intermediaries (e.g., build portals)Sell online and off-lineDo not sell online
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Handling channel conflict
Offline vs. OnlineClear support of top managementUse of innovative processes that support collaborationClear strategy of “what and how”
Pricing strategySetting prices lower than off-line business may lead to internal conflictSetting prices at the same level may hurt competitiveness
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Issues in Strategy Formulation (cont.)
Where to compete: different roles on Supply Chain, who adds value?
Play different rolesInfomediary. Community creator, Aggregator, Content provider
Should you get financing from big venture capital firms?
VC financing causes loss of control over businessBenefit: access to various VC experts and get the cash you need
Should you join an exchange?Many costs and limitations, but it may give yousell-side or buy-side infrastructure you need.Which exchange to join?
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3. Implementation EC Plan
project teampilot project (help discover problems early)
Implementing ECRedesigning existing business processesBack-end processes must be automated workflow applications by integrating EC into existing accounting and financial back-ends
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Issues in Strategy Implementation
Evaluating Outsourcing (Ch. 12)Partners’ strategy
Many potential partners, may need severalCompanies that make B2B e-marketplaces consider:
LogisticsTechnologyE-payment partners
How to coordinate B2B and B2CSelling direct is creating a B2C businessCoordination done in different ways
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4. Strategy and Project Assessment
Need for assessmentFind out if EC project delivers what it was supposed to deliverAdjust plans if necessaryDetermine if EC project is still viableReassess initial strategy in order to learn from mistakes and improve future planningIdentify failing projects as soon as possible and determine reasons for failure
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Strategy and Project Assessment (cont.)
Measuring results; watch for:Goals may be unrealistic
Web server was inadequate to handle demandExpected cost savings were now realized
Exploding application requests from various functional areas in the company may follow
Review requirements and design documentsDevelop thorough checklistPose a set of questions to assess impact of EC project
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Strategy and Project Assessment (cont.)
Finalization and adjustmentsActual ROI can be computed and compared to the projected oneIf sales expectations were not met, review marketing effortsWeb assessment based on collected information
Corrective steps might be requiredProduct offerings to pricing strategyWeb promotion to review software vendors
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EC Metrics – the need for them
Metrics include benchmarks in different areas related to EC implementation and strategy
Define and refine business modelsCommunicate strategyTrack performanceIncrease accountabilityAlign objectives of individuals, departments, and organizations
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EC Metrics (health of the company)
Balanced scorecard—managers focus on short-term financial results and look at
Finance— both short- and long-term measuresCustomers—how the customers view companiesInternal business process—areas to excelLearning and growth—sustain ability to change and expand
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EC Metrics (cont.)
Scorecard approach to EC—seven sets of metrics (fig. 6-10 vertical)
FinancialCompetitive leadershipMarketingTechnology ServiceInternet siteBrand
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EC Metrics (an EC model)
Performance dashcard (fig 6-11, horizontal)
Divided into 5 desired outcomes and 5 corresponding metricsMetrics are mapped with leading and lagging indicators of performance, leading to calculated targetsStrategies are then evaluated and reformulated
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EC Failures and Lessons Learned
E-Tailing failuresLack of funding (burn cash before gaining enough customers)Incorrect revenue model (little ad money)
Exchange failuresRevenue growth too slowNeed to move to new business model
EC initiative failures (within firms, Levi’s)Other failures (comparison sites)
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Table 16-3Critical Success Factors for EC
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12 Truths About How the Internet Really Works
Internet not as disruptive to business as we thoughtIf it doesn’t make cents, it doesn’t make senseTime favors incumbents (channel confluence)Making a market is harder than it looksNo “Internet time”, venture take a long time to reach success“Branding” is not a strategy (brand recognition is a goal)
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12 Truths About How the Internet Really Works (cont.)
Entrepreneurship cannot be systematizedInvestors are not your customersInternet still changes everythingInternet changes your job (intermediaries)Distinction between Internet companies and non-Internet companies is fading fastReal wealth creation is yet to come
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Managerial Issues
Considering the strategic value of ECConsidering the benefits and risksIntegration is criticalMetrics are beneficialPilot projects are usefulImplementing policies and strategies must be written
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