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E-business Strategy
BBA-IT: 2009-2012
A.G. Kotwal
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References
1. Corporate Information Strategy andManagement Applegate, Austin and
McFarlan; 7th Edition
2. Get the Right Mix of Bricks & Clicks
B Ran a Gulati and Jason Garino
(HBR: May-June 2000)
3. Strategy and the Internet by Michael
Porter (HBR, March 2001)4. Strategic Mgment and Business Policy
Wheelen, Hunger, Rangarajan (Pearson)
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E- business Strategy
Strategy defines the future directions and
actions of an organization
The direction and scope of an organizationover the long term which achieves its goals
through deployment of resources in a
changing environment to meet the needs ofmarkets and to fulfil stakeholder expectations
E-business strategy looks at application of the
Internet and other technologies to support
Corporate, Business Unit or Functional level
strategies
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Why does a company need strategic
planning for e-business?
A company faces several options:
Not go for E-commerce
Stay with passive advertisement
Open online stores in addition to existing Establish separate online division
Dissolve regular business become a pure
play company
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How does a Company decide?
E-strategy plan the purpose of preparing an
e-business strategy plan is to decide whatcourse of action the company must take. i.e.,
how to start e-business and sustain it
Example: IBM (it was only a brick company
till about 1990)
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IBMs E-business Strategy
Created an independent division
Introduced EC as a corporate culture Leveraged existing strengths
Re-en ineered rocesses
Started seven new initiatives
Decided to be an EC leader
Used ROI as a criteria to select projects
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IBMs Key EC Initiatives
1. Sell more on web (EC)
2. Online customer support (e-care)
3. Support for business partners (PRM)
4. Dedicated support for IT consultants /
analysts (e-service)
5. Support to employees (B2E)
6. E-procurement (B2B)7. E-marketing communications
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E-business Strategy
Corp Strategy
E-business Strategy
SCM Strategy Mktg/CRM Strategy
IS/IT Strategy
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IT and Strategy Key Concepts Strategy vs. Bus Model
Evolving Strategy Strategic Positioning
ener c ra eg es Strategic Shifts
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E-Strategy and Business Model A BM defines how an enterprise interacts
with its environment to define a unique
strategy, attract resources and build
capabilities to execute it and in the process
A successful BM aligns an organization
with its environment
The strategy defines the revenue and growthpotential of the organization
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E-Strategy and Business Model
Strategy => focuses on specific goals andprojects required to achieve them
Capabilities => built to achieve those goals atleast cost while responding quickly to change also define the revenue model => profitmodel
Profits => enables evolving strategy and newcapabilities this cycle is called the virtuouscycle
Poorly aligned business model can createvicious cycle causing business to spin outof control and destroy value
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Evolving Strategy
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E-Strategy Planning Cycle
1. Industry/Competitive Analysis: analyzeindustry environment and determinerelative/competitive positioning
2. Strategy Formulation: strategic objectivesthat will drive the strategy initiatives
Focus on customers, markets, competition andinternal operations
Justify projects measure ROI
3. Implementation
4. Performance assessment and strategyreassessment feedback loop
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1. Industry and Competitive Analysis
Means monitoring, evaluating anddisseminating information from external and
internal environments w.r.t. launching an
eBusiness project
Need to identify CSFs for the initiatives
Start with SWOT analysis: Internal strengths and weaknesses : Structure,
Culture, Resources
External opportunities and threats : Social
Environment- general forces, Task Environment-
industry analysis
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2. Strategy Formulation Develop long range/strategic plans for effective
management of environmental opportunities and threats
in the light of corporate strengths and weakness
Redefine corporate Mission (purpose for the
organization's existence)
Specify Objectives (SMART: Specific, Measurable,
, , -
Develop specific activities and plans for the selected
initiatives (Strategies)
Prepare implementation guidelines and milestones(Policies)
Examine Mission Statements and declared Strategies for
various companies
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2. E-Strategy Formulation
Steps for E-commerce Programs
1. Conduct education/training
2. Review current processes simplify, BPR
3. Determine what customers/partners expect4. Re-evaluate nature of products/services
.
6. Extend current systems to outside
7. Track new competition/market share
8. Develop web-centric marketing strategy
9. Develop virtual marketplace
10. Instill E-business management style
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2. Methodologies for Strategy Formulation
Critical Success Factor (Rockart)
Indispensable technology, business and human
factors that help achieve desired level of goals
Involves asking a series of Qs
a ue a ys s o e To assess desirability of a strategy/initiative,
assess added value of a series of activities
performed to achieve goals Value Analysis Qs
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2. Strategy Formulation (contd)
Amazon Strategy
?
?
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2. Strategy Formulation (contd)
Amazon Strategy:+ Stay on-line (pure play)
+ Product diversification
+ Personalization
Dell Strate
+ Direct marketing
+ Efficient supply chain
+ Technology based innovation
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3. Implementation of Strategy
Build an implementation plan (Program)
Get organized user teams, technical teams Pilot Project a risk mitigating strategy
Content management (Procedures)
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4. Performance Assessment
Need for strategy and projects assessment:
- Do the projects deliver what was aimed?- Projects still viable in changing environment?
-
- Determine reasons for failure
- Reassess strategy- learn from mistakes
Measuring Results
Corporate Performance Measurement
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4. Perf. Assessment: ROI and Risk Analysis
Creating added value through EB initiatives
requires resources
ROI is benefits in relation to costs
Costs are easier to uantif TCO
For IT initiatives:
Generic IT Values- Financial, strategic,
stake holdersGeneric IT Risks- Competitive strategy,
organizational strategy, uncertainty
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Impact of the Internet
The Internet is re-shaping the marketplace and
has changed the way customer, suppliers interact
It has changed the way cos work from internally Affects competition instead of just product
,
traditional value chain. The new marketplaces:
Trading exchanges (VerticalNet, TradeMatrix)
Industry sponsored exchanges (Covisint) Net Market Makers (e-Steel) value chain based
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Impact of the Internet
Trends1. Changing business models bus
transformation
2. New channels changing access and branding
3. Balance of ower shiftin to customer
4. Competition is changing more innovative
5. Pace of business is increasing drastically
6. Traditional organization boundaries arechanging
7. Knowledge is becoming a key asset
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Conclusion:CSFs
- u ne e
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E-business Strategy: Seven Steps
1. Align business strategy with Inet initiatives
2. Communicate vision
3. Identify core competence and key values
4. Develo ortfolio of EB initiatives
5. Evolve year by year objectives and plans
6. Implement change and set up measurements
7. Monitor overall plan, adjust and improve
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CSFs for E-business Projects
Top management support- internalcommunication
Project team representing functional areas
Technical infrastructure- skills, pilot project
Customer acceptance trust between
buyer se er User friendly web interface
Integration with legacy systems
Security and control
Competition/market situation
ROI
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Strategic Positioning
Michael Porter
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Strategic Positions
Strategic Positions - the result of choices in 4 areas:1. Market/Channel positioning: choice of
customers, the needs that will be met and
channels to reach those customers
2. Product positioning: choice of products
/services, their features and price3. Value chain/Value network positioning: role an
organization plays within the network of
suppliers, producers, distributors, partners
4. Boundary positioning: determines markets,
products and businesses you will not pursue
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Porter: Three Generic Strategies
Achieve proprietary advantage in an industry,three generic strategies:
Cost Leadership
Differentiation Focus
1. Lower cost and differentiate products/services? (competitive mechanism)
2. Target a broad market or a narrow one?(competitive scope)
Specific choices vary widely from industry to
industry
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Strategic Shift
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Strategic Shifts
Four key approaches that can be applied to thefour strategic positions (Product, Market/
Channel, Value Chain/Network, Boundary) +
the Business Model:
Enhance- incremental changes to any of four
Expand- new prod, market, channel, network(outsource)
Extend- new business or business model
Exit- drop a feature, prod, service, market,
channel, supplier/partner
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E-Strategy Concepts
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E-Strategy Key Concepts
Strategic Grid Analysis (McFarlan)
Internet and the Value Chain (Porter)
Internet and the Industr Structure
(Five Forces Model Porter)
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The Strategic Grid
Assessing Impact ofIT E-business
(Warren McFarlan)
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Strategic Grid: Impact of IT
Impact of IT on:
Core operations (e.g., stock markets require
zero defect network operations)
Core strategy (steady stream of technology
innovations drive the company growth examples, Amex, Google, )
Strategic Grid
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Strategic Grid AnalysisCOMPANY CLASSIFICATIONS
H core operations L
factory strategic
support turnaround
L core strategy H
IMPACT OF IT ON CORE OPERATIONS/STRATEGY
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Strategic Grid Analysis
FACTORY (Ops-H, Strategy-L): (e.g., Banks)
Goals: Improve performance of core processes
Leadership: Business Unit executive
Project management: Process reengineering
SUPPORT (Ops-L, Strategy-L): (e.g., University)
Goals: Improve local performance
Leadership: Local level oversight
Project management: Grassroots experimentation
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Strategic Grid Analysis
STRATEGIC (Ops-H, Strategy-H): (e.g., Dell, Amazon )
Goals: Transform organization/industry
Leadership: Senior executive and board
Project management: Change management
TURNAROUND (Ops-L, Strategy-H): (Google,Facebook)
Goals: Identify and launch new ventures
Leadership: Venture incubation unit
Project management: New venture development
Strategic Grid Analysis
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Strategic Grid Analysis The Search for Opportunities
Can IT
Be used to reengineer core value activities?
Can IT change the basis of competition? Change relationship and balance of power between
buyer and seller?
Build or reduce arriers to entry?
Increase or reduce switching costs?
Add value to existing products/services or create newones?
S i G id A l i
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Strategic Grid Analysis
SGA Helps cos choose approach to organizingand managing IT enabled business
Key questions to guide strategic decision makingwhen evaluating the impact of IT on coreo e a o s a co e s a egy
These questions also are indicative of theopportunities that IT creates for businesstransformation
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Porters Value Chain Model
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The Value Chain Set of activities through which a
product/service is created and delivered Supply Chain comprises of a complex set
of trade relationshi s
Also called value chain as each stage addsvalue to the product/service
Measurement of value (generally the
difference between the price and the cost)
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PORTERS GENERIC VALUE CHAIN
FIRM INFRASTRUCTURE
HR MANAGEMNET
TECHNOLOGY DEVELOPMENT
Support Activities
MARGIN
Primary Activities
InboundLogistics
OperationsOutboundLogistics
Marketing& Sales
Service
Generic Value Chain Model
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Generic Value Chain Model
Three basic primary activities Inbound logistics
Operations
Outbound logistics Two additional primary activities
Service Support
Procurement
Technology development
HR management
Firm infrastructure
Value Chain Model contd
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Value Chain Model cont d
Specific value chains for each activity
analyze sub activities and linkages
Analysis of cost and value addition for eachactivity gives the overall efficiency of the
value chain
Every activity involves the creation,processing and communication of
information IT has a pervasive influence
on the value chain
V l Ch i M d l td
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Value Chain Model contd The physical value chain and the information
value chain go hand in hand
Logistics Operations Mktg SalesValue
Info and IT sources of new prod/services
Every business is information business
Business strategy and info strategy need to be
integrated
Value Chain Model (contd)
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Value Chain Model (cont d)
VC Model a useful analysis tool fordefining a firms core competence andactivities in which it can pursue competitive
advantage as follows: Cost advantage: by better understanding
cost and s ueezin them out of the value
adding activities Differentiation: by focusing on the
activities associated with core
competencies and capabilities in order toperform them better than the competition
Information Management Equivalence?
I A li i i h V l Ch i
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Internet Applications in the Value Chain
Inbound Logistics
Real time integrated scheduling, shipping,warehouse management, demand management,
planning across the company and suppliers
Disseminating real time inbound and in-
company Operations
Integrated information exchange, scheduling
and decision making Real time available-to-promise info to sales
force and channels
I A l i h V l Ch i C d
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Inet Applns in the Value Chain Contd
Outbound Logistics
Real time transactions of orders
Automated customer contracts
Customer and channel access to productdevelopment
o a orat ve customer orecast ng system
Marketing and Sales
Web sites, online sales channels, marketplaces
Real time access to customer databases Online product configurator
Customer profiling, customer feedback
Push advertising
I t A l i th V l Ch i C td
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Inet Applns in the Value Chain Contd
After-Sales Service
Support for service representatives
E-mail management, billing integration,chat, ..
Self service applications Field service access
CRM
I t A l i th V l Ch i C td
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Inet Applns in the Value Chain Contd
Procurement
Demand planning, fulfillment systems
Integration with purchase, inventory andforecasting systems with suppliers
Automated requisition-to-pay
rocurement v a exc anges, auct ons,marketplaces and buyer-seller matching
Technology Development
Collaborative product design, PLM
Knowledge directories
R&D access to RT sales and service info
I t A l i th V l Ch i C td
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Inet Applns in the Value Chain Contd
HR Management
Self service benefits and personnel
management Web-based training, e-learning
Time and expense reporting
Firm Infrastructure
Web-based ERP and financial systems Online investor relations (broadcasts,
conference calls, info dissemination)
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Internet and the Industry
Structure
Michael Porter
(HBR: March 2001)
Industry Structure and Attractiveness
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y
Every industry has intrinsic attractiveness opportunities or limits for how muchprofitability you can achieve
In evolving strategy for an enterprise, it is
The factors affecting industryattractiveness are largely environmental
Innovation can help you go beyond theestablished boundaries but to an extent
Michael Porters Five Forces Model
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Threat of substitute products
and services
Bargaining Rivalry
Bargaining power
power of
suppliers
among existing
competitors
o c anne s
users (buyers)
Barriers to entry
Impact of the Internet on Strategy
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Impact of the Internet on Strategy
General belief that Internet had renderedall the old rules about competitionobsolete
This has led to several bad decisions:Companies have moved away from
quality/features/ service to price drivenstrategy or created misguidedpartnerships affecting the overall
attractiveness of the Industry Need to take a clearer view of the
Internet
Impact of the Internet on Strategy contd
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Impact of the Internet on Strategy cont d
Need to move away from clichs like,Internet Industry, e-bus strategy,
New Economy !!! Internet:
p w u u
wisely or unwisely in any industry
How will the pool of value created by
Internet be shared Who will capture the economic benefits
that Internet creates
Strategy/Internet Lessons Learnt
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The question is not whether to deployInternet but how, as it provides better
opportunity to establish distinctive
strategic positioning
effective strategy
Successful cos will be those that use Inet
as complement to traditional ways ofcompeting (not as separate initiatives)
Inet makes strat. more essential than ever
Internet Distorted Market Signals
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g
(contd)
The dot.com boom:
Companies could raise capital withoutdemonstrating viability
Excess venture capital in the market Proliferation of companies indicative of low
barrier to entry always a danger sign !
Internet Return to Fundamentals
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Two conclusions from experience to date: Many businesses are competing by artificial means
propped up by venture capital
As market forces play out, the old rules regain theircurrency the creation of true economic value
revenue, cost reduction or stock values)
Only when use of Internet generates sustainable
revenue and savings in excess of cost ofdeployment can technology investments be
further justified
Internet Return to Fundamentals
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To understand how Internet can createvalue, need to look at two factors thatcreate profitability:
Industry structure that determines theprofitability of the average competition
Susta nab e compet t ve a vantage w callows a company to out-perform theaverage competition
The above factors vary widely byindustry and supra-industry classifications(like, B2B and B2C) are meaningless
Internet and Industry Structure
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Internet has created some new industrieslike, auctions and digital marketplace/exchanges. However, maximum impact
has been to reconfigure existing industriesconstrained by high cost of
communicating, information gatheringand accomplishing transactions
The structural attractiveness of the
industry is determined by five underlyingforces of competition
Michael Porters Five Forces Model
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Threat of substitute products
and services
Bargaining Rivalry
Bargaining power
power of
suppliers
among existing
competitors
o c anne s
users (buyers)
Barriers to entry
Internet and Five Forces Model
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RivalryRivalryamong existingamong existing
competitorscompetitors
(-) Reduces differences among competitors
- gra es compe on o pr ce
(-) Widens geographic market
(-) Increases the number of competitors
(-) Lowers the variable costs relative to fixed
cost, increasing pressure for price
discounting
Internet and Five Forces Model
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(-) The proliferation of Internet approaches
Threat of substitute productsThreat of substitute productsand servicesand services
crea es new su s u e rea s
(+) By making the overall industry more
efficient, the internet can expand the
size of the market
Internet and Five Forces Model
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(-) Reduces barriers to entry, such as the need
Barriers to entryBarriers to entry
or a sa es orce, p ys ca asse s, access
to channels
(-) Internet applications are difficult to keep
proprietary from new entrants
(-) A flood of new entrants has come into
many industries
Internet and Five Forces Model
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(+) Procurement over Internet raises bargainingpower over suppliers
- Gives su liers access to more customers
Bargaining Power of suppliersBargaining Power of suppliers
(-) Reduces the leverage of intermediaries(-) Gives all companies equal access to suppliers and
gravitate procurement to standardized
products that reduce differentiation
(-) Reduced barrier to entry and proliferation of
competition downstream shifts power to suppliers
Internet and Five Forces Model
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(+) Eliminates powerful channels or improvesbargaining power over traditional
Bargaining power of channels/usersBargaining power of channels/users(Buyers)(Buyers)
c anne s
(-) Shifts bargaining power to end consumers
(-) Reduces switching costs
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Strategic PositioningMichael Porter
Strategic Positions
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Strategic Positions - the result of choices in 4 areas:1. Market/Channel positioning: choice of
customers, the needs that will be met and
channels to reach those customers
2. Product positioning: choice of products
/services, their features and price
3. Value chain/Value network positioning: role an
organization plays within the network of
suppliers, producers, distributors, partners4. Boundary positioning: determines markets,
products and businesses you will not pursue
Porter: Three Generic Strategies
Achieve proprietary advantage in an industry,
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Achieve proprietary advantage in an industry,
three generic strategies:
Cost Leadership
Differentiation Focus
1. Lower cost and differentiate products/services? (competitive mechanism)
2. Target a broad market or a narrow one?(competitive scope)
Specific choices vary widely from industry to
industry
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End
-strategy
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