5-1
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
Module: Competing in the Network Economy
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C.S.: Lonely Planet Travels from Place to Space
• Independent travelers use Lonely Planet guidebook to
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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:
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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
Module: Competing in the Network Economy
5-3
C.S.: Lonely Planet Travels from Place to Space
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
Module: Competing in the Network Economy
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C.S.: Lonely Planet Travels from Place to Space
The Solution
• LP’s current combination of business models that make
up value proposition and revenue model:
– Content provider
– Virtual community
– Direct to consumer
Module: Competing in the Network Economy
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C.S.: Lonely Planet Travels from Place to Space
• Online LP launched these initiatives:
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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
Module: Competing in the Network Economy
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C.S.: Lonely Planet Travels from Place to Space
• 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
Module: Competing in the Network Economy
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C.S.: Lonely Planet Travels from Place to Space
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
Module: Competing in the Network Economy
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C.S.: Lonely Planet Travels from Place to Space
• 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
Module: Competing in the Network Economy
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5.1: Organisational Strategy: Concepts & Overview
• 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.
Module: Competing in the Network Economy
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5.1: Organisational Strategy: Concepts & Overview
• 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:
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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
Module: Competing in the Network Economy
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5.1: Organisational Strategy
Exhibit 14.2:
The Strategic Planning Process
•
The process of strategy
according to Tjan (2001):
– Initiation
– Formulation
– Implementation
– Assessment
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• 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
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• 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
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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?
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• 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
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• 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
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• Strategic planning tools
1. SWOT analysis:
• A methodology that
surveys external
opportunities and threats
and relates them to
internal strengths and
weaknesses
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• Strategic planning tools
2. 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
Module: Competing in the Network Economy
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5.1: Organisational Strategy
• Strategic planning tools
4. 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
Module: Competing in the Network Economy
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5.2: EC Strategy: Concepts and Overview
• 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).
Module: Competing in the Network Economy
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5.2: EC Strategy Initiation
• Issues in e-strategy initiation
1. 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.
Module: Competing in the Network Economy
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5.2: EC Strategy Initiation
• Issues in e-strategy initiation
2. 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 ecommerce 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.
Module: Competing in the Network Economy
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5.2: EC Strategy Initiation
• Issues in e-strategy initiation
3. 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)
Module: Competing in the Network Economy
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5.2: EC Strategy Initiation Issues
• Issues in e-strategy initiation
4. 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
Module: Competing in the Network Economy
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5.2: EC Strategy Initiation Issues
• Issues in e-strategy initiation
4. 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
Module: Competing in the Network Economy
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5.2: EC Strategy Initiation Issues
• Issues in e-strategy initiation
5. 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
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation
• 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.
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation
• 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
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation
• 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
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation
• Determining an appropriate EC application portfolio
– Internet portfolio map: Based on company fit and
project viability (Tjan, 2001)
• Viability is assessed by:
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market value potential
time to positive cash flow
time to implementation
funding requirements
• Fit is evaluated by metrics:
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alignment with core capabilities
alignment with other company initiatives
fit with organisational structure
ease of technical implementation
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation
– Internet portfolio map:
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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
Module: Competing in the Network Economy
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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:
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Competitive risk
Transition risk
Customer-induced risk
Business partner risk
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5.3: EC Strategy Formulation: Risk Analysis
– 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
Module: Competing in the Network Economy
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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.
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation: Issues
• 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
Module: Competing in the Network Economy
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5.3: EC Strategy Formulation: Issues
• 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
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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
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: 4 steps
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]
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: 4 steps
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
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: 4 steps
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
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: Issues
• 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?
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: Issues
• 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
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: Issues
• 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
Bank
payment MasterCard
Clearance
order
Distributor
inventory
INGRAM
deliver
Credit card
Sales
Information Systems
coordination
contents
deliver
Shipping
transport
tracking
DHL
BOOK GROUP
order
sales
Affiliate
sales
JoinAssociates
sales
critics
Customer
buy
content
Author
marketing
Module: Competing in the Network Economy
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5.4: EC Strategy Implementation: Issues
• 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
Module: Competing in the Network Economy
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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.
Module: Competing in the Network Economy
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5.5: E-Strategy and Project Assessment
• 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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5.5: E-Strategy and Project Assessment
• 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
Module: Competing in the Network Economy
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5.5: E-Strategy and Project Assessment
• Axon Computertime metrics implementation
obtained results in:
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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
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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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5.6: Global E-Commerce
• 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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5.6: Global E-Commerce
• Breaking down the barriers to global EC
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Be strategic
Know your audience
Localise
Think globally, act consistently
Value the human touch
Clarify, document, explain
Offer services that reduce barriers
Module: Competing in the Network Economy
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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:
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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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5.7: EC in Small and Medium-Sized Enterprises
• Critical Success Factors for SMEs:
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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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5.7: EC in Small and Medium-Sized Enterprises
• 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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Managerial Issues
1.
2.
3.
4.
5.
6.
7.
What is the strategic value of EC to the organisation?
What are the benefits and risks of EC?
What metrics should we use?
What staffing is required?
How can we go global?
Can we learn to love smallness?
Is e-business is always beneficial?
Module: Competing in the Network Economy