Chapter 11
E-Strategy,
Internet Communities,
and Global EC
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Learning Objectives
Describe the importance and essentials of business
and EC strategies
Describe the strategy planning and formulation
process for EC
Understand how EC applications are discovered,
justified, and prioritized
Describe strategy implementation and assessment
including the use of metrics
Understand EC failures and lessons for success
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Learning Objectives (cont.)
Describe the role and impact of virtual
communities on EC
Evaluate the issues involved in global EC
Analyze the impact of EC on small businesses
Describe the relationship between EC and BPR,
knowledge management, and virtual corporations
Describe the future of EC
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IBM’s E-Business Strategy
The Problem
Need to capture new business opportunities and
technologies (like EC)
Develop a business strategy for that purpose
IBM’s current strategy is to transform itself into an ebusiness in order to provide business value to the
corporation and its shareholders
IBM views e-business as being much broader than EC
because it:
Serves a broader constituency
Offers a variety of Web-based processes and transactions
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IBM’s E-Business Strategy (cont.)
The Solution is based on four goals:
Lead IBM’s strategy to transform itself into ebusiness
Act as a catalyst to help facilitate that
transformation
Help business units become more effective in
their use of the Internet/intranet
Internally
With their customers
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IBM’s E-Business’s Strategy (cont.)
Establish a strategy for the corporate Internet
site
Including definition of how it should look,
“feel” and be navigated
Create an online environment most
conducive to customers doing business with
IBM
Leverage the wealth of e-business
transformational case studies within IBM to
highlight the potential of e-business to IBM’s
customers
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IBM’s E-Business Strategy (cont.)
IBM focused on seven key initiatives:
E-commerce
E-care for customers
E-care for business
partners
E-care for influencers
E-care for employees
E-procurement
E-marketing
communications
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IBM’s E-Business Strategy (cont.)
The Results
Implementation of an e-procurement system
that spans IBM globally
Saved IBM almost $5 billion over a 3-year
period
Electronic invoicing:
Reduces the number of paper invoices
Enables fast, competitive tendering from
its suppliers
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IBM’s E-Business Strategy (cont.)
IBM’s evaluation of the procurement process
determined where the use of the Web adds
value
Identification of more than 20 initiatives to
reduce costs and improve purchasing
including:
Collaboration with suppliers
Online purchasing
Knowledge-management-based
applications
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E-Strategy: Concepts & Overview
Strategy—search for revolutionary actions
that will significantly change the current
position of a company, shaping its future
Finding the position in a marketplace that best
fits the firm’s skills
Company’s choice of new position that must
be driven by its ability to find new trade-offs
and leverage a new system of complementary
activities into sustainable advantage
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Elements of Strategy
Elements of a strategy
Forecasting
Resource allocation
Core competency
Environmental analysis
Company analysis
Business planning
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Types of E-Strategies
EC strategy (e-strategy)—an organization’s
strategy for use of e-commerce or e-business
Click-and-mortar companies that use many
EC applications
Click-and-mortar companies that use only
one or two EC applications
Click-and-mortar companies that use one EC
application that fundamentally changes all
their business
Pure-play EC companies
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Need for a Strategy
Why does a company need an e-strategy?
Fast changes in business and technology means
that opportunities and threats can change in a
minute
Company must consider EC strategy that includes
contingency plans to deal with changes
May be too costly not to have one
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Charles Schwab’s EC Strategy
In 1998 Schwab launched schwab.com—
one of the first click-and-mortar
stockbrokers
Changed the company pricing structure
radically
Took a short-term revenue loss
Looking toward a long-term strategic
gain
EC strategy fit well with company’s overall
strategy emphasizing a one-to-one
relationship with its customers
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Charles Schwab (cont.)
Schwab had first-mover advantage in securing
key partnerships
Schwab and Nextel agreed to build an infrastructure
allowing investment opportunities over mobile
phones or wireless handheld devices
Initial target was existing off-line customers with
incomes over $150,000 a year and who buy and
hold
Key benefits:
Innovative products
Low fees
Superior service
Cutting-edge technology
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Charles Schwab (cont.)
Partnered with content providers and
technology companies to offer:
Large number of financial services online
Community and personalized services
Financial model composed of three parts:
The revenue model
The value model
The growth model
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Charles Schwab (cont.)
CyberTrader's services are designed for online,
self-directed active traders who use short-term
trading strategies to generate current income
Cybertrader features include:
Nasdaq Level II quotes
Direct Access trading capabilities
Risk management tools
Graphical decision support modules
Streaming News
Intelligent order routing
Direct options routing
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E-Strategy Landscape
Strategy initiation: organization prepares
information about its vision,mission,purpose,and
the contribution that EC could make to the
business
Strategy formulation:
Identification of EC applications
Cost-benefit analysis
Risk analysis
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E-Strategy Landscape (cont.)
Strategy implementation:
Organization’s resources are analyzed
A plan is developed for attaining the goals
Strategy assessment:
Organization periodically assesses progress
toward the strategic goals
Involves the development of EC metrics
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Exhibit 11.1
The Landscape of EC Strategy
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Strategy Initiation
Strategy initiation—the initial phase of e-strategy
in which an organization prepares information
about its vision, mission, purpose, and the
contribution that EC could make
1. Review the organization’s business and IT vision
and mission
2. Generate vision and mission for EC
3. Begin with industry and competitive analysis
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Industry Assessment
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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Company Assessment
The organization
investigates its own:
Business strategy
Performance
Customers
Partners
It looks at everything
that has an impact on
its operations
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Processes
People
Information flows
Technology
support
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Industry, Company, and
Competitive Analysis
SWOT analysis—a methodology that surveys the
opportunities and threats in the external
environment and relates them to the organization’s
particular strengths and weaknesses
SWOT Analysis
Strengths
Opportunities
Weaknesses
Threats
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Exhibit 11.2
SWOT Matrix
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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 sites
Examine publicly available financial documents
Ask the customers—award prizes to those who
best describe your competitors’ strengths and
weaknesses
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Competitive Intelligence
on the Internet (cont.)
Analyze related discussion groups
Find out what people think about a company
and its products and competitor's products
Reaction to new ideas and products
Use information delivery services
Find out what it published on the Internet
Known as push technologies
Corporate research companies provide
information about your competitors:
Examine chat rooms
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Issues in Strategy Initiation
To be a first mover or a follower?
Advantages
Disadvantages
Chance to capture
large markets
Establishing a brand
name
Exclusive strategic
alliances
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Cost of developing EC
initiative is usually very
high
Chance of failure is high
System may be obsolete
as compared to second
wave arrivals
No support services are
available at the beginning
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Should You Have a Separate
Online Company?
Advantages
Disadvantages
Reducing or eliminating
internal conflicts
Providing more freedom
to management in
pricing, advertising, etc.
Can create new brands
quickly
Take the e-business to an
IPO and make a fortune
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May be very costly
and risky
Collaboration with
off-line business
may be difficult
Lose expertise of
business functions
unless you use close
collaboration
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Strategy Formulation
Strategy formulation
Development of long-range and strategic plans to
exploit opportunities and manage threats in the
business environment in light of corporate strengths
and weaknesses
Includes examining or redefining EC mission
Specifying achievable objectives
Developing strategies
Setting implementation guidelines
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Discovering EC Opportunities
3 common mistakes in allocating EC
investment
Let a thousand flowers bloom—fund many
projects indiscriminately
Bet it all—put everything on a single high-stake
initiative
Trend-surf—follow the crowd toward the next
“big thing”
Any of the above can be risky and costly
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Discovering EC Opportunities (cont.)
Approaches to identifying EC opportunities
Problem-driven
Technology-driven
Market-driven—waiting to see what the
competitors will do
Fear or greed-driven
Afraid if they do not practice EC they will be
big losers
Think they can make lots of money going into
EC
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Determining an Appropriate
EC 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, profitmaking businesses
Boston Consulting Group’s matrix
Cash cows
Starts
Questionable projects
Dogs
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EC Application Portfolio
Tjan’s portfolio strategy—Internet portfolio map
Strategy based on
company fit (assessed by
five levels from high to
low)
Project’s viability—
assessed by 4 criteria
Alignment with core
capabilities
Alignment with other
company initiatives
Fit with organizational
structure
Fit with company’s
culture and values
Ease of technical
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implementation
Market value potential
Time to positive cash
flow
Personal
requirements
Funding requirements
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Exhibit 11.4
Tjan Application Portfolio Map
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Strategic Directions at Chubb
Typical choice of EC model at Chubb Corp.
Create a new business model with EC as a major
driver—discarded because they had a successful
business model with products matching
distribution systems
Spawn a secondary business model around EC;
go directly to consumers—did not want to
interrupt their relationships with agents and
brokers
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Chubb Corp. (cont.)
Use EC as a tool within the existing business
model (the selected model)
Helped Chubb further differentiate products
and services by providing superb customer
service over the Internet
Opened several Web sites—one for each
specialty group (e.g., for wine collectors)
Enables superb communication with agents
and business partners
Allows business expansion into 20 countries
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Making the Business Case for EC
Business case—written document that is
used by managers to garner funding for
specific applications or projects by
providing justification for investments
Provides foundation for tactical decision
making and technology by management
Helps clarify the company’s use of its
resources to accomplish the e-strategy
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Content of an E-Business Case
Business case for EC approach for garnering
funding for projects used to:
Provide justification for investments
Provides bridge between EC plan and the
execution
Provides foundation for tactical decision making
and technology risk management
Clarifies how the organization will use resources
to accomplish the e-strategy
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Content of an E-Business Case (cont.)
Content of an E-business case
Strategic justification—”where are we going?”
Generational justification—”how will we get
there?”
Technical justification—”when will we get there?”
Financial justification—”why will we win?”
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Cost-Benefit and Risk Analysis
Revenue model
How to conduct an
e-business case
Develop goal
statement
Set measurable goals
Develop short- and
long-term action
plans
Gain approval and
support
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Properly planned
revenue model is a
critical success
factor
Revenues from
sales depend on
customer
acquisition cost and
advertisement
Must be figured into
the analysis
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Cost-Benefit and Risk Analysis (cont.)
It is difficult to justify EC investment due to
many intangible variables
Return on investment (ROI)
Discounted cash flow
Two common methods
Value proposition
Risk analysis
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Value Proposition
Value proposition—the benefit a company
can derive from implementing a new
project, such as EC, usually by increasing
its competitiveness and by providing better
service to its customers
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Risk Analysis
Risk analysis program
should
E-business risks
Identify all
potential risks
Assess potential
damage
Evaluate possibility
of protection
(insurance)
Evaluate cost of
protection vs.
benefits
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Strategic risks
Financial risks
Operational risks
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Issues in Strategy Formulation
How to handle channel conflicts
Let established old-economy-type dealers
handle e-business fulfillment
Sell some products only online
Help your intermediaries (e.g., build portals)
Sell online and off-line
Do not sell online
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Issues in Strategy Formulation (cont.)
How to handle conflict between off-line and
online businesses
Clear support of top management
Use of innovative processes that support
collaboration
Clear strategy of “what and how”
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Issues in Strategy Formulation (cont.)
Pricing strategy
Setting prices lower than off-line business may
lead to internal conflict
Setting prices at the same level may hurt
competitiveness
Should you get financing from big venture
capital firms?
Venture capital financing causes loss of control
over business
Benefit: access to various VC experts and get
the cash you need
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Strategy Implementation
Strategy implementation--The execution of
the e-strategy plan, in which detailed,
short-term plans are developed for
attaining strategic goals
Establish a Web team that continues the
execution of the plan
Start with a pilot project
Planning for resources
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Strategy Implementation (cont.)
Strategy implementation issues
Evaluating outsourcing
Build an in-house EC infrastructure
Purchase a commercial EC software package
or EC suite
Use a Web hosting company
Partners’ strategy
How to coordinate B2B and B2C
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Strategy and Project Assessment
Strategy assessment—the periodic formal
evaluation of progress toward the organization's
strategic goals; may include needed actions and
strategy reformulation
Objectives of assessment
Find out if EC project delivers what it was supposed to
deliver
Adjust plans if necessary
Determine if EC project is still viable
Reassess initial strategy in order to learn from
mistakes and improve future planning
Identify failing projects as soon as possible and
determine reasons for failure
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Measuring Results & Using Metrics
Metric—a measurable standard or a target against
which actual performance is compared
Response time to customers’ enquiries
Response quality
Security/trust level
Download time,
Timeliness of fulfillment
How up-to-date information
Availability
Site effectiveness, ease of use, and navigability
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Measuring Results &
Using Metrics (cont.)
Balanced scorecard—a structured
methodology for measuring performance
in organizations, using metrics in four
areas
Finance
Customers’ assessments
Internal business processes
Learning and growth
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Measuring Results &
Using Metrics (cont.)
Performance dashboard—a structured
methodology proposed by Rayport and
Jaworski (2001) for measuring EC performance
using:
Desired outcomes
Corresponding metrics
Leading and lagging indicators of performance
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EC Failures & Lessons Learned
E-Tailing failures
Lack of funding
Incorrect revenue model
Exchange failures
Revenue growth too slow
Need to move to new business model
EC initiatives failures
Levi Strauss stopped online direct sales of its apparel
(levistrauss.com) when major distributors and
retailers put pressure on the company not to
compete with their brick-and-mortar outlets
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Success Stories & Lessons Learned
Reasons for success:
Brick-and-mortar companies add online
channels
Mergers and acquisitions
Peter Drucker:
Analyze the opportunities
Go out to look
keep it focused
Start small (one thing at a time)
Aim at market leadership
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Success Stories &
Lessons Learned (cont.)
Asian CEOs CSFs:
Select robust business models
Understand dot-com future
Foster e-innovation
Evaluate a spin-off strategy
Co-brand
Employ ex-dot-com staffers
Focus on the e-generation as your market
Get the technology right, avoid expensive
technology and technology malfunctions
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Virtual Communities
Virtual community—a group of people with similar
interests who interact with one another using the
Internet
Elements of interaction:
Communication—bulletin boards, chat
rooms/threaded discussions, e-mail and instant
messaging
Information—directories and yellow pages, search
engine, member-generated content
EC elements—e-catalogs, shopping carts, ads,
auctions of all types
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Virtual Communities (cont.)
Communities of
transactions—facilitate
buying and selling
Communities of
interest—people
interact with each
other on a specific
topic
Communities of
relations (practice)—
organized around
certain life
experiences
Communities of
fantasy—share
imaginary
environments
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Virtual Communities (cont.)
Commercial aspects of community:
Understand a particular niche industry
Build a site that provides valuable information
Site should mirror the steps a user goes
through in the information-gathering and
decision-making process
Build a community that relies on the site for
decision support
Start selling products and services that fit into
the decision-support process
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Exhibit 11.9
Value Creation in E-Communities
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Virtual Communities (cont.)
Financial viability of communities
Based on sponsorship and advertisement
Expenses are very high because of the need to
provide:
Fresh content
Free services
Free membership
This model did not work well, many companies
sustained heavy losses in 2000-2001; too few
members, too few purchases
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Virtual Communities (cont.)
Key strategies for successful online communities
1. Increase traffic and participation
2. Focus on the needs of the members (facilitators
and coordinators)
3. Encourage free sharing of opinions and information
4. Financial sponsorship is a must
5. Consider the cultural environment
6. Provide tools and activities for member use
7. Community members involved in activities and
recruiting
8. Guide discussions, provoke controversy, and raise
sticky issues
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Going Global
Decision to go global is a strategic one
Geographical borders are falling
Artificial borders are being erected through
Local language preferences,
Local regulations
Access limitations
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Benefits and Extent of Operations
Major advantage of EC—ability to do business any
time, anywhere, rapidly at a reasonable cost
Success stories
E*TRADE or boom.com as your broker for stock
trading
Amazon.com
Small companies sell to hundreds of customers
worldwide (virtualvine.com)
Increasing number of out-of-the-country vendors
participate in electronic requests for quotes
Successful employees recruitment
Successful collaboration in B2B exchanges
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Barriers to Global Electronic Commerce
Legal Issues
Uncoordinated actions must be avoided and an
international policy of cooperation should be
encouraged
Market Access Issues
Companies starting e-commerce need to evaluate
bandwidth needs by analyzing the data required, time
constraints, access demands, and user technology
limitations
Financial Issues
Customs and taxation
Electronic payment systems
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Small Business Goes Global
Cardiac Science—trying to break into the
international market for years
Within 2 years after Internet inception in the
company, it was shipping its products to 46
countries
Today, 85 percent of the company’s revenue is
international, much of this is executed at
(cardiacscience.com)
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Small Business Goes Global (cont.)
Advice for small businesses going global at:
Universal Business Exchange (unibex.com)
Several government agencies (stat-usa.gov)
Cardiac’s CEO “crafting a solid export strategy
takes a lot more commitment than putting up a
snazzy Web site and waiting for the world to
show up at our door. It’s all about building
relationships.”
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Barriers to Global
Electronic Commerce (cont.)
Other Issues
Language and translation
Primary problems are cost, speed, inaccuracy
Localization
Adapt local business practices
Culture
Multiple cultures warrant different marketing
approaches
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Attracting Japanese Customers
to Your Site
English-Japanese Promotion (ajpr.com)
Helps clients avoid the mistakes often made
when they selling to the Japanese customers
Target audience uses Japanese-only Web
search engines
Alert companies when logos or themes are
likely to strike a sour chord with Japanese
sensibilities
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Japanese Customers (cont.)
Japanese respond well to symbols or
characters
Product should be geared to Japanese
males in their twenties and thirties
Ajpr.com also provides help to Japanese
companies develop English versions of their
sites
Provides localization advice
Advertising
Document translation
Consulting services
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Breaking down the
Global EC Barriers
Value the human
touch
Be strategic
Know your audience
Be a perfectionist
Remember, it’s the
Web
Integrate properly
Keep the site flexible
and up-to-date
Synchronize content
OECD (oecd.org) read
“Dismantling the
Barriers to Global EC”
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EC in SMEs
Advantages/benefits of EC in SMEs
Inexpensive
Source of information
Advertising
Conducting market research
Build (or rent) a storefront
Low transaction costs
Niche markets are best
Provide catalogs
Way to reach worldwide customers
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EC in SMEs (cont.)
Disadvantages/risks
Inability to use EDI, unless it is EDI/Internet
Lack of resources to fully exploit the Web
Lack of expertise in legal issues, advertisement
Less risk tolerance than a large company
Disadvantage when a commodity is the product
(for example, CDs)
No more personal contact, which is a strong point
of a small business
No advantage to being in a local community
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Critical Success Factors for SMEs
Capital investment must be small
Inventory should be minimal or non-existent
Electronic payments scheme
Payment methods must be flexible
Logistical services must be quick and reliable
The Web site should be submitted to directory-based
search engine services
Join an online service or mall and do banner exchange
Design a Web site that is functional and provides all
needed services to consumers
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Supporting Small Business
Technical support from IBM (for a fee of only
$25 per month) at
ibm.com.search:businesscenter
Digital’s virtual stores
Microsoft’s Personal Web Server (PWS)
U.S. government at ecommerce.gov
Gartner Group provides access to online
research material at gartner.com
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Business Process Reengineering (BPR)
Organizational transformation—the
process of completely or drastically
transforming an entire organization to a
new mode of operation
Business process reengineering (BPR)—a
methodology for comprehensive redesign
of an enterprise’s processes
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BPR (cont.)
Redesign of the enterprise process and BPR
Does not make sense to automate poorly designed
process—so restructure
Necessary to change processes to fit commercially
available software
Fit is required between systems and processes of
different companies
Change processes to fit procedures and standards of
public e-marketplaces
Adjust procedures and processes to align with
available services (logistics, payments, security)
Changes to assure flexibility and scalability
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Workflow Technologies
Workflow system—software programs that
manage all the steps in a business process
from start to finish, including all exception
conditions
Two categories:
Collaborative workflow—products address
project-oriented and collaborative processes
Production workflow—tools address missioncritical, transaction-oriented processes
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Virtual Corporations
Virtual corporation—an organization composed of
several business partners (some of whom may be
pure-play EC players) sharing costs and resources
for the production or purchasing of a product or
service
Major attributes of VCs:
Utilization
Opportunism
Trust
Technology
Excellence
Lack of borders
Adaptability to change
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The Future of EC
Internet usage
Opportunities for buying
M-commerce
Purchasing incentives
Increased security and
trust
Efficient information
handing
Innovative organizations
Virtual Communities
Payment systems
Business-to-business
B2B exchanges
Auctions
Going global
E-government-comprehensive
Intrabusiness EC
E-learning
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EC Technology Trends
Clients
Embedded clients
Servers
Networks
Wireless
communications
EC software and
services
Search engines
P2P technology
Integration
Wearable devices
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The Digital Divide
Digital divide—the gap between those who
have and those who do not have the
ability to access electronic technology in
general, and the Internet and EC in
particular
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Integrating
Marketplace and Marketspace
Click-and-mortar organization
How to cooperate in planning, advertising,
logistics, resource allocation
How to align the strategic plans
B2C ordering systems
The impact of EC on our lives may be as
much as, or more than that of the
Industrial Revolution
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Managerial Issues
What is the strategic value of EC to the
organization?
What are the benefits and risks of EC?
What metrics should we use?
Can we do a pilot project?
Do we have a community?
How can we go global?
Can we learn to love smallness?
Is restructuring needed?
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Summary
Importance of strategic planning for EC
The strategy planning and formulation
process
Application discovery, justification, and
prioritization
EC strategy implementation and assessment
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Summary (cont.)
Understanding failures and learning from
them
The role and impact of virtual communities
Issues in global EC
Small businesses and EC
Restructuring and virtual organizations
The future of EC
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