Chapter 4
The Business Environment
Profit, ROI, and Risk
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Profit = revenue – cost
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Enhance profit by:
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Increasing revenue
Reducing cost
Ultimate source of investment funds
Source of return on investment
Business investment is risky
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Higher rate of return required
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Figure 4.1 The business planning
hierarchy.
Corporate
strategy
Product strategy
Information
technology
strategy
Marketing
strategy
Human resources
strategy
Objective: define long-term direction
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E-commerce
strategy
A Startup Business Plan
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
A.k.a., path to profitability
Contents
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Product
Market
Competitors
Customers
Risks
Financials
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Figure 4.2 Elements of a business plan.
Business description
Industry overview, mission statement, the company's products or
services, company's position in the market, pricing strategies,
competitive advantage.
The product
Current status of product or service, production or service delivery
process, design/development budget, labor requirements, operating
expenses, capital requirements, cost of goods.
The market
Target customers, market size, target market, competitors, estimated
sales.
Sales and marketing
Plans for identifying potential customers and converting them to
actual customers, distribution channels, advertising and promotion
plan.
Finance
Risk assessment, cash flow, balance sheet, income statement,
funding needs, return on investment, payback, net present value.
Management team
Owners and controlling stockholders, management structure, board
of directors, management support services.
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Competitive Advantage
Competitive Advantage:
An advantage that a firm has over its competitors, allowing it to generate greater
sales or margins and/or retain more customers than its competition.
The more sustainable the competitive advantage, the more difficult it is for
competitors to neutralize the advantage. There are two main types of competitive
advantages: comparative advantage and differential advantage. Comparative
advantage, or cost advantage, is a firm's ability to produce a good or service at a
lower cost than its competitors, which gives the firm the ability sell its goods or
services at a lower price than its competition or to generate a larger margin on
sales. A differential advantage is created when a firm's products or services differ
from its competitors and are seen as better than a competitor's products by
customers.
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Competitive Advantage
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Something that
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Your company can do
Your customers want (or value)
Your competitor cannot or will not match
Sources of competitive advantage
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Unique product
Price
Quality
Cost controls and efficiency
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Competitive Advantage
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Big Bang Disruptors:
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Tom Tom
Garmin
Magellan
Block Buster
West Coast Video
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Figure 4.3 The value chain.
Inbound
logistics
Production
processes
Outbound
logistics
Sales and
marketing
Information technology infrastructure
Upstream

Downstream
Conflicting objectives
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Local process efficiency
Organization-wide efficiency
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Customer
service
The value chain
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Conflicting Objectives
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Process objectives can conflict
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Sales wants full warehouse
Minimize inventory carrying cost
You can have it fast, you can have it cheap,
or you can have it right. Pick any two.
Need for trade-offs to balance
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Figure 4.4 The supply chain.
Upstream

Downstream
Conflicting objectives again

Company vs. company
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E-Commerce Business Environment
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Low cost of entry
Global reach
Huge potential markets
Intense competition
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Figure 4.5 The three
categories form an
integrated structure.
B2C
(Customer focus)
Integration is
the future of
e-commerce.
Intra-business
(Value chain focus)
B2B
(Supply chain focus)
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Figure 4.6 The three categories are applications that communicate
with each other via the infrastructure.
B2C

Another way
to view
integration
Intrabusiness
B2B
The World Wide Web
The Internet
The global data communication network
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Figure 4.7 A B2C transaction and a supply
chain purchasing transaction are similar.
Acme's Value Chain
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
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Supply chain
links value
chains
Categories
somewhat
arbitrary
Categories
are a model
Purchasing
(B2B)
...
Sales
(B2C)
Corporate sales
(B2B)
Retail customer
The Soup-to-Nuts value chain
Customer's value chain
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Digital Products
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Potential killer applications/services
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Software
Recorded music
Digital books
Information services
Diminishing returns does not apply
E-commerce is a digital technology
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The law of diminishing returns applies to
physical products.
Unit
cost
Quantity
At some point, unit cost increases with volume.
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Digital products do not experience
diminishing returns.
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Unit
cost
High startup cost
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First copy
Low incremental cost
After breakeven
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Pure profit
Quantity
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Intermediaries
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An intermediary is a middleman
Disintermediation
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Eliminating the middleman
Sometimes claimed as e-commerce benefit
Reintermediation
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New middlemen replace the old ones
An e-commerce reality
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Figure 4.8 Intermediaries.
Party A
Intermediaries
provide services
that lie off the
value chain.
Intermediary
Infrastructure hardware and software providers
Connectivity providers
Bandwidth providers
Website service providers
Web information system service providers
Security service providers
Information service providers
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Party B
Figure 4.9 Some intermediaries.
Connectivity providers
Telephone service providers
Wireless service providers
Internet service providers
Cable service providers
Common carriers
Bandwidth providers
Backbone providers
Network Service Providers (NSP)
Networp Access Points (NAP)
Value Added Networks
Website service providers
Website design and development
Management consulting
Website hosting
Content management
Content distribution
Website usage measurement
HTML editors
Storage systems
Database software
Web information system service
providers
Application service providers
System development consulting
Development software
Enterprise portal software
Plugins and gateways
Infrastructure hardware and
software providers
Domain name registries
Network hardware and software
Routers and switches
Load balancers
Client and server computers
Peripherals
Operating system software
Communication hardware
Communication software
Application software
Web browser and server software
Groupware
Security service providers
Anti-virus software
Firewalls
Encryption software
Identification and authentication
Disaster recovery services
Virtual private networks
Business service providers
Payment systems
Advertising services
Supply chain management
Managed service providers
Customer relationship management
Financial software and services
Brokers
Auction sites
Information service providers
Portals, destinations,marketplaces
Search engines
Virtual communities
Privacy services
Rating services
Shopping Bots
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Negating Location
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Geography no longer matters
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Global competition
Example—writing this textbook
Participants
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The authors (Florida and Ohio)
The publisher (Boston)
Production (New England)
Printing and warehousing (Indiana)
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Figure 4.10 A manuscript page.

Created by
the authors
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Florida
Ohio
MS Word
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Figure 4.11 Rough art.

Created by
the authors
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Florida
Ohio
Visio
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Figure 4.12 A copy edited page
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Copy editor in
Massachusetts
MS Word
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Figure 4.13 A finished page.
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Paging done in
Massachusetts
Adobe Acrobat
All electronic
communication
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Figure 4.14 Bots.
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Bot is an
intelligent
agent
Increases
customer
power
Bot Category
Allows you to:
Chatter bots
Chat with the cyberworld
Commerce bots
Perform e-commerce activities on the Web and the Internet
Fun bots
Interact with virtual environments and virtual realities.
Game bots
Monitor selected online games or act as a skilled opponent
Government bots Find information on government Web sites
Knowledge bots
Utilize various artificial intelligence (AI) agents
News bots
Create custom newspapers or manage a clipping service
Search bots
Use an intelligent agent to search the Web
Shopping bots
Comparison shop, often by price
Software bots
Obtain software fixes, diagnose problems, and create bots
Stock bots
Monitor stock prices
Update bots
Obtain update alerts when selected Web content changes
Source: www.botspot.com
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Figure 4.15 The competitive advantage model.
Stimulus for action
The two yellow boxes
represent activities that
happen simultaneously.
First major move
Customer acceptance
Competitor catch up moves
First mover expansion moves
Commoditization
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Figure 4.16 Time for technologies to reach 50
million users.
Technology
First use 50M Elapsed
users years
Radio
1922
1963
38
Broadcast television 1950
1963
13
Cable TV
1976
1986
10
Commercial Internet 1994 1999
5
Based on Morgan Stanley Dean Witter, The Global Internet Primer,
Volume I, June 2000, page 12.
Note the acceleration!
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Figure 4.17 The accelerating pace of innovation.
Readiness
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Textbook
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1980—36 months
2000—21 months
Lose 40% of competitive
advantage
Intensity
Impact
Level of
activity
Rapid obsolescence
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
Time to market is key
Delay means lost
opportunity
Time
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User Adoption of Technology
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User Adoption of Technology
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Gartner Hype Cycle
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Selected Technology Milestones Over the Past Forty Years
Source Gartner
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Evolving E-Commerce Business Strategies
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Danger—everything becomes a commodity
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Brand name matters more than ever
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Frictionless e-commerce
No competitive advantage for anyone
Brand name reduces perceived risk
Bricks-and-clicks strategy
Reduced cycle time is a key objective
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Reduce time to market
React quickly to change
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Figure 4.18 The 20 top technology-related
brand names in the US.


This list is
from 2001
How would
it change
today?
Rank
1
2
3
4
5
6
7
8
9
10
Brand Name
Napster
Disney
Windows
Microsoft
Replay TV
TiVo
MP3
eBay
Pixar
Pentium
Rank
11
12
13
14
15
16
17
18
19
20
Brand Name
Microsoft Office
Intel
WebTV
Sony
WebMD
Yahoo!
Norton
Adobe
Palm Pilot
Blue Mountain
Source: "Marks of Distinction, the Tech Brands that Grab
Internet Users Worldwide," Wired, July 2001, page 76.
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2013 The 10 top technology companies
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Apple, Inc., United States – $156.5 billion
Samsung Electronics, South Korea – $149 billion
Hewlett Packard, United States – $120.35 billion
Foxconn, Taiwan – $117.51 billion
IBM, United States – $106.91 billion
Panasonic, Japan – $99.65 billion
Toshiba, Japan – $74.39 billion
Microsoft, United States – $73.72 billion
Sony, Japan – $67.4 billion
Dell, United States – $62.07 billion
http://www.therichest.com/business/the-top-ten-tech-companies-in-the-world/
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Information Technology as Strategic Tool

Modern business is


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Extremely competitive
Changing at an accelerating rate
Impossible to keep current manually
Information technology infrastructure


Essential
A strategic resource
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