Chapter 4 The Business Environment
Copyright © 2003, Addison-Wesley The Bottom Line Enron and some others failed because it did not follow the rules Most Dot-Coms failed because they did not understand the rules or because they assumed that the “new” economy had changed the rules Technology changes. Economic laws do not.
Copyright © 2003, Addison-Wesley Profit, ROI, and Risk Profit = revenue – cost Enhance profit by: Increasing revenue Reducing cost Business investment is risky Higher rate of return required
Copyright © 2003, Addison-Wesley Figure 4.1 The business planning hierarchy. Objective: define long-term direction
Copyright © 2003, Addison-Wesley A Startup Business Plan A.k.a., path to profitability Contents Product Market Competitors Customers Risks Financials
Copyright © 2003, Addison-Wesley Figure 4.2 Elements of a business plan.
Copyright © 2003, Addison-Wesley Competitive Advantage Something that Your company can do Your customers want (or value) Your competitor cannot or will not match Sources of competitive advantage Unique product Price Quality Cost controls and efficiency
Copyright © 2003, Addison-Wesley Conflicting Objectives Process objectives can conflict 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
Copyright © 2003, Addison-Wesley E-Commerce Business Environment Low cost of entry Global reach Huge potential markets Intense competition
Copyright © 2003, Addison-Wesley Digital Products Potential killer applications/services Software Recorded music Digital books Information services Diminishing returns does not apply E-commerce is a digital technology
Copyright © 2003, Addison-Wesley The law of diminishing returns applies to physical products. At some point, unit cost increases with volume.
Copyright © 2003, Addison-Wesley Digital products do not experience diminishing returns. High startup cost First copy Low incremental cost After breakeven Mostly profit
Copyright © 2003, Addison-Wesley Negating Location Geography no longer matters Global competition Example—writing this textbook Participants The authors (Florida and Ohio) The publisher (Boston) Production (New England) Printing and warehousing (Indiana)
Copyright © 2003, Addison-Wesley Figure 4.16 Time for technologies to reach 50 million users. Note the acceleration!