Chapter 14 E-Commerce Strategy and Global EC

Learning Objectives Describe the strategic planning process. Describe the purpose and content of a business plan. Understand how e-commerce impacts the strategic planning process. Understand how to formulate, justify, and prioritize EC applications. Describe strategy implementation and assessment, including the use of metrics. Evaluate the issues involved in global EC. Analyze the impact of EC on small and medium-sized businesses.

Planning is everything ... Vision develop Customers, market, competition guide Strategy create Tactic Knowledge ---> Intelligence ---> Wisdom Attention economy: Time and attention are the scarcest resource. The completion for available attention is heating up; investing it wisely became a competence of increasing value. Only wisdom can guide effective decisions on how we invest our attention. Experience economy: Today’s customers are looking for more than products/services; they want to have a memorable experience of buying and using them for achieving their aspirations. One of the largest buying powers in the US, “cultural creative” value transformation higher than other types of market offers. Products, Services N

14.1 Organizational Strategy: Concepts and 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 strong decisions about what not to do

Organizational Strategy (cont.) Profitability and economic value is determined by establishing a unique value proposition Strategy is focused on questions about: organizational fit profitability value Value proposition: The benefit that a company’s products or services provide to customers; the consumer need that is being fulfilled

Organizational Strategy: Concepts and Overview Strategy and the Web Environment e-commerce strategy (e-strategy) The formulation and execution of a vision of how a new or existing company intends to do business electronically

Organizational Strategy: Concepts and Overview Strategy and the Web Environment strategic information systems planning (SISP) A process for developing a strategy and plans for aligning information systems (including e-commerce applications) with the business strategies of an organization

Organizational Strategy Exhibit 14.1 The Strategic planning Process Strategy Initiation (section 14.4) Strategy Assessment (section 14.7) Strategy Formulation (section 14.5) Strategy Implementation (section 14.6)

Systems Development Life Cycle (SDLC) Systems Investigation Product: Feasibility Study Understand the Business Problem or Opportunity Systems Analysis Product: Functional Requirements Develop an Information System Solution Systems Design Product: System Specifications The traditional information systems development cycle is based upon the stages in the systems approach to problem solving, where each step is interdependent on the previous step: Systems Investigation. This stage may begin with a formal information systems planning process to help sort out choices from many opportunities. Typically, due to the expense associated with information systems development this stage includes a cost/benefit analysis as part of a feasibility study. Systems Analysis. This stage includes an analysis of the information needs of end users, the organizational environment, and any system currently used to develop the functional requirements of a new system. Systems Design. This stage develops specifications for the hardware, software, people, network, and data resources of the system. The information products the system is expected to produce are also designated. Systems Implementation. Here the organization develops or acquires the hardware and software needed to implement the system design. Testing of the system and training of people to operate and use the system are also part of this stage. Finally, the organization converts to the new system. Systems Maintenance. In this stage, management uses a postimplementation review process to monitor, evaluate, and modify the system as needed. Implement the Information System Solution Systems Implementation Product: Operational System Systems Maintenance Product: Improved System

Strategic planning process Strategy initiation: The initial phase of strategic planning in which the organization examines itself and its environment Value proposition: The benefit that a company’s products or services provide to customers; the consumer need that is being fulfilled

… IT Role? Value propositions fulfill Strategic intent Strategy competition structure/ culture Essentials for a Successful Enterprise Value propositions 1. Business model Business landscape Internal/ External Consistent fulfill 2. Core competencies Strategic intent future positioning Finance Management Process H/R Technology … Analysis (Porter, SWOT) Strategy Positioning Corporate strategy Business strategy Functional strategy Positioning on product/market Differentiation/choice of competitive advantage Competitive posture Industry characteristics， Market growth， Demand characteristics， Barrier of entry，etc. Business model is a means (way)of creating business value. -- In order to be successful and prosperous for a company, it should have a suitable, profitable model within its industry and business. Business landscape is the relationships (pos. and negative) among the members of value chain and/or value net. Strategic intent is the “future positioning” of an enterprise Differentiation (BPR, Benchmarking, Best Practices): KSF - K_Survival_F - Strategic convergence - KSF -- competitive advantage, sustainability, imitability Competitive posture: collaboration or competition based on 产业特性, 市场的增长率，需求特性，进入障碍，等 3. Execution IT Role? N

Strategic planning process (cont.) Outcomes from strategy initiation phase Company analysis (including value proposition) Core competencies Forecasts Competitor (industry) analysis Company analysis (including value proposition) -- include the vision, purpose, value proposition, capabilities, constraints, strengths, and weaknesses of the company Core competencies -- it refers to the unique combination of the resources and experiences of a particular firm Forecasts Competitor (industry) analysis -- SWOT

Strategic planning process (cont.) 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 and outcomes from strategy formulation phase: Business opportunities Cost-benefit analysis Risk analysis, assessment, and management

Strategic planning process (cont.) 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: Business planning Resource allocation Project management

Strategic planning process (cont.) Strategy assessment: The continuous evaluation of progress toward the organization’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

Strategic planning tools 1. SWOT analysis: A methodology that surveys external opportunities and threats and relates them to internal strengths and weaknesses Weaknesses Opportunities Threats Strengths

Strategic planning tools (cont.) 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

Strategic planning tools (cont.) 4. Balanced scorecard: An adaptive tool that assesses organizational progress toward strategic goals by measuring performance in a number of different areas 5. (extra) Return on investment (ROI): A ratio of required costs and perceived benefits of a project or an application

showing the 4 P’s of a Marketing Mix A Marketing Strategy – showing the 4 P’s of a Marketing Mix Product Place C Price Promotion Q: ask students how to sell (promote) a new product. Then try to direct the answers cover this 4P’s Summary Overview (Exhibit 2-8) Production and marketing work together to create utility: the power to satisfy human needs. There are five kinds of economic utility. Key Issues Form utility: provided when someone produces something tangible. Task utility: provided when someone performs a task for someone else. Time utility: having the product available when the customer wants it. Place utility: having the product available where the customer wants it. Discussion Question: Can you think of examples of businesses that excel in providing time and place utility? Possession utility: obtaining a good or service and the right to use or consume it.

Overview of Marketing Strategy Planning Process Narrowing down to focused strategy with quantitative and qualitative screening criteria Customers Needs and other Segmenting Dimensions Place Product Price Promotion C S. W. O. T. Segmentation & Targeting Company Objectives & Resources Segmentation & Positioning Summary Overview (P;Exhibit 3-1) In contrast to micro-marketing, macro-marketing’s emphasis is on how the whole marketing system works. Key Issues Every economy needs a macro-marketing system, because: every consumer has a different set of needs; variation exists among the types of producers that can meet needs; system must efficiently match consumers and producers. Macro marketing systems should be effective and fair, based on the perceptions of people in that particular economy. Discussion Question: Which countries’ macro-marketing systems might be viewed by Americans as unfair or ineffective? Which countries’ citizens might think that the American macro-marketing system is unfair or ineffective? Try to think of specific mismatches between customer needs and the outputs of producers. Competitors Current & Prospective External Market Environment Technologies Political and Legal Cultural and Social Economic

14.2 Business Planning in E-Commerce A written document that identifies the company’s goals and outlines how the company intends to achieve those goals

Business Planning in E-Commerce Outline of a business plan Executive Summary Business Description Operations Plan Financial Plan Marketing Plan Competitor Analysis

Business Planning in E-Commerce Business Plan Fundamentals Purposes for business plan To acquire funding To acquire nonfinancial resources To obtain a realistic approach to the business business case A business plan for a new initiative or large, new project inside an existing organization

14.3 E-Commerce Strategy: Concepts and Overview

IT Planning: The Relationship Between Business, IS, and IT Strategies Business Strategy Business Decisions Objectives and Direction Change IT Impact and potential Where is the business going and why Supports business Direction for business IS Strategy What is required Business Based Demand Orientated Application Focused Infrastructure And services Needs and priorities IT Strategy How it can be delivered Activity Based Supply Orientated Technology Focused

14.4 E-Strategy Initiation Issues in E-Strategy Initiation Be a First Mover or a Follower? Born-on-the-Net or Move-to-the-Net? Determining Scope Have a Separate Online Company? Have a Separate Online Brand?

When to Perform Activities First Movers Advantages Disadvantages Build brand recognition Control scarce resources Establish networks Early Economies-of-Scale Newer technology Higher development costs Reverse engineering by competitors

Winners vs. Losers What separates winners from losers in creating (ultimate) strategic competitive advantage is neither bleeding-edge technology nor “timing for market entry.” It is from “value innovation” utility align Value Innovation Firm Winners and Losers (p.13) What separates winners from losers in creating blue oceans is neither bleeding-edge technology nor “timing for market entry.” Sometimes these exist; more often, however, they do not. Value innovation occurs only when companies align innovation with utility (usefulness), price, and cost positions. If they fail to anchor innovation with value in this way, technology innovators and market pioneers often lay the eggs that other companies hatch. Innovation price cost

14.5 E-Strategy Formulation Selecting EC Opportunities Incorrect approaches to EC strategy selection: Indiscriminately funding many projects and hoping for a few winners Betting it all in a single, high-stakes initiative “Trend-surfing” Productive approaches to EC strategy selection Problem-driven strategy Technology-driven strategy Market-driven strategy E-business maturity model

E-Strategy Formulation Determining an Appropriate EC Application Portfolio Mix The BCG model An Internet portfolio map for selecting applications

E-Strategy Formulation Exhibit 14.6 Internet Portfolio Map High Sell project Adopt project Viability of Project Reject project Redesign project Source: Reprinted by permission of Harvard Business Review. From “Finally, a way to Put Your Internet Portfolio I n Order.” by A. K. Tjan. Harvard Business Review, 2001. 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 Low Company Fit High

E-Strategy Formulation Risk Analysis and Management e-commerce (EC) risk The likelihood that a negative outcome will occur in the course of developing and operating an electronic commerce strategy Security issues

E-Strategy Formulation Issues in Strategy Formulation How to handle channel conflict How to handle conflict between the off-line and online businesses Pricing strategy 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

14.6 E-Strategy Implementation Create a Web Team project champion The person who ensures the EC project gets the time, attention, and resources required and defends the project from detractors at all times Start with a Pilot Project Allocate Resources Manage the Project

14.6 E-Strategy Implementation Strategy Implementation Issues Application development Partners’ strategy outsourcing The use of an external vendor to provide all or part of the products and services that could be provided internally

EC Strategy Implementation Issues (cont.) 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 Two drivers focus on core business value shareholder

When to Outsourcing? Which IS activities are strategic to our company's business? Will outsourcing save us at least 15 percent? Does our firm have access to the needed technology and expertise? If not, outsourcing may be the answer to acquiring these resources. Does outsourcing increase our firm's flexibility? Does outsourcing increase our firm's flexibility? Outsourcing shifts capital budgets to operating expenses, which can give a firm more financial flexibility. Furthermore, outsourcing may free up personnel to work on new systems, while the outsourcer maintains the existing ones. Also, it can increase the firm's flexibility for acquiring new technologies sooner. Outsourcing is an important question facing today's IS executives. There are four activities that management should not outsource: strategy, the architecture of the system, the decisions about when to introduce IS into the organization, and management of the vendor. Dr. Chen, Managing IT Reos. Thru Strategic Partnerships; A Portoflio Approach to IT Development TM -37

Going Offshore for IS Development When the MIS organization uses contractor services, or even builds its own data center in a distant land, it is engaged in offshoring, which is short for outsourcing offshore. The types of tasks that are outsourced are usually those that can be well-specified; however, nowadays, the functions sent offshore range from routine IT transactions to increasingly higher end, knowledge-based processes. Countries such as India, the Philippines, etc, offer “offshoring”, an alternative to in-house systems development It raises the issue of what to send offshore, and what to keep within your enterprise MIS organization. When the MIS organization uses contractor services, or even builds its own data center in a distant land, it is engaged in offshoring, which is short for outsourcing offshore. Many Indian enterprises, for example, are well known for their use of the Capability Maturity Model (CMM) Level 5 software development processes, making them extremely reliable, and ultimately desirable as vendors. Level 1 means that software development processes are immature, bordering on chaotic. Few processes are formally defined, and output is highly inconsistent. Virtual work also raises the specter of offshoring, or foreign outsourcing of software development and computer services.

Decisions on Outsourcing Strategic Grid for Decisions on Outsourcing Strategic Importance Y N Y Competitive Advantage N

Decisions on Outsourcing Strategic Grid for Decisions on Outsourcing Strategic Importance Y N Insourcing Leverage (K-How to partners) Y Competitive Advantage Strategic Alliance Outsourcing N

Summary: Factors driving outsourcing Cost savings Qualified IT staff are difficult to find and retain By bringing in outside expertise, management needs to focus less on IS operations and more on the information itself. Outsourcers are specialists, should understand how to manage IS staff more effectively. Outsourcers may have larger IS resources that provide greater capacity on demand. Outsourcing can help a company overcome inertia to consolidate data centers that could not be consolidated by an internal group, or following a merger or acquisition.

E-Strategy Implementation Business alliances and virtual corporations virtual corporation (VC) An organization composed of several business partners sharing costs and resources for the production or utilization 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

EC Strategy Implementation Issues (cont.) A Virtual Corporation (VC) is an Organization Composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies.

VIRTUAL ORGANIZATION MANUFACTURING COMPANY DESIGN COMPANY CORE COMPANY SALES & MARKETING COMPANY LOGISTICS COMPANY FINANCE COMPANY “Virtual corporations” - organizations comprising many small, independent agents (or firms) serving as nodes on an information network, thereby allowing small, entrepreneurial units to achieve dramatic increases in scope and scale. A Virtual Company is an Organization composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies. (Excellence, Adaptability, Borderless, Opportunism, Technology, Trust-Based) Such arrangements challenge both our legal and social definitions of an organization. Just as IT has radically altered how we view the relationships between firms, it also challenges our notion of relationships within them -- telework, telcommute creates (conditions) IT -----------------------> Changes ----------------------> manages (as a tool) (p.352) N TM -44

Characteristics of Virtual Corporations Excellence Borderless Adaptability Six Characteristics of Virtual Companies Utilization: Resources of the individual business partners are frequently underutilized. A VC can utilize them more profitably. “Virtual corporations” - organizations comprising many small, independent agents (or firms) serving as nodes on an information network, thereby allowing small, entrepreneurial units to achieve dramatic increases in scope and scale. A Virtual Company is an Organization composed of several Business Partners that Uses Information Technology to Link/Share People, Assets, Ideas, Costs, and Resources for the purpose of producing a product or service. Virtual Companies are Adaptable and Opportunity- Exploiting Organizations Providing World-Class Excellence in Their Competencies and Technologies. (Excellence, Adaptability, Borderless, Opportunism, Technology, Trust-Based) Such arrangements challenge both our legal and social definitions of an organization. Just as IT has radically altered how we view the relationships between firms, it also challenges our notion of relationships within them -- telework, telcommute creates (conditions) IT -----------------------> Changes ----------------------> manages (as a tool) (p.352) Opportunism Trust-Based Technology Utilization N

E-Strategy Implementation Redesigning business processes business process reengineering (BPR) A methodology for conducting a comprehensive redesign of an enterprise’s processes

E-Strategy Implementation business process management (BPM) Method for business restructuring that combines workflow systems and redesign methods; covers three process categories—people-to-people, systems-to-systems, and systems-to-people interactions

14.7 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 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

E-Strategy and Project Assessment Measuring Results and Using Metrics metric A specific, measurable standard against which actual performance is compared corporate (business) performance management (CPM, BPM) Advanced performance measuring and analysis approach that embraces planning and strategy

E-Strategy and Project Assessment

E-Strategy and Project Assessment Web analytics The analysis of clickstream data to understand visitor behavior on a Web site

Define goals and value proposition Exhibit 14.8 Blueprint of the Performance Dashboard (P.664) Step One: Articulate Business Strategy Step Two: Translate Strategy Into Desired Outcome Step Three: Devise Metrics Step Four: Link Metrics to leading And lagging indicators Step Five: Calculate Current and Target Performance Market opportunity Opportunity Competitive environment Market Opportunity Market size and growth Average age and income Competitor concentration Business Model Unique value proportion? Capabilities vs. competition Business Model Customer perceived benefit Exclusive partnerships $ invested in technology vs. competition For each metric, determine the metrics that it affects and that affect it. Map the linked set of Metrics, indicating leading and lagging indicators. Ensure that there is a balance between indicator. For each metric, calculate the level of performance. Determine target level required to meet outcomes described in Step Two. Ensure that target are consistent with each other. Implementing and Branding How to develop brand? How to go to market? Implementation Customer brand awareness System uptime percentage Number of IT staff % inaccurate orders Define goals and value proposition Develop resource system required to deliver the strategy Source: Rayport, J., and B. J. Jaworski. Introduction to E-Commerce. Boston: McGraw-Hill, 2002. Copyright © McGraw-Hill companies, Inc. Customer How to acquire customers? How will customers change? How to improve the customer experience? Customer Market share Purchase/year Success rate Service requests/customers Financial Financial consequences in terms of revenue, profit, cost, and balance sheet? Financial Revenue Profit Earning per share Debt to equity ratio

14.8 Global E-Commerce Benefits and Extent of Operations The major advantage of EC is the ability to do business at any time, from anywhere, and at a reasonable cost

Global E-Commerce Barriers to Global EC Cultural issues Culture and language translation Administrative issues Geographic issues and localization Economic issues

Global E-Commerce Breaking Down the Barriers to Global EC Be strategic Know your audience Localize Think globally, act consistently Value the human touch Clarify, document, explain Offer services that reduce barriers

E-Commerce in Small and Medium-Sized Enterprises Advantages and Benefits of EC to Small and Medium-Sized Enterprises Inexpensive sources of information Inexpensive ways of advertising and conducting market research Competitor analysis is easier Inexpensive ways to build storefronts Less locked into legacy technologies Image and public recognition can be generated quickly An opportunity to reach worldwide customers

14.9 E-Commerce in Small and Medium-Sized Enterprises Disadvantages and Risks of EC to Small and Medium-Sized Enterprises Lack of financial resources to fully exploit the Web Lack of technical staff or insufficient expertise in legal issues, advertising, etc. Less risk tolerance than a large company. Products not suitable for online sales Reduced personal contact with customers Inability to afford the advantages of digital exchanges

E-Commerce in Small and Medium-Sized Enterprises Critical Success Factors for SMES Product is critical Payment methods must be flexible Electronic payments must be secure Capital investment should be kept to a minimum Inventory control is crucial Logistics services must be quick and reliable

E-Commerce in Small and Medium-Sized Enterprises Critical Success Factors for SMES Owner support High visibility on the Internet Join an online community A Web site should provide all the services needed by consumers Supporting SMES Government agencies Vendor service centers

The Key to successful business on the Internet ... The key to successful business on the Internet is not the formulation of a conceptual strategy but the execution of that strategy - the content owners must buy into the strategy and have the confidence of senior executives, often the decisions the content owners make may have serious consequences to the organization and its strategy Buy-in and open discussions are keys to success Robert Plant, eCommerce: Formulation of Strategy, pp.67, 1999, Prentice Hall

Ownership Issues E-centric Structure + = Success Content Content alone is not sufficient for success Successes come from a balanced business model that involves each business area content provider contributing to the overall business model. Content is Knowledge, Knowledge is Power Content is Knowledge, Knowledge is Power. N

Managerial Issues What is the strategic value of EC to the organization? Who determines EC strategy? What are the benefits and risks of EC? Why do we need a plan? What metrics should we use?

Managerial Issues What staffing is required? How can we go global? Should the dot-com activities be spun off as a separate company? Can we learn to love smallness? Is e-business always beneficial?