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

C.S.: Lonely Planet Travels from Place to Space Independent travelers use Lonely Planet guidebook to 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: 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

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

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

C.S.: Lonely Planet Travels from Place to Space Online LP launched these initiatives: 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

knowledge 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 knowledge

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

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

Strategy: 5.1: Organisational Strategy: Concepts & Overview 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.

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: 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

5.1: Organisational Strategy Exhibit 14.2: The Strategic Planning Process The process of strategy according to Tjan (2001): Initiation Formulation Implementation Assessment

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

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 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?

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

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

Strengths S W O T Weaknesses Opportunities 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 Strengths Weaknesses S W O T Opportunities Threats

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

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

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).

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.

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 e-commerce 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.

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)

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

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

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

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.

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

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

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: market value potential time to positive cash flow time to implementation funding requirements Fit is evaluated by metrics: alignment with core capabilities alignment with other company initiatives fit with organisational structure ease of technical implementation

Exhibit 14.7 Internet Portfolio Map 5.3: EC Strategy Formulation Internet portfolio map: 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

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: Competitive risk Transition risk Customer-induced risk Business partner risk

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

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.

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

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 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

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]

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

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

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?

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

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

5.4: Example Partnership and Alliances Bank payment MasterCard Clearance Credit card Sales Information Systems coordination contents Shipping transport tracking order Distributor inventory deliver deliver DHL INGRAM BOOK GROUP returns order sales Customer buy content Affiliate sales sales critics Author marketing JoinAssociates

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

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.

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.

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

5.5: E-Strategy and Project Assessment Axon Computertime metrics implementation obtained results in: 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.

Benefits and extent of operations 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 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)

C A G E 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 C A G E

Breaking down the barriers to global EC 5.6: Global E-Commerce Breaking down the barriers to global EC Be strategic Know your audience Localise Think globally, act consistently Value the human touch Clarify, document, explain Offer services that reduce barriers

5.7: EC in Small and Medium-Sized Enterprises SMEs moved onto the Web because they realised there were opportunities in: 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.

5.7: EC in Small and Medium-Sized Enterprises Critical Success Factors for SMEs: 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

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

Managerial Issues 1. What is the strategic value of EC to the organisation? 2. What are the benefits and risks of EC? 3. What metrics should we use? 4. What staffing is required? 5. How can we go global? 6. Can we learn to love smallness? 7. Is e-business is always beneficial?