1 Get rich through internet – using E- commence website as an example

NOT how to implement EC / EB functions BUT to ANALYZE the business requirements in the perspective of strategic management FORMULATE suitable business models & strategies CHOOSE suitable IT options (especially Web- based ones) to implement the strategies COMP7880-I/E-2

Strategy options External analysis Internal analysis Sustaining competitive advantage Internal organisation Implementation Exploring new market spaces Interaction with suppliers Interaction with users/customers Creating and capturing value Strategic analysis Strategy implementation E-business strategy Mobile e-commerce strategy 12 Opportunities/ threats Strengths/ weaknesses Our Roadmap Strategy formulation COMP7880-I/E-3

Firm charac- teristics Key environmental/ industry developments OpportunitiesThreats Strengths Weaknesses Do we have the strengths to seize possible opportunities? Do we have the strengths to fend off possible threats? To which threats do our weaknesses expose us to? Which opportunities do we miss because of our deficits? E-business strategy formulation SWOT Analysis COMP7880-I/E-4 External Analysis Internal Analysis

External Analysis Examine your opportunities & threats COMP7880-I/E-5

COMP7880-I/E-6 What is External Analysis? External Analysis Scan and evaluate various external environmental sectors impacting performance Opportunities Positive external environmental trends that improve the organization’s performance Threats Negative external environmental trends that hinder the organization's performance

External Analysis: Impacted by industry and macro-environment Source: Adapted from H. Hungenberg (2006), p. 90. Organization Specific Environment Industry-Competitors Substitute Products Bargaining Power of Suppliers Bargaining Power of Buyers Potential Entrants Current Rivalry General Environment Technological Political-Legal Sociocultural Demographic Economic COMP7880-I/E-7

COMP7880-I/E-8 General Environment - Economic Economic All the macroeconomic data, current statistics, trends, and changes Interest rates Monetary exchange rates Budget deficit-surplus Trade deficit-surplus Inflation rates GNP or GDP Consumer income, spending, and debt levels Unemployment levels Workforce productivity

COMP7880-I/E-9 General Environment - Demographics Demographics Current statistical data and trends in population characteristics Gender Age Income levels Ethnic makeup Education Family composition Geographic location Birth rates Employment status

COMP7880-I/E-10 General Environment - Sociocultural Sociocultural Country's culture Society's Traditions Values Attitudes Beliefs Tastes Patterns of behavior

COMP7880-I/E-11 General Environment – Political-Legal Political-Legal Federal, state, and local Laws Regulations Judicial decisions Political forces

COMP7880-I/E-12 General Environment - Technical Technical Improvements, advancements, and innovations that create opportunities and threats Communications Computing Transportation Manufacturing Robotics Biotechnology Medicine and medical Telecommunications Consumer electronics

Industry competition Potential entrants SuppliersBuyers Substitutes Threat of new entrants Bargaining power of suppliers Threat of substitutes Bargaining power of buyers Rivalry among existing firms Porter’s 5 force model Source: Adapted from M. Porter (1998), p. 4. One assumption of Porter’s five forces model is that some industries are inherently more attractive than others; i.e., the profit potential for companies in that industry is higher. As this figure indicates, the interaction and strength of five forces influences profitability. COMP7880-I/E-13

Competitors Supplier Buyer Complementors Firm Source: Adapted from A. Brandenburger and B. Nalebuff (1998), p. 17 Complementing Porter’s model: Co-opetition value network framework COMP7880-I/E-14

Internal Analysis Examine your strength & weakness COMP7880-I/E-15

COMP7880-I/E-16 What is an Internal Analysis? Looks at the organization’s Vision Mission Strategic objectives Identifies and evaluates resources, capabilities, and core competencies

COMP7880-I/E-17 Hierarchy of Goals Company Vision Massively inspiring Overarching Long-term Driven by and evokes passion Fundamental statement of the organization ’ s Values, Aspiration, Goals E.g., Disneyland: “ To be the Happiest place on earth ” Company vision

COMP7880-I/E-18 Hierarchy of Goals Company vision Mission Statements Purpose of the company Basis of competition and competitive advantages More specific than vision Focused on the means by which the firm will compete E.g., FedEx: “ To produce superior financial returns for our shareholders as we serve our customers with the highest quality transportation, logistics, and e-commerce. ” Mission statements

COMP7880-I/E-19 Hierarchy of Goals Company vision Mission statements Strategic Objectives Operationalize the mission statement Provide guidance on how the organization can fulfill or move toward the “ higher goals ” More specific, a more well-defined time frame, measurable (yardstick for rewards and incentives), consistent with vision and mission, realistic (challenging but doable), timely E.g., P&G: “ Increase sales growth 6% to 8% in each of the next five years ” Strategic objectives

Capabilities The ability to deploy resources by co-ordinating them through Structures Processes Systems Strategic importance Valuable Unique Hard to imitate/ substitute Valuable across different products/markets Build resources Utilize resources e-Business competencies Resources Intangible resources Tangible resources (Equipment, location,...) (Technology, know- how, brand,...) Source: Adapted from H. Hungenberg (2006), p Distinctive e-business competencies: unique resources and capabilities COMP7880-I/E-20

Strategy options External analysis Internal analysis Sustaining competitive advantage Internal organisation Implementation Exploring new market spaces Interaction with suppliers Interaction with users/customers Creating and capturing value Strategic analysis Strategy implementation E-business strategy Mobile e-commerce strategy 12 Opportunities/ threats Strengths/ weaknesses Our Roadmap Strategy formulation COMP7880-SO-21

Differentiation & Price Strategies COMP7880-SO-22

Customer Company Competitors Price/ benefit Cost Source: Adapted from H. Hungenberg (2006), p The strategic triangle – Main drivers of competitive advantage COMP7880-SO-23

Goal of the companyBusiness strategy Provide something unique that is valuable to buyers Provide a product with lowest price Become the cost leader in the industry Differentiation Cost leadership (Cost/price leadership) Unique product with price premium Performance advantage Price advantage Similar product with lower price Competitive advantage Source: Adapted from H. Hungenberg (2006), p generic approaches of competitive advantage COMP7880-SO-24

Achieving cost leadership position Economies of scale Economies of scope Factor costs Learning effects While economies of scale can be realized by increasing the production of one product type, economies of scope result from expanding the variety of products sold using the same assets. Learning effects can lower costs as a firm improves its efficiency over time, thereby reducing slack and wasteful activities. Factor costs represent a crucial cost driver, especially for retailing companies that act as intermediaries. The ability to bargain down input prices, for instance, through bulk purchasing can be an effective lever for lowering costs. The basic concept of economies of scale is that as a firm increases its product output, it decreases its unit production cost.

Sources of differentiation Tangible sources Speed of delivery Convenience Customisation Intangible sources Reputation Brand Product range Quality Tangible and intangible sources of differentiation COMP7880-SO-26

Whole market Market segment (niche) Cost/ price Performance New game Old game Which competitive advantage do we aim for? Where do we want to achieve the competitive advantage? How do we want to achieve the competitive advantage? Source: Adapted from H. Hungenberg (2006), p Strategic gameboard for formulating consistent business strategies COMP7880-SO-27

E-business models COMP7880-SO-28

29 What is a Business Model? Six key questions How do we create value? For whom do we create value? What is our source of competence/ advantage? How do we differentiate ourselves? How do we make money (revenue model)? What are our time, scope, and size ambitions?

30 Typical Business Models in EC Online direct marketing Electronic tendering systems (e.g., reverse auction) Name your own price Affiliate marketing Virtual marketing Group purchasing Online auctions Product and service customization Electronic marketplaces and exchanges Value-chain integrators Value-chain service providers Information brokers Bartering Deep discounting Membership Supply chain improvers

Typical revenue models Tangible goods Web catalog revenue model Taking mail order catalog model to the Web Digital Content Revenue Models Advertising-Supported Revenue Models Subscription Revenue Models Advertising-Subscription Mixed Revenue Models Agency and Services Fee-for-Transaction Models Fee-for-Service Models COMP7880-SO-31

32 Revenue Strategy Issues Channel conflict (or cannibalization) Sales activities on a company’s Web site interfere with existing sales outlets (e.g., Levi Strauss) Channel cooperation Giving customers access to the company’s products through a coordinated presence in all distribution channels (e.g., Staples, Eddie Bauer) Strategic alliance: when two or more companies join forces to undertake an activity over a long period of time Account aggregation services Channel distribution managers (i.e., fulfillment managers): firms that take over the responsibility for a particular product line within a retail context

Strategy options External analysis Internal analysis Sustaining competitive advantage Internal organisation Implementation Exploring new market spaces Interaction with suppliers Interaction with users/customers Creating and capturing value Strategic analysis Strategy implementation E-business strategy Mobile e-commerce strategy 12 Opportunities/ threats Strengths/ weaknesses Our Roadmap Strategy formulation COMP7880-EN-33

Dimensions of benefit Convenience Selection range Value curve of Amazon.com Value curve of traditional bookstores SpeedFace-to-face interaction High Low Performance Price Value curve provides insights into new market spaces Source: Adapted from C. Kim and R. Mauborgne, (1999). COMP7880-EN-34

Value innovations focus on customers rather than competitors Characteristics of conventional and value innovation logic Conventional logicValue innovation logic Assumption Strategic focus Customers Resources Offerings An industry's value curves follow one basic shape. Build a competitive advantage and beat the competition. Retain and expand customer base through segmentation and customization. Focus on the differences. Utilize existing assets and capabilities. Offer the products and services of your industry. New value curves can be shaped that solve traditional trade-offs. Pursue a quantum leap in customer value. Competition is no benchmark. Target the mass of buyers. Let some existing customers willingly go. Focus on key commonalities in what customers value. Ask what we would do if we were starting anew? Offer the total customer solution exceeding industry boundaries. COMP7880-EN-35

Value innovation shifts from head-to-head competition to creating new market Six path framework to create value innovations Head-to-head competitionCreating new market space Focuses on rivals in its industry Focuses on competitive posi- tion within strategic group Focuses on better serving the own buyer group Focuses on maximising value of the industry's products/ services Focuses on improving the given appeal Focuses on adapting to trends as they occur Looks across substitute industries Looks across strategic groups within its industry Redefines the buyer group Looks across complementary offerings beyond the bounds of its industry Rethinks the functional/emo- tional orientation Adopts the results of future trends today Industry Strategic group Buyer group Product scope Appeal Time/trends COMP7880-EN-36