1 Dickson K.W. Chiu PhD, SMIEEE, SMACM, Life MHKCS Jelassi & EndersJelassi & Enders: Chapter 3-4 COMP7880: E-Business Strategies Internal and External Analysis

Focus of this course 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 Study tips - whenever mentioning something to be done, think: How IT helps? 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

COMP7880-I/E-5 Business Example – SME Computer Assembly Simplified main business process of the company. Sub-process

External Analysis Examine your opportunities & threats COMP7880-I/E-6

COMP7880-I/E-7 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

COMP7880-I/E-8 Organizations as Open Systems Environment Organization Inputs ProcessesOutputs Resources: Physical Capital Human Information Organization Functions: Production-Operations Marketing Financial-Accounting Human Resource Mgt. Research and Development Information Systems Managerial Activities: Planning Organization Leading Controlling Goods Services Performance Measures: Financial Productivity Achieve Goal

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-9

COMP7880-I/E-10 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-11 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-12 General Environment - Sociocultural Sociocultural Country's culture Society's Traditions Values Attitudes Beliefs Tastes Patterns of behavior

COMP7880-I/E-13 General Environment – Political-Legal Political-Legal Federal, state, and local Laws Regulations Judicial decisions Political forces

COMP7880-I/E-14 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-15

Rivalry among existing competitors Bargaining power of suppliers Bargaining power of channels and end users Threat of substitute products or services Barriers to entry (–) Reduces barriers to entry such as the need for a sales force, access to channels and physical assets. (–) Internet applications are difficult to keep proprietary from new entrants. (–) A flood of new entrants has come into many new industries. (+) Eliminates (–) Shifts powerful bargaining channels or power to improves consumers. bargaining (–) Reduces power over switching traditional costs. channels. (–) Reduces differences among competitors as offerings are difficult to keep proprietary. (–) Migrates competition to price. (–) Widens the geographic market, increasing the number of competitors. (–) Lowers variable cost relative to fixed cost, increasing pressure for price discounting. (+/–) Procurement using the Internet tends to raise bargaining power over suppliers, though it can also give suppliers access to more customers. (–) The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening companies. (–) Internet procurement and digital markets tend to give all companies equal access to suppliers, and gravitate procurement to standardised products that reduce differentiation. (–) Reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers. (+) By making the overall industry more efficient, the Internet can expand the size of the market. (–) The proliferation of Internet approaches creates new substitution threats. Source: Reprinted from M. Porter (2001) Internet’s impact on the 5 forces COMP7880-I/E-16

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-17

COMP7880-I/E-18 Responsibilities for External Analysis at Different Managerial Levels Lower Level Managers/Supervisors Observe and interact Collect and consolidate Middle Managers Coordinate Share with organizational units Gatherer and disseminator Monitor general environmental sectors Make needed strategic changes Upper Management Evaluate opportunities and threats

COMP7880-I/E-19 Benefits of Doing An External Analysis Proactive managers anticipate change and plan accordingly Provide information for Planning Decision making Strategy formulation Acquire and control needed resources Cope effectively with increasingly dynamic environment Make a difference with higher performance

COMP7880-I/E-20 Challenges of Doing an External Analysis Rapid environmental changes are difficult to keep up with => IT helps Amount of time that analysis can consume => IT helps Forecasts and trend analysis are not actual fact  Discussion: How IT Helps?

Internal Analysis Examine your strength & weakness COMP7880-I/E-21

COMP7880-I/E-22 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-23 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-24 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-25 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-26

COMP7880-I/E-27 The Role of Strengths and Weaknesses Strengths: Resources that an organization possesses and capabilities that an organization has developed. Both can be exploited and developed into a sustainable competitive advantage Weaknesses: Resources and capabilities that are lacking or deficient. Prevent an organization from developing a sustainable competitive advantage

COMP7880-I/E-28 How to do an internal analysis – Capabilities Assessment Profile Complex Analysis of Capabilities  Not as easily identifiable as organizational functions  Hard for competitors to imitate Two-phased Capability Assessment  Phase I: Identify distinctive capabilities  Phase II: Develop and leverage these distinctive capabilities

COMP7880-I/E-29 Identifying Distinctive Organizational Capabilities Step 1 Step 2 Step 3 Step 4 Step 5 Prepare current product-market profile. Identify sources of competitive advantage and disadvantage in the main product-market segments. Describe all the organizational capabilities and competencies. Sort the core capabilities and competencies according to strategic importance. Identify and agree on the key capabilities and competencies.

COMP7880-I/E-30 Criteria to Judge Organizational Strengths and Weaknesses Are organizational resources and capabilities strengths or weaknesses? Past Performance Trends Specific Goals or Targets Comparison Against Competitors Personal Opinions of Strategic Decision Makers or Consultants

Inbound logistics Demand and supply processes Service processes New product development processes Etc. Core competence approach cuts across different functional areas OperationsOutbound Logistics Marketing / Sales After-sales services COMP7880-I/E-31

Criteria used when including specific activities in a company analysis Display different economics Provide high differentiation potential Present sizeable costs These are activities that can greatly increase tangible and intangible consumer benefits, such as product and service quality, convenience and reputation. These are activities that add significantly to the overall cost structure of the firm. For instance, the development activity of a new software program displays very large economies of scale since the software can be replicated at a negligible cost. Source: See M. Porter (1998). COMP7880-I/E-32

Inbound logistics Operations Outbound logistics Marketing and sales After- sales services Firm infrastructure Human resource management Technology development Procurement Primary activities Support activities Source: Adapted from M. Porter (1998) Value chain analysis: distinct value-adding activities COMP7880-I/E-33

Web-distributed supply chain management Firm Infrastructure Web-based, distributed financial and ERP systems On-line investor relations (e.g. information dissemination, broadcast conference calls) Human resource management Self-service personnel and benefits administration Web-based training Internet-based sharing and dissemination of company information Technology development Collaborative product design across locations and among multiple value-system participants Knowledge directories accessible from all parts of the organisation Real-time access by R&D to online sales and service information Procurement Internet-enabled demand planning Other linkage of purchase, inventory, and forecasting systems with suppliers Direct and indirect procurement via marketplaces, auctions and buyer-seller matching How the Internet impacts all activities in value chain (Support Activities) Source: Reprinted from M. Porter (2001) COMP7880-I/E-34

Inbound logistics Real-time integrated scheduling, shipping, warehouse management, demand management & planning, and advanced planning & scheduling across the company and its suppliers Dissemination through out the company of real-time inbound and in-progress inventory data Operations Integrated infor- mation exchange, scheduling and decision making in in-house plants and components suppliers Outbound logistics Real-time transaction of orders Automated customer- specific agreements and contract terms Customer and channel access to product development and delivery status Collaborative integration with customer forecasting systems Integrated channel management Marketing and sales Online sales channels including web sites and marketplaces Real-time inside and outside access to customer information, product catalogues, dynamic pricing, inventory availability, online submission of quotes, and order entry Online product configurators Customer-tailored marketing via customer profiling After-sales service Online support of customer service representatives Customer self- service via websites and intelligent service request processing Real-time field service, access to customer account review, work-order update, etc. Web-distributed supply chain management Source: Reprinted from M. Porter (2001) How the Internet impacts all activities in value chain (Primary Activities) COMP7880-I/E-35

New customers New products New services Physical value chain Data Etc. Customer identification Purchasing process Logistics Etc. Customer identification information Purchasing information Logistics information Virtual value chain New markets Data Gather Organize Select Synthesize Distribute Source: Adapted from A. Enders and T. Jelassi (2006), pp. 31–44. Virtual vs physical value chain: Developing new markets Decision Support / Knowledge COMP7880-I/E-36

Virtual Transaction space Virtual Distribution space Virtual Information space Virtual Communication space Traditional marketplace The market space Source: Adapted from A. Angehrn (1997), pp ICDT model: Using the Internet in the virtual market space COMP7880-I/E-37

Inbound logistics Core value chain activities Value chain integrators Manufacturing Admin., e.g. travel Finance Human resources Admin., e.g. travel Suppliers Buy-side intermediaries Fulfilment Sell-side intermediaries Strategic core value chain partners Non-strategic service partners Upstream value chain partners Downstream value chain partners Source: Adapted from D. Chaffey (2007), p.282 The value network of partners with differing functions COMP7880-I/E-38

Segmentation Choose your favorable environment COMP7880-I/E-39

Business-to-consumer (e.g. Ducati.com) Consumer-to- consumer (e.g. ebay) Peer-to-peer (e.g. Napster) Citizen-to-citizen (French presidential election 2007) Consumer-to- business (e.g. Amazon.com) Business-to-busines (e.g. Covisint.com) Government-to- citizen (e.g. information about pension statements of citizens) Government-to- business (e.g. information about most recent legal regulations) Citizen -to-government (e.g. online tax return forms) Business-to- government (e.g. online filing of corporate tax returns) Government-to- government (e.g. exchange of diplomatic information) Supplier/ provider Buyer/recipient Consumer/peer/citizen Business Government Consumer/peer/citizenBusinessGovernment e-business market review : a segmentation scheme COMP7880-I/E-40

Segmentation method Measurable Substantial Differentiable Actionable A segment should be large enough to justify that it is addressed separately It should be possible to develop sales and marketing approaches to serve specific segments. The segments must be exclusive and react differently to a variety of marketing approaches It should be possible to measure the size of a defined segment in order to determine its purchasing power and its peculiar characteristics Source: Kotler, (2005).

Demographic segmentation Segmentation type Age, gender, income, life style Psychographic segmentation Personality type and personal interests (e.g. cash-rich, time-poor) Behavioural segmentation Purchasing frequency, usage patterns, etc. Criteria to be considered Geographic segmentation Geographic regions (e.g. continents, countries, states) Segmentation variables are the basis for strategic customer analysis Source: Kotler (2005). COMP7880-I/E-42

P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 P1P1 P2P2 P3P3 M1M1 M2M2 M3M3 Number of market segments served (scale) Number of different products and services offered (scope) FewMany Few Many Full market coverage (e.g. Nordea Bank, Amazon.com, Tesco.com) Product specialisation (e.g. Spreadshirt Selective specialisation, (e.g. Bertelsmann) Market specialisation (e.g. ING DIRECT) Single segment concentration (e.g. Ducati, Porsche) P = Product M = Market Source: Adapted from D. Abell (1977); “Strategy and Structure: Public Policy Implications” in Proceedings of Marketing and the Public Interest. Cambridge, Mass.: Marketing Science Institute. Target-market selection COMP7880-I/E-43