Chapter 4 The Business Environment
Copyright © 2003, Addison-Wesley Profit, ROI, and Risk Profit = revenue – cost Enhance profit by: Increasing revenue Reducing cost Ultimate source of investment funds Source of return on investment 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 Competitive Advantage: An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers than its competition. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage. There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers.
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 Competitive Advantage Big Bang Disruptors: Tom Tom Garmin Magellan Block Buster West Coast Video
Copyright © 2003, Addison-Wesley Figure 4.3 The value chain. Conflicting objectives Local process efficiency Organization-wide efficiency
Copyright © 2003, Addison-Wesley The value chain
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 Figure 4.4 The supply chain. Conflicting objectives again Company vs. company
Copyright © 2003, Addison-Wesley E-Commerce Business Environment Low cost of entry Global reach Huge potential markets Intense competition
Copyright © 2003, Addison-Wesley Figure 4.5 The three categories form an integrated structure. Integration is the future of e-commerce.
Copyright © 2003, Addison-Wesley Figure 4.6 The three categories are applications that communicate with each other via the infrastructure. Another way to view integration
Copyright © 2003, Addison-Wesley Figure 4.7 A B2C transaction and a supply chain purchasing transaction are similar. Supply chain links value chains Categories somewhat arbitrary Categories are a model
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 Pure profit
Copyright © 2003, Addison-Wesley Intermediaries An intermediary is a middleman Disintermediation Eliminating the middleman Sometimes claimed as e-commerce benefit Reintermediation New middlemen replace the old ones An e-commerce reality
Copyright © 2003, Addison-Wesley Figure 4.8 Intermediaries. Intermediaries provide services that lie off the value chain.
Copyright © 2003, Addison-Wesley Figure 4.9 Some intermediaries.
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 4.10 A manuscript page. Created by the authors Florida Ohio MS Word
Copyright © 2003, Addison-Wesley Figure 4.11 Rough art. Created by the authors Florida Ohio Visio
Copyright © 2003, Addison-Wesley Figure 4.12 A copy edited page Copy editor in Massachusetts MS Word
Copyright © 2003, Addison-Wesley Figure 4.13 A finished page. Paging done in Massachusetts Adobe Acrobat All electronic communication
Copyright © 2003, Addison-Wesley Figure 4.14 Bots. Bot is an intelligent agent Increases customer power Source:
Copyright © 2003, Addison-Wesley Figure 4.15 The competitive advantage model. The two yellow boxes represent activities that happen simultaneously.
Copyright © 2003, Addison-Wesley
Figure 4.16 Time for technologies to reach 50 million users. Note the acceleration!
Copyright © 2003, Addison-Wesley Figure 4.17 The accelerating pace of innovation. Textbook 1980—36 months 2000—21 months Lose 40% of competitive advantage Rapid obsolescence Time to market is key Delay means lost opportunity
Copyright © 2003, Addison-Wesley User Adoption of Technology
Copyright © 2003, Addison-Wesley User Adoption of Technology
Copyright © 2003, Addison-Wesley Gartner Hype Cycle
Copyright © 2003, Addison-Wesley Selected Technology Milestones Over the Past Forty Years Source Gartner
Copyright © 2003, Addison-Wesley Evolving E-Commerce Business Strategies Danger—everything becomes a commodity Frictionless e-commerce No competitive advantage for anyone Brand name matters more than ever Brand name reduces perceived risk Bricks-and-clicks strategy Reduced cycle time is a key objective Reduce time to market React quickly to change
Copyright © 2003, Addison-Wesley Figure 4.18 The 20 top technology-related brand names in the US. This list is from 2001 How would it change today?
Copyright © 2003, Addison-Wesley 2013 The 10 top technology companies 1. Apple, Inc., United States – $156.5 billion 2. Samsung Electronics, South Korea – $149 billion 3. Hewlett Packard, United States – $ billion 4. Foxconn, Taiwan – $ billion 5. IBM, United States – $ billion 6. Panasonic, Japan – $99.65 billion 7. Toshiba, Japan – $74.39 billion 8. Microsoft, United States – $73.72 billion 9. Sony, Japan – $67.4 billion 10. Dell, United States – $62.07 billion
Copyright © 2003, Addison-Wesley Information Technology as Strategic Tool Modern business is Extremely competitive Changing at an accelerating rate Impossible to keep current manually Information technology infrastructure Essential A strategic resource