Chapter 5 E-business strategy

Learning outcomes Follow an appropriate strategy process model for e-business Produce and select e-business strategies Outline alternative strategic approaches to achieve e-business goals.

Management issues How does e-business strategy differ from traditional business strategy? How should we integrate e-business strategy with existing business and IS strategy? How should we evaluate our investment priorities and returns from e-business?

Michael Porter on the Internet The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it Porter, M. (2001) Strategy and the Internet, Harvard Business Review, March 2001, 62–78.

Definitions of Strategy What is strategy? A plan of action designed to achieve a particular goal. ‘Defines how we will meet our objectives’ ‘Sets allocation of resources to meet goals’ ‘Selects preferred strategic option to compete within a market’ ‘Provides a long-term plan for the development of the organization’

The imperative for e-business strategy Think about the implications if e-business strategy is not clearly defined. The following may result: Missed opportunities from lack of evaluation of opportunities or insufficient resourcing of e-business initiatives. These will result in more savvy competitors gaining a competitive advantage; Inappropriate direction of e-business strategy (poorly defined objectives, for example, with the wrong emphasis on buy-side or process support)

Limited integration of e-business at a technical level resulting in silos (separate organizational team with distinct responsibilities which does not work in an integrated manner with other teams) of information in different systems. Resource wastage through duplication of e-business development in different functions and limited sharing of best practice. For instance, each business unit or region may develop a separate web site with different suppliers without achieving economies of scale.

Figure 5.1 Different forms of organizational strategy

To help avoid typical problems of implementing e-business in traditional organization, organizations will want e-business strategy to be based on corporate objectives such as which markets to target and targets for revenue generation from electronic channels. It is logical that e-business strategy should support corporate strategy objectives and it should also support functional marketing and supply chain management strategies. However, these corporate objectives should be based on new opportunities and threats related to electronic network adoption.

Sell-side e-commerce strategy (Chapters 8 & 9) Sell-side e-commerce is a channel strategy Objectives for online contribution percentage should drive our strategy Our e-commerce strategy defines how we should Hit our channel leads and sales targets Acquisition, Conversion, Retention, Service, Profitability Communicate benefits of using this channel Prioritize products available through channel Prioritize audiences targeted through channel Select partners for this channel Channel strategy thrives on differentials BUT, need to manage channel integration

Buy-side e-commerce strategy (Chapters 6 & 7) or e-supply chain management strategy Buy-side e-commerce strategy is about maximizing operational efficiencies while improving customer service quality Operational efficiency should drive our strategy Our buy-side e-commerce strategy defines how we should Automate internal processes Link internal resource management systems with external purchasing systems Prioritize suppliers / partners collaborating using this channel Prioritize applications for E-SCM – create a roadmap Involves selection of appropriate strategic partners

Figure 5.2 Relationship between e-business strategy and other strategies

What happens where there is no e-business strategy? Missed opportunities for additional sales on the sell-side and for more efficient purchasing on the buy-side Fall-behind competitors in delivering online services – may become difficult to catch-up, for example, Dell Poor customer experience from poorly integrated channels

Figure 5. 3 BA communicates its online value proposition (www Figure 5.3 BA communicates its online value proposition (www.britishairways.com) Source: Based on Revolution (2005)

Figure 5.4 A generic strategy process model

Figure 5.5 Dynamic e-business strategy model Source: Adapted from Kalakota/Robinson, EBUSINESS 2.0 © 2001, 1999 Pearson Education, Inc. Reproduced by permission of Pearson Education, Inc.

Strategic Analysis Collection and review of information about the external environment and internal resources Immediate competition Wider environment Internal resources

Figure 5.6 Elements of strategic situation analysis for the e-business

Stage Models of e-Business Development Earlier in chapter 1 a stage model was presented, which could be helpful in assessing the business’s position and resources

Figure 1.13 A simple stage model for buy-side and sell-side e-commerce 20

SWOT Analysis Strengths, weaknesses, opportunities, and Threats analysis is a useful tool for analyzing the current situation and for formulating strategies Next slide shows an example of e-business SWOT analysis

Figure 5.8 SWOT analysis

Balance Internal and External A e-Business strategy must be based on the balance between internal capability and external forces Next slide presents different options based on such a balance

Figure 5.9 Matrix for evaluation of external capability against internal capability Source: Perrott (2005)

Competitive Environment Analysis Porter’s five forces Source: adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from COMPETITIVE STRATEGY: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved

Activity – Impact of Internet For one of the industries below, assess how the Internet has changed the competitive forces, for example, has it increased or decreased power of suppliers and customers? Industries: Banking Supermarkets Retail Travel Oil industry Rail industry

Figure 5.11 Elements of strategic objective setting for the e-business

How can e-business create value Following methods were proposed Adding values—better quality products and services Reducing cost—making the business process more efficient Managing risks—improve information flow and availability Creating new reality—create new way that products and or services

Figure 5. 12 An evaluation tool relating information to business value Figure 5.12 An evaluation tool relating information to business value. An organization’s use of information on each axis can be assessed from 1 to 10 Source: Marchand et al. (2002)

Figure 5.16 Elements of strategy definition for the e-business

Strategy Definition Various models were suggested for defining e-business strategies

Failed e-Business Strategies Some reasons were articulated Overestimate the speed that the marketplace adopts the dot.com innovation Timing errors Lack of creativity Free services Over ambition

Failed e-Business Strategies Usually there are more fundamental problems than surfaced Major problems occurred at the strategy development and implementation process Situation Analysis—insufficient research on demand and completive forces Object setting—no objectives or unrealistic Strategy definition—poor business models Implementation—problems with customer services and product quality, etc.

Implementation Success Factors Content—effective presentation Convenience—usability Control—manageable and under control Interaction Community Price sensitivity Brand image Commitment Partnership Process Improvement Integration

IS Strategy and e-Business Strategy These two are closely related. Business-alignment approach—top down. Start with business strategy and make IS strategy so that it aligns with business strategy Business-impact approach—bottom up. Examine new IS opportunities to see if they can bring positive impact to business strategy

The Productivity Paradox Research indicates that there is a week or poor correlation between IS investment and business performance It’s agreed that IT investment has a strong positive relationship with sales, assets and equity but not with net income. Investment on IT staff and user training does show positive relationship on income It’s strongly recommended that more attention should be paid to business process change when implementing e-business strategy