Chapter Eight The Internet and E-Commerce: Creating Value through E-Business Strategies

CHAPTER 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin After studying this chapter, you should have a good understanding of: Why use of Internet technologies is more important to achieving competitive advantage than the technologies themselves. How Internet technologies are affecting the five competitive forces. How e-business capabilities are affecting industry profitability. How firms can improve their competitive position vis-à-vis the five forces by effectively deploying e-business strategies. Why e-business technologies are changing the way firms use overall low cost, differentiation, and focus strategies. The pitfalls in each competitive strategy that may endanger a firms attempts to deploy Internet technologies or implement e-business strategies. Learning Objectives TRANSPARENCY-69

CHAPTER 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Exhibit 8.1 Growth in Internet Activity Data: Forrester Research Inc. TRANSPARENCY-70

CHAPTER 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin E-Commerce Spending by Category 36.7Toys 36.7Fitness/sports equipment 40.7Video 65.8Flowers, gifts, and cards 77.1Home and garden 82.0Health/beauty 93.0Music 100.9Computer software 111.1Electronics 204.4Books 253.0Computer hardware/peripherals 335.4Auction 367.7Clothing/apparel $1,032.4Travel services Estimated Online Monthly Revenue (millions of $) Category E-Commerce Spending March 2001 Source: Nielsen/Net Ratings & Harris Interactive Exhibit 8.2 TRANSPARENCY-71

CHAPTER 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Internet Use Worldwide Geographic Region PC Users (in millions) Per 1,000 People North America Western Europe Asia-Pacific South/Central America Eastern Europe Middle East & Africa Source: Adapted from Computer Industry Almanac in Business Week Projected number of regular Internet users by year end 2000 Exhibit 8.3 TRANSPARENCY-72

CHAPTER 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Disintermediation and Reintermediation Exhibit 8.4 TRADITIONAL INTERMEDIATION Manufacturer Retailer Consumers REINTERMEDIATION Manufacturer Electronic Intermediaries Consumers Manufacturer Consumers Wholesaler TRANSPARENCY-73 Manufacturer Retailer Consumers Wholesaler DISINTERMEDIATION PROCESS

CHAPTER 8 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin How the Internet Influences Industry Structure Source: Adapted from: Porter, M.E Strategy and the Internet. Harvard Business Review, March: ( + ) By making an overall industry more efficient, the Internet can expand sales in that industry. (-) Internet-based capabilities create new substitution threats. Threat of substitutes (+/-) Procurement using the Internet may raise bargaining power over suppliers, but it can also give suppliers access to more customers. (-) The Internet provides a channel for suppliers to reach end users, reducing the power of intermediaries. (-) Internet procurement and digital markets tend to reduce differentiating features. (-) Reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers. (-) More price-based competition intensifies rivalry. (-) Widens the geographic market, increasing the number of competitors. (+) Eliminates powerful channels or improves bargaining power over traditional channels. (-) Shifts bargaining power to consumers. (-) Reduces switching costs. Threat of new entrants (-) Reduces barriers to entry such as 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 industries. Bargaining power of suppliers Rivalry among existing competitors Buyers Bargaining power of end users Bargaining power of channels (-) Technology-based efficiencies can be captured, lowering the impact of scale economies. (-) Differences among competitors are difficult to detect and to keep proprietary. Exhibit 8.5 TRANSPARENCY-74