1. Chapter 4 The Business Environment

2. 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

3. Copyright © 2003, Addison-Wesley Figure 4.1 The business planning hierarchy. Objective: define long-term direction

4. Copyright © 2003, Addison-Wesley A Startup Business Plan A.k.a., path to profitability Contents Product Market Competitors Customers Risks Financials

5. Copyright © 2003, Addison-Wesley Figure 4.2 Elements of a business plan.

6. 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.

7. 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

8. Copyright © 2003, Addison-Wesley Competitive Advantage Big Bang Disruptors: Tom Tom Garmin Magellan Block Buster West Coast Video

9. Copyright © 2003, Addison-Wesley Figure 4.3 The value chain. Conflicting objectives Local process efficiency Organization-wide efficiency

10. Copyright © 2003, Addison-Wesley The value chain

11. 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

12. Copyright © 2003, Addison-Wesley Figure 4.4 The supply chain. Conflicting objectives again Company vs. company

13. Copyright © 2003, Addison-Wesley E-Commerce Business Environment Low cost of entry Global reach Huge potential markets Intense competition

14. Copyright © 2003, Addison-Wesley Figure 4.5 The three categories form an integrated structure. Integration is the future of e-commerce.

15. 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

16. 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

17. 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

18. Copyright © 2003, Addison-Wesley The law of diminishing returns applies to physical products. At some point, unit cost increases with volume.

19. Copyright © 2003, Addison-Wesley Digital products do not experience diminishing returns. High startup cost First copy Low incremental cost After breakeven Pure profit

20. 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

21. Copyright © 2003, Addison-Wesley Figure 4.8 Intermediaries. Intermediaries provide services that lie off the value chain.

22. Copyright © 2003, Addison-Wesley Figure 4.9 Some intermediaries.

23. 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)

24. Copyright © 2003, Addison-Wesley Figure 4.10 A manuscript page. Created by the authors Florida Ohio MS Word

25. Copyright © 2003, Addison-Wesley Figure 4.11 Rough art. Created by the authors Florida Ohio Visio

26. Copyright © 2003, Addison-Wesley Figure 4.12 A copy edited page Copy editor in Massachusetts MS Word

27. Copyright © 2003, Addison-Wesley Figure 4.13 A finished page. Paging done in Massachusetts Adobe Acrobat All electronic communication

28. Copyright © 2003, Addison-Wesley Figure 4.14 Bots. Bot is an intelligent agent Increases customer power Source: www.botspot.comwww.botspot.com

29. Copyright © 2003, Addison-Wesley Figure 4.15 The competitive advantage model. The two yellow boxes represent activities that happen simultaneously.

30. Copyright © 2003, Addison-Wesley

31. Figure 4.16 Time for technologies to reach 50 million users. Note the acceleration!

32. 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

33. Copyright © 2003, Addison-Wesley User Adoption of Technology

34. Copyright © 2003, Addison-Wesley User Adoption of Technology

35. Copyright © 2003, Addison-Wesley Gartner Hype Cycle

36. Copyright © 2003, Addison-Wesley Selected Technology Milestones Over the Past Forty Years Source Gartner

37. 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

38. 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?

39. 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 – $120.35 billion 4. Foxconn, Taiwan – $117.51 billion 5. IBM, United States – $106.91 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 http://www.therichest.com/business/the-top-ten-tech-companies-in-the-world/

40. 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