eCommerce Formulation of Strategy

1E-Commerce StrategyPart II Source: E-Commerce Formulation of Strategy, Robert T. Plant, Prentice Hall, 2000 Mahmoud Moradi, Ph.D.Assistant Professor of ManagementManagement GroupUniversity of Guilanm.moradi@guilan.ac.irmahmoudmoradi@gmail.comAbout authorDr. Plant is an associate professor at the School of Business Administration, University of Miami, Coral Gables, Florida.Ph.D. in Computer Science at The University of Liverpool, England. Dr. Plant is a Microsoft Certified Systems Engineer (MCSE) and an MCP + 1. He holds visiting teaching and research positions at Templeton College, Oxford University, England; Universidad Gabriela Mistral, Santiago, Chile; and Victoria University of Wellington, New Zealand. In addition, he has taught in executive MBA programs at IBM, Motorola, Pratt & Whitney, Office Depot, American Express, W. R. Grace, Siemens, and other Fortune 500 companies. Dr. Plant's consulting and research interests are in e-commerce, virtual organizations, and the role of information systems in strategic management.. EC Strategy - 22e Commerce Formulation of StrategyAbout bookThe main question is: "What will be the impact of the Internet on our business, our competitive strategy, and our information systems strategy?" Author interviewed senior executives at more than 40 major corporations in US and Europe to reveal diverse approaches to this question. 16 of which were top 10 in their industries as defined by Fortune.EC Strategy - 3e commerce Formulation of Strategy3Some Companies and case studiesEC Strategy - 4NCompany1IBMcomputer2Motorolatelecommunications3Sonyentertainment4PricelineOnline retail5BMWAutomobiles6Charles SchwabFinance7SchlumbergerOil8GMAutomobiles9LockheedDefense10CitigroupBankse commerce Formulation of Strategy4Approaches toward main questionMost companies have recognized that they need to create and execute an EC strategy. Blindly follow the strategy of stars such Amazon is ImpossibleSome companies steel feel that they can largely ignore the Internet and that they can offer a token website with a basic product offering. How quickly could you respond if your strongest competitor came out with a powerful EC strategy tomorrow?Other companies have recognized some of drivers in EC and have adopted some of them. This lack of balance between service, branding, technology, and marketing can be damaging.Some organizations are winning and creating adaptive, intelligent solutions

EC Strategy - 5PostulateThe challenge is to be aware of the rapid growth in converging technologies and to translate the potential of these technologies into business vision and dynamic competitive strategy.To be effective, an EC strategy has to be integrated with the strategic vision of the company as a whole.The approach to the creation of an effective EC strategy is not always clear.

So in this regard the aim of book is double:EC Strategy - 61. To enable senior executive and managers to understand the competitive implications of EC within their arenas of corporate competition.And2. Through the methodologies presented, to enable executives to take effective action in developing a strong, unique, and effective strategy for their own organizations.EC Strategy - 7Contents (chapters)1. Formulating an Internet Strategy in a Networked World2. Creating an Integrated E-commerce Strategy3. Ownership Issues4. E-strategy Leadership Through a Technology Focus5. Developing a Market Focus: Sector Strategies in Segmenting Markets6. Service Leadership Adding Value to the Customer at Every Point of ContractEC Strategy - 87. E-branding The Emergence of New Global Brands8. Formulating an Internet Roll-out Strategy9. Internet Strategy Effectiveness A Scorecard Approach10. Waves of the Future Issues That Will Shape the Formulation of Strategy11. Views from the edge Conversations with ExecutivesEC Strategy - 9e commerce Formulation of Strategy9Brief review of the chaptersEC Strategy - 10Chapter 1: Formulating an Internet Strategy in a Networked World The dynamics of the EC marketspace and the three market positions that organizations and their executives find themselves. New organizations: born on the Net Existing organizations: move to the Net E-consortia: form a swarm to the Net

The ultimate success of the strategy created and adopted by an organization depends heavily upon early identification of the specific issues and options available in each of these sectors when applied to the individual circumstances of the organization.

EC Strategy - 11Chapter 2: Creating an Integrated E-commerce Strategy Seven dimensions of an EC strategy: The four positional characteristicsbrand, technology, service, and market The three bonding factorsleadership, infrastructure, and organizational learning Determination of the interrelationships among these factors is key to the creation of a strong yet adaptable EC strategy.

EC Strategy - 12The Seven Dimensions of an e-Commerce StrategyEC Strategy - 13LeadershipInfrastructureServiceMarketOrganizationalLearningBrandTechnologyChapter 3: Ownership Issues The key to successful business on the Internet is not the formulation of a conceptual strategy but the execution of that strategy. The key organizational issues that need to be effectively managed to successfully compete in the Internet marketspace, include: E-centric management structuresContent ownership EC Strategy - 14Chapter 4: E-strategy Leadership Through a Technology Focus First positional factor = technologyIn this chapter technology issues are considered in relation to other key drivers - corporate positioning and structure. The chapter describes how these factors, when carefully molded together, combine to create the dynamism found in the world's great companies. The McKinsey Seven S Framework Strategy Skills Staff Style Structure Shared values Systems (ERP, KM, Data warehousing )EC Strategy - 15Chapter 5: Developing a Market Focus: Sector Strategies in Segmenting MarketsSecond positional factor = marketThis chapter considers the issues facing industry types and develops the issues relevant to major segments through case studies of leading organizations in EC strategy and deployment.

Manufacturing: CA-Chemical Mixed service and goods: Sony Mixed service and goods (B2B): US Medical Systems Service organization: Charles Schwab EC Strategy - 16Chapter 6: Service Leadership Through the Internet Service Value Chain Third positional factor = serviceThe ability to create a meaningful customer relationship at all points of contact is central to doing business on the Internet. This chapter considers the interaction of customer relationship management through three driversContentformat access

Customer acquisition: pre purchase supportCustomer support: during purchase Customer fulfillment: purchase dispatch Customer continuance: post purchase support

EC Strategy - 17Chapter 7: E-branding-the Emergence of New Global Brands Forth positional factor = brandFor traditional organizations moving to the Net, their challenge is to leverage existing brands effectively and move forward in their new chosen marketspaces. This chapter discusses the four major positions that can be adopted: Brand creationBrand reinforcementBrand reposition Brand follower

EC Strategy - 18Chapter 8: Formulating an Internet Rollout Strategy This chapter discusses the issues surrounding developmental choices available to executives.The major technical issues CIOs and technologists face.

Developments optionsThe internal development routeThe external development routePartnering modelsHosting optionsApplication designNetwork topologyServer configuration

EC Strategy - 19Chapter 9: Internet Strategy Effectiveness-A Scorecard Approach The aim of the chapter is to help executives answer two fundamental questions: What are the strengths and weaknesses of my strategy or proposed strategy? What will I get out of this technology investment?

This chapter develops a set of frameworks that managers can work from in order to gain an understanding of the forces in strategy formulation pertaining to their own individual circumstances. The frameworks contain over 50 questions covering the seven dimensions of strategy formulation. It considers:The creation of a metrics programThe Internet effectiveness scorecard The e-value map: an ownership/manager level analysis

EC Strategy - 20Chapter 10: Waves of the Future This chapter discusses the six major areas in which change will originate as the environment of EC goes forward in time. The ability to stay ahead in all of these areas is vital to EC strategies, and the chapter highlights critical issues in each areas; 14 waves. The areas are: Technology changesBranding changesMarket changesService changesGovernment and political changesExternal relationship changes

EC Strategy - 21Chapter 11: Views from the Edge This chapter contains five interviews from executives on the leading edge of strategy and vision. These interviews may help real-world managers cope with their mainstream environments and organizations more effectively. The interviews include: two dot-com start-ups a software company transitioning to the Net a multinational telecommunications company a power utility The interviewees: Born on the Net Move to the Net EC Strategy - 22Pause de Recration!EC Strategy - 23Chapter 1Formulating an Internet Strategy in a Networked WorldEC Strategy - 241.1 Introduction: e-Business ProcessesEC Strategy - 2525WHYCustomer RelationshipRedesign Business ProcessesApplying TechnologyWHATHOWe commerce Formulation of Strategy25261.2 Why EC Model is beneficial to your Business?The EC model is a basic model of competitive strategy, based on the principles of low costs, high volumes, and comprehensive service, combined with a product range unapproachable through traditional channels.E*TradeAmazoneBayEC Strategy - header26271.3 Why New Models?We need some new modelsfor how we go about exploring IT for competitive advantage, for IT infrastructure: how we create it and manage itfor how we acquire, manage and deploy the skills that are needed to run that infrastructure Source: Louis Gerstner IBM executive, 1998The aim of this book is to help ecommerce strategists create and formulate these models. EC Strategy - header27281.4 Established, Online, and Consortium Organizations in the MarketspaceEstablished organizationsTotal MarketOnline Organizations

E-commerce MarketspaceE-consortiumEC Strategy - Moving to the netBorn on the netE-consortiumheader281.5 leadership Position Pillars of success for Born on the net1. Technology

2. Marketing

3. Service

4. Branding

EC Strategy - 29301.5.1. Technology

The technology goal must be understood for that organization within its industry and market.An organization must determine it is going to be an advanced technology leader or follow a technology agenda that relies upon more stable systems (bleeding versus leading edge).

An organization must determine what is the necessary relationship between the companys technology or product strategy and the operational aspects of that strategy.

The technology employed by an organization must service the customers needs and expectations from a technology perspective.Organizations must have clearly defined the answers to these questions and must work them into their business plan.

EC Strategy - header30311.5.2. Market

An organization must determine its target market and whether it is still realistically open to new entrants.

An organization must understand how the market is going to segment and grow over the near and longer term and know whether the organization will be able to move rapidly enough to meet those changing needs.

Being born on the Net requires that the organization understand the possible moves from majors established organizations and utilize its own dexterity to counter themEC Strategy - header31321.5.3. Service

An organization must know its customers expectations regarding service levelThe organization must understand what its value proposition is and how service facilitates or augments itAn organization must understand its own Internet service value chain, the components of which are: Understanding the relationship between attracting customers and service levelsUnderstanding how an organization creates service value during a transaction for a customer.Understanding how service plays a role in the customer fulfillment process, where the purchase is dispatched.Understanding the role of customer service in retaining customers and maintaining site adhesion.

EC Strategy - header32331.5.4. Brand An organization must understand whether it has the ability to create a strong brand An organization must understand the basis of its brand. Is it:Technology leadership?Service provision?Market positioning?

EC Strategy - header331.6 Leadership Position Pillars of success for Move to the net1. Technology

2. Marketing

3. Service

4. Branding

EC Strategy - 34351.6.1. Technology

An organization must understand what technology implications are for that organization --Internet, enterprise resource planning, data Warehouse, etc.

Organization must know whether their processes are aligned to an Internet technology-based approach.

An organization must understand how its customers view and use technology within the marketspace and must leverage that knowledge to build an effective infrastructure that facilitates an agile and flexible e-commerce strategy.

An organization must assess its internal value chain as well as those of its suppliers and build to minimize costs and maximize efficiencies.EC Strategy - header35361.6.2. MarketAn organization must understand what the implications of e-commerce and technology are for the marketspace in which the organization is to compete in terms of:BrandingRelationship management An organization must determine whether its target market is the same as its traditional bricks-mortar marketspace or if it has moved.If its core marketspace have moved, is it still realistically open to traditional organizations moving onto the Net?An organization must understand how the market is going to segment and grow over the near future due to the impact of the internet and must determine whether the organization will be able to move rapidly enough to meet those changing needs. Organization must assess the impact of pure Internet-based organizations and use their own traditional core strengths-market knowledge and product knowledge to offset Internet-based companies nimbleness.EC Strategy - header36371.6.3. ServiceAn organization must determine the new service level expectations of the customer.

An organization must understand what the customers new value proposition requirements are in terms of cost, service level expectations, and information-based service.

Organizations must reassess their service value chain:How are we going to acquire customers? How are we going to develop customer relationships through the new medium? How can we best fulfill the customers needs bricks & mortar, clicks & mortar, or online?How do we support our customers during purchase and through order fulfillment?How do we retain customers between orders? EC Strategy - header37381.6.4. Brand

Organizations need to determine how to best leverage their existing brand.

Do we have the ability to create a strong dot-com brand?

What is the basis of that brand?

What are the implications for our brand in terms of the technology we employ, develop, or use?

What are the challenges for creating a new dot-com brand?

Does the Internet demand an adjustment or a completely new service provision?

Will new brand positioning change our existing brand?EC Strategy - header381.7 Bonding factors toward the development of an EC strategy1. Leadership

2. Infrastructure

3. Organizational LearningEC Strategy - 39401.7.1. LeadershipDoes the CEO have a vision for e-commerce?

Does the CEO have a track record of taking technology change in step?

Do the senior executives share a technology vision? Also, do they understand its impact upon their functional area and the organization as a whole? Is the leadership stable or in a continual state of flux?EC Strategy - header40411.7.2. Infrastructure

Can the organizations technology infrastructure support the new model of e-business

Can the organizations technology infrastructure support the move to mass customization?

What are the implications for the organizational changes needed to be competitive in an e-commerce environment?

Does the organizations infrastructure interface with the infrastructures of their suppliers and customers in the electronic marketplace?EC Strategy - header41421.7.3. Organizational LearningDoes the organization support internal learning?

Scanning the technology horizon for change and then adopting that change where appropriate

Developing a self-awareness inside the boundaries of the organization to drive practice and process changeCan the learning of the organization with respect to markets, product, technology, processes, etc., be quickly refocused into a new technology-based method of production?

EC Strategy - header421.8 SummaryEC Strategy - 431. Key Factors for an Organizations Success3. The Executive should ...2. Types of marketspaceEC Strategy - 441.8.1 Key Factors for an Organizations SuccessDoes the organization possess first-mover advantage in the marketspace?Does the organization differentiate itself in the marketspace?Does the organization possess the ability to be flexible and agile in the e-marketspace? 45These four areas form the basis for the creation of a unified strategy:

1. Technology2. Brand3. Market4. Service

Three other success factors need to be in place:

1. Strong corporate leadership at the executive level2. A flexible infrastructure and (IT) architecture3. A commitment to organizational learning.EC Strategy - header45Having strength in at least two of these areas will give an organization the opportunity to compete in the online world. Its ability to compete is based upon its self-awareness and control over the four dimensions of its strategic vector:

1. Technology2. Brand3. Market4. Service

these four areas form the basis for the creation of a unified strategy. However, in order for an organization to accomplish this and then to execute effectively over time three other success factors need to be in place:

1. Strong corporate leadership at the executive level2. A flexible infrastructure and information technology (IT) architecture3. A commitment to organizational learning.A leadership position is achievedwhen all four of these parametersare balanced.461.8.2 Types of marketspaceFive types of mechanisms the organizations wish to serve as a market mechanism:B2C : the enterprise services the needs of the retail customerB2B : an enterprise services the needs of other businessesB2G : an enterprise services the needs of a government or its agenciesG2B : governments interact with businesses or citizens through portalsThe e-consortium : multiple businesses come together to provide a leveraged serviceEC Strategy - header46471.8.3 The Executive should ...The development and execution of a successful e-commerce strategy is a difficult intellectual and creative task, one that every executive will have to undertake.Key Steps:determine the core competencies of your organizationdetermine the limitation in the new markepspaceassess the mechanisms available to move forward.EC Strategy - Break time EC Strategy - 48EC Strategy - 49Chapter 2Creating an Integrated EC Strategy2.1 IntroductionEC Strategy - 50EC strategy will vary depending on:

The nature of the organizationBorn on the netMove on the netThe nature of the productsService basedManufacturing or mixedThe online model the organization wishes to adoptB2B, B2C, and so on

No matter the size and type of the enterprises:EC Strategy - 51Four positional factorsTechnologyServiceMarketBrandThree bonding factorsLeadershipInfrastructureOrganizational LearningThe framework is valid for any enterprises in each sector with every size522.2 Bonding and leadership factorsLeadershipInfrastructureServiceMarketOrganizationalLearningBrandTechnologyBonding factorsEC Strategy - header52 A leadership position is achievedwhen all four of these parametersare balanced.Having strength in at least two of these areas will give an organization the opportunity to compete in the online world. Its ability to compete is based upon its self-awareness and control over the four dimensions of its strategic vector:1. Technology2. Brand3. Market4. Servicethese four areas form the basis for the creation of a unified strategy. However, in order for an organization to accomplish this and then to execute effectively over time three other success factors need to be in place:1. Strong corporate leadership at the executive level2. A flexible infrastructure and information technology (IT) architecture3. A commitment to organizational learning.

This model is applicable to any-size; -typeof organizations.53The Bonds of an e-Commerce StrategyOrganizationalLearningInfrastructureLeadershipFoundations of a strong EC strategyPreparation of the ground before the functional actionsStrong interaction between componentsEC Strategy - header531. LeadershipIt is also a time for executives to expand their vision for their organizations and develop creative strategies that can be effectively executed. Failure to transition or demonstrate leadership will inevitably lead to a subsequent change in leadership.

2. InfrastructureOnce the need to develop e-C in some form had been identified, the single most important issue facing the executives and technologists charged with developing Internet-based projects is infrastructure. It needs to be considered at several levels:a. strategicb. organizational,c. physical

3. Organizational LearningThe ability of established organizations to react, understand, and deploy and e-C solution is very dependent upon the ability of an organization to effectively leverage its organizational learning.2.2.1 LeadershipPrimary drivers of change and the creators of vision are CEO.Every successful EC project has a champion in organization.Senior executives of CIO in placeLessons learned from cases:Keep an open mind with regard to all new technologiesDont get isolated from experimental technologies that are coming over the technology horizonEncourage quickly built research teamsBe ready to make the necessary amount of change in corporate strategy due to technology changes

EC Strategy - 542.2.2. InfrastructureOnce the need to develop EC had been identified, the single most important issue faced executives is infrastructureInfrastructure considered at three levelsStrategic alignment of future business plan with new technology challenges (Ch. 4)Organizational align work practices and process flow to execute business goalsPhysical layer software, hardware and telecommunications infrastructure that execution occurs

EC Strategy - 55Lessons for executives from the cases:Create a flexible infrastructure that act as shock absorber of changeCreate a technology that is scalable, secure and vigorousMaintain awareness of all standards, attempt to influence development of standards, and plan for their integration ASA Feasible not possible under pressure Factors affecting infrastructure come from strategic, organizational and physical layersInfrastructure creation need open level of communication across all levels of the organizationsExecutives cannot divorce themselves from technological understanding

EC Strategy - 562.2.3 Organizational Learning (OL)Ability to react and deploy an EC solution depends on ability to effectively leverage OLShared insights, knowledge and mental models = memoryInterconnection exists between factors for examples leadership promote learning by:Placing trust at all levels between colleaguesStimulate an environment of intellectual curiosityFacilitate new concepts and technologies even if traditional metric may not applicableEC Strategy - 57Key drivers with regard to OL can be acquire:Crate an environment that stimulates and fosters OLHolistic learning OL has to have a focus, that focus has to driven from strategic objectives , objectives in the areas of brand, technology, service, and market should combined to provide a holistic learningOL creates an environment of positive change and continuous process refinement. Without this organizational inertia occurs!

EC Strategy - 58592.3 Integration of the EC Leadership PropositionsIn creating an EC strategy, it is clearly to align and integrate the four main areas of positional strategic focus: technology, brand, service, and market.This is a challenging task that must be deeply considered at the beginning of strategy formulation since both the dollar and opportunity costs of dramatic strategic change after execution can be high.This is not to say that change is not occurring; change in this arena is inevitable and continuous, with victory coming to those who can adapt fastest and be nimble in the face of change.EC Strategy - 60Integration of the Four EC Leadership PropositionsTechnology LeadershipBrand LeadershipMarket LeadershipService LeadershipIntegrated e-commerce strategyEC Strategy - header601. Technology leadership It involves the early adoption of an emerging technology to achieve a preemptive position.1. Technology Leadership early adoption of an emerging technology (Ch.4)2. Brand Leadership how to most effectively utilize Internet benefits to develop organizations overall brand strategy? (Ch.7)3. The Service Payoff service leadership via internet by focus on all information surrounding costumer at all contact points. Service can not immediately translate into purchase.(Ch.6)4. In Search of Market Growth - understanding the market within which enterprises operate, segment market, combining all factors to focus on market growth(Ch.5)EC Strategy - 61622.4 What is the Next ...Organizations will always be adjusting their strategies to meet the changing environment in which they operate, and the model aims at assisting executives in understanding the importance and weighting that need to be applied to each factor.Based on the seven-dimension EC strategy model, If you want your company to succeed, the solution is to move to an EC model ASAP.Ownership, technology leadership, market, brand, service, and strategy rollout are discussed in subsequent chapters

EC Strategy - e commerce Formulation of Strategy62