Chapter 15Chapter 15
E-Commerce Strategy E-Commerce Strategy
and Global ECand Global EC
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Organizational StrategyOrganizational Strategy
Strategy:Strategy: A broad-based formula for A broad-based formula for how a business is going to compete, how a business is going to compete, what its goals should be, and what what its goals should be, and what plans and policies will be needed to plans and policies will be needed to carry out those goalscarry out those goals
Strategy is also about making tough Strategy is also about making tough decisions about what decisions about what not not to do to do
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Profitability and economic value is Profitability and economic value is determined by establishing a determined by establishing a unique unique value propositionvalue proposition
Strategy is focused on questions Strategy is focused on questions about:about:
organizational fitorganizational fit
trade-offstrade-offs
profitabilityprofitability
valuevalue
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
E-commerce strategy (e-E-commerce strategy (e-strategy):strategy): The formulation and The formulation and execution of a vision for how a execution of a vision for how a new or existing company intends new or existing company intends to do business electronicallyto do business electronically
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
The process of strategy:The process of strategy:1.1. InitiationInitiation
2.2. FormulationFormulation
3.3. ImplementationImplementation
4.4. Assessment Assessment
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Strategic planning processStrategic planning processStrategy initiation:Strategy initiation: The initial phase The initial phase of strategic planning in which the of strategic planning in which the organization examines itself and its organization examines itself and its environmentenvironment
Value proposition:Value proposition: The benefit that a The benefit that a company’s products or services company’s products or services provide to customers; the consumer provide to customers; the consumer need that is being fulfilledneed that is being fulfilled
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Outcomes from strategy initiation Outcomes from strategy initiation phasephase
Company analysis (including value proposition)Core competenciesForecastsCompetitor (industry) analysis
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Strategy formulation:Strategy formulation: The The development of strategies to development of strategies to exploit opportunities and manage exploit opportunities and manage threats in the business threats in the business environment in light of corporate environment in light of corporate strengths and weaknessesstrengths and weaknesses
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Specific activities and outcomes from strategy formulation phase:
Business opportunitiesCost-benefit analysisRisk analysis, assessment, and management
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Strategy implementation:Strategy implementation: The The development of detailed, short-development of detailed, short-term plans for carrying out the term plans for carrying out the projects agreed on in strategy projects agreed on in strategy formulationformulation
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Specific activities and outcomes from strategy implementation phase:
Business planningResource allocationProject management
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Strategy assessment:Strategy assessment: The The continuous evaluation of progress continuous evaluation of progress toward the organization’s strategic toward the organization’s strategic goals, resulting in corrective action goals, resulting in corrective action and, if necessary, strategy and, if necessary, strategy reformulationreformulation
Specific measures called Specific measures called metrics metrics are used to assess the progress are used to assess the progress of the strategyof the strategy
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Strategic planning toolsStrategic planning toolsSWOT analysis:SWOT analysis: A methodology A methodology that surveys external that surveys external opportunities and threats and opportunities and threats and relates them to internal relates them to internal strengths and weaknessesstrengths and weaknesses
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Competitor analysis gridCompetitor analysis grid:: A strategic A strategic planning tool that highlights points planning tool that highlights points of differentiation between of differentiation between competitors and the target firmcompetitors and the target firmScenario planning:Scenario planning: A strategic A strategic planning methodology that planning methodology that generates plausible alternative generates plausible alternative futures to help decision makers futures to help decision makers identify actions that can be taken identify actions that can be taken today to ensure success in the today to ensure success in the futurefuture
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Organizational StrategyOrganizational Strategy (cont.)(cont.)
Return on investment (ROI):Return on investment (ROI): A ratio A ratio of required costs and perceived of required costs and perceived benefits of a project or an benefits of a project or an applicationapplication
Balanced scorecard:Balanced scorecard: An adaptive An adaptive tool that assesses organizational tool that assesses organizational progress toward strategic goals by progress toward strategic goals by measuring performance in a number measuring performance in a number of different areasof different areas
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EC Strategy: EC Strategy: Concepts and OverviewConcepts and Overview
The e-differenceThe e-differenceReach and richness are possibleBarriers to entry are reducedVirtual partnerships multiply
Interaction costs: The time and money expended when people and companies exchange goods, services, and idea
Market niches abound
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EC Strategy EC Strategy (cont.)(cont.)
Organizational differenceOrganizational differenceBorn-on-the-Net and move-to-the-Net firms both start with substantial assets and liabilities that influence their ability to formulate and execute an e-commerce strategyThe difference between success The difference between success and failure is the company’s ability and failure is the company’s ability to utilize its strengths effectivelyto utilize its strengths effectively
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EC Strategy InitiationEC Strategy Initiation
Issues in e-strategy initiationIssues in e-strategy initiationBe a first mover or a follower?
Size of the opportunityCommodity productsBe the best
Go Global?Go Global?
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EC Strategy Initiation EC Strategy Initiation IssuesIssues
Have a Separate Online Company?Advantages of creating a separate company
reduction or elimination of internal conflictsmore freedom for the online company’s management in pricing, advertising, etc.ability to create a new brand quickly opportunity to build new, efficient information systems that are not burdened by the legacy systems of the old companyinflux of outside funding if the market likes the e-business idea and buys the IPO of stock
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EC Strategy EC Strategy Initiation Initiation IssuesIssues (cont.)(cont.)
Disadvantages of creating an Disadvantages of creating an independent division independent division
may be very costly and/or riskymay be very costly and/or risky
expertise vital to the existing company expertise vital to the existing company may be lost to the new firmmay be lost to the new firm
new company will not benefit from the new company will not benefit from the expertise and spare capacity in the expertise and spare capacity in the business functions unless it gets business functions unless it gets superb collaboration from the parent superb collaboration from the parent companycompany
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EC Strategy EC Strategy Initiation Initiation IssuesIssues (cont.)(cont.)
Have a separate online brand?Companies with strong, mature, international brands will want to retain and promote that brand onlineFirms with a weak brand or a brand that does not reflect the intent of the online effort may decide to create a new brand
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EC Strategy FormulationEC Strategy Formulation
Common mistakes made Common mistakes made in selecting EC projects:
1. Let a thousand flowers bloom—funding many projects indiscriminately
2. Bet it all—bets everything on a single high-stakes initiative
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
3. Trend-surf—follow the crowd toward the most fashionable new idea
4. Being fear- or greed-driven—thinking they can make lots of money by rushing into EC
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
Approaches that have propelled strategy formulation:
Problem drivenTechnology drivenMarket driven
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
The e-business maturity modelevaluates online initiatives within evaluates online initiatives within the context of established business the context of established business criteria criteria designed to help companies think of what’s necessary to implement an e-business solution
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
Determining an appropriate EC Determining an appropriate EC application portfolioapplication portfolio
Internet portfolio map—bInternet portfolio map—based on company fit and project viability
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
Viability Viability isis assessed by: assessed by: market value potentialmarket value potential
time to positive cash flowtime to positive cash flow
time to implementationtime to implementation
funding requirementsfunding requirements
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
Fit Fit is evaluated by metrics:is evaluated by metrics:alignment with core capabilitiesalignment with core capabilities
alignment with other company alignment with other company initiativesinitiatives
fit with organizational structurefit with organizational structure
ease of technical implementationease of technical implementation
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
If both viability and fit are low—the project is rejectedIf both are high—the project is adoptedIf fit is high but viability is low—the project is redesignedIf the fit is low but the viability is high—the project is sold
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
Making a business caseMaking a business caseBusiness case:Business case: A written A written document that is used by document that is used by managers to garner funding for managers to garner funding for specific applications or projects specific applications or projects by providing justification for by providing justification for investment of resourcesinvestment of resources
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EC Strategy FormulationEC Strategy Formulation (cont.)(cont.)
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Cost-Benefit AnalysisCost-Benefit Analysis
Cost-benefit analysisCost-benefit analysisA valuable planning tool and assists in the development of metric measures that later will be used in strategy assessmentMany of the costs of an EC project can be clearly identified and estimated
costs of hardware, software, new staff, and facilities
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Cost-Benefit AnalysisCost-Benefit Analysis (cont.)(cont.)
Most benefits of an EC project are quite intangible—it is difficult to estimate:
Increased sales from an expanded customer baseSavings from streamlined purchasing proceduresReduced telecommunications costs
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Cost-Benefit AnalysisCost-Benefit Analysis (cont.)(cont.)
One of the most difficult factors in accurate benefit estimation, especially for start-up companies, is to properly plan the revenue model
revenues from advertising may not materializerevenue models based on sales depend on large and rapid customer acquisition
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Risk AnalysisRisk Analysis
Risk analysis and managementRisk analysis and managementE-commerce risk:E-commerce risk: The likelihood The likelihood that a negative outcome will occur that a negative outcome will occur in the course of developing and in the course of developing and operating an electronic commerce operating an electronic commerce strategystrategyThe first step in any risk assessment is risk analysis—identifying and evaluating the sources of risk
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Risk Analysis Risk Analysis (cont.)(cont.)
Four sources of business risk in an e-commerce strategy:
1. Competitive risk2. Transition risk3. Customer-induced risk4. Business partner risk
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Risk Analysis Risk Analysis (cont.)(cont.)
The next step is risk management—to put in place a plan that reduces the threat posed by the riskTaking steps to:
reduce the probability that the threat will occurminimizing the consequences if it occurs anywayboth
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Issues in Issues in Strategy FormulationStrategy Formulation
Issues in strategy formulationIssues in strategy formulationHow to handle channel conflict
Let the established distributors handle e-business fulfillmentProvide online services to intermediariesSell some products only online, other products may be advertised online but sold exclusively off-lineNot selling online
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Issues in Issues in Strategy Formulation Strategy Formulation
(cont.)(cont.)How to handle conflict between the off-line and online businesses
The allocation of resources between off-line and online activities can create difficultiesIt is essential that top management support both
off-line and online operations a clear strategy of “what and how” each unit will operate are essential
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Issues in Issues in Strategy Formulation Strategy Formulation
(cont.)(cont.)Pricing strategyPricing strategy
Price comparison is easierBuyers sometimes set the priceOnline and off-line goods are priced differentlyDifferentiated pricing can be a pricing strategy
versioning:versioning: Selling the same good, but Selling the same good, but with different selection and delivery with different selection and delivery characteristics characteristics
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Keys to EC SuccessKeys to EC Success
E-commerce failuresE-commerce failuresMacro economic level: The technological revolution posed by the Internet should be expected to go through a boom-and-bust-and-consolidation cycle like the automobile and railroad industries
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Keys to EC Success Keys to EC Success (cont.)(cont.)
Mid-economic level, the bursting of the dot-com bubble in mid-2000 is consistent with economic downturns that have occurred in property, precious metals, currency, and stock markets
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Keys to EC Success Keys to EC Success (cont.)(cont.)
Micro-economic level, the “Web rush” reflected an over allocation of scarce resources
venture capitaltechnical personneladvertising-driven business models
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Keys to EC Success Keys to EC Success (cont.)(cont.)
Financial reasons are lack of funding and incorrect revenue models
Lack of fundingIncorrect revenue model
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Keys to EC Success Keys to EC Success (cont.)(cont.)
E-commerce successesE-commerce successesBrick-and-mortar companies are adding online channels using use organizational knowledge, brand, infrastructure, and other strategic assetsMove to higher quality customersChange products or services in existing marketEstablish an off-line presence
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Keys to EC Success Keys to EC Success (cont.)(cont.)
CSFs (as per Asian CEOs): select robust business modelsunderstand the dot-com futurefoster e-innovationcarefully evaluate a spin-off strategyco-brandemploy ex-dot-com staffersfocus on the e-generation
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Keys to EC Success Keys to EC Success (cont.)(cont.)
The top three factors for successful B2C e-commerce:
effective marketing managementattractive Web sitebuilding strong connections to customers
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Keys to EC Success Keys to EC Success (cont.)(cont.)
The top three factors for successful B2B e-commerce:
readiness of trading partnersinformation integration inside the company and in the supply chaincompleteness of the application
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Keys to EC Success Keys to EC Success (cont.)(cont.)
The top three factors for overall, successful e-business:
proper business modelreadiness of the firm to become an e-businessinternal enterprise integration
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Going GlobalGoing Global
Benefits and extent of operationsBenefits and extent of operationsThe major advantage of EC is the ability to do business
at any timefrom anywhereat a reasonable cost
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Going Global Going Global (cont.)(cont.)
Barriers to global ECBarriers to global ECauthentication of buyers and sellersgenerating and retaining trustorder fulfillment and deliverysecuritydomain names
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Going Global Going Global (cont.)(cont.)
Barriers to global ECBarriers to global EC
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Going Global Going Global (cont.)(cont.)
Cultural issuesCultural issuescultural attributes determine how people interact with companies, agencies, and each other based on:
social normslocal standardsreligious beliefslanguage
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Going Global Going Global (cont.)(cont.)
Administrative issuesAdministrative issuesNational governments and international organizations are working together to find ways to avoid uncoordinated actions and encourage uniform legal standards
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Going Global Going Global (cont.)(cont.)
International trade International trade organizations are attempting to organizations are attempting to reduce EC trade barriers like:reduce EC trade barriers like:
pricing regulationspricing regulations
customscustoms
import/export restrictionsimport/export restrictions
tax issuestax issues
product specification regulationsproduct specification regulations
Privacy protectionPrivacy protection
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Going Global Going Global (cont.)(cont.)
Geographical issuesGeographical issuesGovernment tariffsCustoms TaxationMajor US tax issue imposition by states and local authorities of sales taxes on goods purchased by their residents from out-of-state EC companies
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Going Global Going Global (cont.)(cont.)
A major key financial barrier to global EC is electronic payment systemsAlthough credit cards are widely used in the U.S., many European and Asian customers prefer to complete online transactions with off-line payments
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Going Global Going Global (cont.)(cont.)
Breaking down the barriers Breaking down the barriers Be strategicKnow your audienceLocalizeThink globally, act consistentlyValue the human touchClarify, document, explainOffer services that reduce barriers
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EC in Small- and EC in Small- and Medium-Sized EnterprisesMedium-Sized Enterprises
SMEs moved onto the Web because they realized there were opportunities in:
marketingbusiness expansionbusiness launchescost cuttingtighter partner alliances
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EC in Small- and EC in Small- and Medium-Sized Enterprises Medium-Sized Enterprises
(cont.)(cont.)
CSFs for SMEs:CSFs for SMEs:Product is criticalPayment methods must be flexibleElectronic payments must be secureCapital investment should be kept to a minimum
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EC in Small- and EC in Small- and Medium-Sized Enterprises Medium-Sized Enterprises
(cont.)(cont.)Inventory control is crucialLogistical services must be quick and reliableHigh visibility on the InternetJoin an online communityA Web site should provide all the services needed by consumers
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EC in Small- and EC in Small- and Medium-Sized Enterprises Medium-Sized Enterprises
(cont.)(cont.)
Supporting SMEsSupporting SMEsMost countries Most countries have a government agency devoted to helping SMEs become more aware of and able to participate in EC
sba.govbusiness.gov.au
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EC in Small- and EC in Small- and Medium-Sized Enterprises Medium-Sized Enterprises
(cont.)(cont.)Vendors have set up a variety of service centers that typically offer a combination of free information and fee-based support
ibm.com/businesscenterMicrosoft’s bcentral.com
Professional associations, Web resource services
smallbusiness.yahoo.comworkz.com