1-3 Key questions covered in this chapter:• What are the categories of e-commerce?• What are the new views of strategy in the networked-economy?• What is the framework for the field of e- commerce?• Why does a senior manager need to know all four infrastructures?• What are the roles and responsibilities of senior e-commerce managers?• What key challenges do senior leaders face today?
1-4 e-Commerce as the Networked Economy The networked economy business traits can be summarized as:• Create value largely through gathering, synthesizing and distribution of information• Formulate strategies that make management of the enterprise and technology convergent• Compete in real time rather than in “cycle time”• Operate in a world characterized by low barriers to entry, near-zero variable costs of operation and shifting competition• Organize resources around the demand side rather than supply side• Manage better relationships with customers through technology
1-5 Definition– It is about the exchange of digitized information between parties– It is technology-enabled– It is technology-mediated– It includes intra- and interorganizational activities that support the exchange
1-6 How Do We Define e-Commerce?Technology-mediated exchanges between parties aswell as electronically-based intra- or inter-organizational activities that facilitate such exchanges
1-7 Distinct Categories• Business-to-Business – The full spectrum of e-commerce that can occur between two organizations.• Business-to-Consumer – Exchange between businesses and consumers, such as those managed by Amazon, Yahoo etc.• Peer-to-Peer – Exchanges between and among consumers e.g. eBay.• Consume-to-Business – Consumers can band together to present themselves as a buyer group in a C2B relationship.
1-8 Exhibit 1.1: Four Categories of e-Commerce Business originating from… Business Consumers BusinessAnd Selling to… B2B C2B Consumers B2C P2P
1-9 Distinct Categories of e-Commerce• Business to Business (B2B) refers to the full spectrum of e-commerce that can occur between two organizations. This includes purchasing and procurement, supplier management, inventory management, channel management, sales activities, payment management &service and support. Examples: FreeMarkets, Dell and General Electric• Business to Consumer (B2C) refers to exchanges between business and consumers, like the ones managed by Amazon Yahoo and Charles Schwab & Co. The activities tracked are consumer search, frequently asked questions and service and support.
1-10 Distinct Categories of e-Commerce (cont’d)• Peer to Peer (C2C) exchanges involve transactions between and among consumers. These can include third party involvement, as in the case of the auction website Ebay. Examples: Owners.com, Craiglist, Monster• Consumer to Business (C2B) involves when consumers band together to present themselves as a buyer in group. Example: www.speakout.com
1-11Converging Categories of e-commerce• A single chain of e-commerce will ultimately emerge• The chain will be superset of categories noted above.• Important to think of a single demand-and- supply chain• The categories of e-commerce are not distinct , but rather intimately linked in a broader network of supply and demand
Exhibit 1.2: Convergence 1-12 of e-Commerce Categories Business originating from… Business Consumers Publishers order paper supplies from Consumers Business paper companiesAnd Selling to… aggregate to bulk purchase from Amazon orders Amazon from publishers Consumers Consumers buy Consumers resell thousands of Harry copies on eBay Potter books from Amazon
Strategy Making in a Rapidly Changing 1-13 EnvironmentHow can a company faced with the changing onlineenvironment set a strategy? Classical Strategic planning• This begins with the specification of the mission and vision of the firm.• A careful balance of internal and external analysis leads to a choice of strategy for the company as a whole called “corporate strategy”.• Strategies that relate to specific divisions within a company are termed as “business-unit strategies”.
Exhibit 1.3: Classic Framework 1-14 for Strategy Management Mission Goals InternalExternal Strategy (Company)Analysis Formulation Analysis •Corporate •Business-unit •Functional •Operating Implementation Control and Monitoring
1-15New Views of e-Commerce Strategy• Speed of change and adaptation must be figured into the classical strategic management equation.
1-16New Views of e-Commerce Strategy (cont’d) Sense and respond paradigm:• It provided an approach to strategic thinking that was intuitive, actionable and easy to implement.• It made companies focus on listening in a new manner to customers to reduce the high levels of uncertainty. Drawbacks:• Its very reactive and the starting point is always the customer.• This is more appropriate for traditional offline companies.
1-17New Views of e-Commerce Strategy (cont’d) Strategy as rules: Focus on “simple rules” rather than complex strategic planning exercises.• Simple rules help the senior e-commerce manager recognize positive (or negative) situations and react accordingly.• Psychologists – or , more specifically , decision scientists – term these cognitive approaches “patterned recognition”• For example chess players intuitively recognizes various board patterns as they emerge and can anticipate the reactions of competitors.
1-18 The Three Approaches to Strategy• Position approach: “Where should we be vs. our competition?”• Resources approach: “what resources should we possess?”• Simple rules approach: “What processes should we follow?”
1-19 Exhibit 1.4:Three Approaches to Strategy Position Resources Simple RulesStrategic Logic • Establish position • Leverage resources • Pursue opportunities • Identify an attractive • Establish a vision • Jump into the confusion marketStrategic Steps • Locate a defensible • Build resources •Keep moving position •Leverage across markets •Seize opportunities • Fortify and defend •Finish strongStrategic Question • Where should we be? • What should we be? • How should we proceed? • Unique, valuable position • Unique, valuable, • Key processes andSource of with tightly integrated inimitable resources unique simple rulesAdvantage activity system • Slowly changing, well- • Moderately changing, • Rapidly changing,Works Best In structured markets well structured markets ambiguous marketsDuration of • Sustained • Sustained • UnpredictableAdvantage • It will be too difficult to • Company will be too slow • Managers will be tooRisk alter position as conditions to build new resources as tentative in executing on change conditions change promising opportunitiesPerformance Goal • Profitability • Long-term dominance • Growth
Factors of Consumer Behavior in the Online 1-20 Environment The 2 key factors that are of paramount importance in the online environment are:• Customization: This refers to the personalization of communications between users and a website.• Interactivity: is defined as the user’s ability to conduct two-way communications. This includes user to user and firm to user communication.
1-21 The Process of Emergent Strategy• Internet has forced companies to react more quickly• Henry Mintzberg observed what he terms “emergent strategy”• These emergent strategies are the unplanned responses to unseen changes• Not the classical top-down analyses of the formal planning process• Real time changes in strategy that are often felt and initiated by the troops.• Sense-and-respond approach is typically directed by senior managers• Emergent strategy often comes from the executives who are at the front lines executing the strategy.• The firms often modify their intended strategy as the forces of the four infrastructures change.
1-22 Exhibit 1.5: A Comprehensive Framework Media InfrastructureTechnology e-Commerce CapitalInfrastructure Strategy Infrastructure Public Policy
1-23 The Strategy Formulation Process There are six interrelated, sequential decisions to strategy:• Framing the Market Opportunity• Business Model• Customer Interface• Market Communication and Branding• Implementation• Metrics
1-24 Exhibit 1.6: e-Commerce StrategyFraming the Market Business Customer Communication Implementation Market Metrics Model Interface and BrandingOpportunity
The Context of Strategy Formulation: 1-25 The Four Infrastructures• Successful strategies emerge from a deep understanding of where the market – and , hence, the cash flow – will be in both the short- term and long-term future.• Market is the important word in this sentence• Market certainly involves the customers – indeed , the customer is at the center – a market also includes the buyers and sellers as well as the broader contextual forces shape the nature of the marketplace exchange• There are four critical forces that the e-commerce manager must know and manage
The Context of Strategy Formulation: 1-26 The Four Infrastructures• Technology infrastructure: This is both an enabler and driver of change.The hardware backbone of computers, routers, servers, fiber optics, cables, modems, etc. provide half of the technology equation.The other half includes the software and communication standards including the core protocols for the www.• Capital Infrastructure: Deals with getting the money to launch new businesses and finding the right people to build the business plan and seek funding sources.
The Context of Strategy Formulation: 1-27 The Four Infrastructures (cont’d)• Media infrastructure: The e-commerce managers must make choices about the types of media employed(e.g., print, audio , video), the nature of the media and editorial policy(including style, content, look and feel).• Public Policy Infrastructure: All the decisions related to strategy, technology, capital and media are influenced by laws and regulation, i.e., public policy decisions. It not only affects specific business but also direct and indirect competitors.
Why a senior Manager Needs to Know All four 1-28 Infrastructures • Consider media company Bertelsmann and in particular Bertelsmann Music Group (BMG) • One of the largest music companies in the world • Music companies are organized around several functions
1-29 Functions of Music Companies• 1 Artist and repertoire• Recording• Manufacturing• Distribution• Marketing• Music sales
1-30Types of questions for BMG executives• E-commerce strategy – Has the digitization of music revealed unmet or underserved needs that MBG can exploit? – Has the internet brought new , indirect competitors? – Can BMG find a sustainable revenue model on the internet? – Etc.
Roles and Responsibilities of a Senior 1-31 e-Commerce Manager Senior managers need to have the basic business skill set of traditional managers but must also incorporate new knowledge, skills and capabilities. The roles and responsibilities include:Cross Discipline, Integrative position:• Entrepreneurship is at the heart of any online business.The manager should be able to make strategic decisions quickly and authoritatively.• They should be trained in a variety of disciplines including marketing, logistics, accounting, and finance.• They should also add two new disciplines to the mix: technology sophistication and media knowledge.• They should also understand the role of mass communication in a media business.
Exhibit 1.7: Relevant Disciplines 1-32 for a Senior e-Commerce Executive Strategic Management Finance Marketing Entrepreneurship OperationsAccounting and Logistics Technology New Media
Roles and Responsibilities of a Senior 1-33 e-Commerce Manager (cont’d)• The day to day responsibilities of a senior e- commerce manager include:• Provide vision for the online business. – One the most important tasks of e-commerce manager is to establish the vision for the online business. – Superior visions often reflect something more than simple revenue or business goals. – “We want to be the largest online supplier of ethical, over- the-counter drugs” – “We want to help people recover from illness to improve their social, medical, and family welfare”
Roles and Responsibilities of a Senior 1-34 e-Commerce Manager (cont’d) – Strong visions provide direction for employees to rally around ,encourage investors to “bet” on the company , and send a signal to the market that the firm is able to provide leadership in the evolution of industries.• Set process and outcome goals by specifying clear performance targets.• Formulate strategic direction and choice by making concrete choices- and associated tradeoffs- related to each phase of the e-commerce strategy process, including market opportunity, business model specification and design of the customer interface.
Roles and Responsibilities of a Senior 1-35 e-Commerce Manager (cont’d)• Drive implementation: Strategy implementation is about making the right choices related to people, structure, systems and processes to execute the strategy.• Accountable for performance: The senior manager is responsible for the performance of the organization.
Exhibit 1.8: A Flow Diagram of the 1-36 Strategic Responsibilities Set Vision Establish Goals Formulate Strategy Drive Implementation Be Accountable for Performance
1-37Location of the Sr. Manager in the Organization• Line Executive: The senior manager may be a line executive who is responsible for the profit and loss of an online initiative.• Staff Executive: A staff executive does not have formal profit and loss responsibility for a business. Their role is to support the efforts of the line executives in the execution of their strategy.
Exhibit 1.9: Where to Find Senior e-Commerce 1-38Managers Within Existing Bricks-and-Mortar Companies Corporate Business Unit Stand-Alone •Corporate site •Report to general •Separate business management manager of business from corporate Line Executive unit parent •Cross-business-unit integration site •Supports •Supports and corporate-wide advises strategic Staff Executive initiatives business unit e- commerce initiatives
Key Challenges for Senior Leadership in Today’s 1-39 Environment • Understanding Customer Evolution: The challenge here is to invest heavily in understanding the customer needs and invest in advance so that the launch of the innovation coincides exactly with the customer needs. • Charting Changing Technology: The senior executive must be well schooled in the basic and emergent technologies. Picking the right technologies and investing ahead of the curve is a constant, high- stakes gamble for the senior management team.
Key Challenges for Senior Leadership in Today’s 1-40 Environment (cont’d)• Balancing Irrational Exuberance and Irrational Doom: The executive must continually reassure that the business model makes sense, spell out the path to profitability and paint a vision that can rally all relevant stake holders, including partners, customers and employees.• Integration of Offline and Online Activities: Customer- facing activities need to be made ready for the web.• Identifying the Key Levers of Competitive Advantage: The best senior leaders are able to reallocate their resources and capabilities in anticipation of evolving competitive landscape.