E business strategy

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E business strategy

  1. 1. Strategy and E-Business Dr. Ronan McIvor 2007.
  2. 2. The Internet and Corporate StrategyEssential questions: Who will capture the economic benefits that the Internet creates?; Will all the value end up going to customers? Will companies be able to share the value? How will the Internet impact industry structure? Will it increase or reduce the profitability? How will it impact business strategy? Will the Internet support or erode the ability of companies to gain sustainable competitive advantage? Adapted from Porter, 2001
  3. 3. Three Levels of E-Business Experimentation Integration TransformationE-Business Strategy No E-business strategy E-business strategy supports E-business strategy supports current corporate strategy breakout corporate strategyCorporate Strategy E-business strategy not linked E-business strategy E-business strategy is a driver to corporate strategy subservient to corporate of corporate strategy strategyScope Department/Functional Cross-functional participation Cross enterprise involvement orientation (interconnected customers, suppliers & partners)Payoffs Unclear Cost reduction, business New revenue streams, new support & enhancement of business lines, improvements existing business process in customer service and practices, revenue satisfaction enhancementLevers Technological infrastructure & Business processes People, intellectual capital & software applications relationships, co-operationRole of information Secondary to technology Supports process efficiency Information asymmetries used and effectiveness to create business opportunities Adapted from Hackbarth and Kettinger, 2000
  4. 4. E-Business Strategy Stages Major Stages Initiate Diagnose Breakout Transition Assess Current Environment Establish Strategic Target Industry Company • Outline project • Industry • Identify current • Match current • Analyse difference scope Competitive business business between breakout • Identify project Assessment strategies strategies with and current stakeholders • Benchmark E- • Assess customer SWOT; strategy; • Determine business relationships • Evaluate • Assess change mgt. project schedule technology • Assess supplier alternative E- & cost/benefit/risk • Assess industry relationships business breakout analysis; business • Assess e- strategies • Consider industry partnerships business responses technology • Plot out milestones • Assess business for strategy partnershipsOutputs Project Work Plan Opportunities and Strengths and E-business breakout E-business transition Threats Weaknesses strategy strategy Hackbarth and Kettinger, 2000
  5. 5. Stage I - Initiate Outline project scope; Identify stakeholders; Determine schedule; Project workplan. Adapted Hackbarth and Kettinger, 2000
  6. 6. Stage II - Diagnose - Industry Analysis Industry definition; Identify major customers; Identify major competitors and their capabilities; Benchmark E-business technology; Apply Porter’s 5 Forces. Adapted Hackbarth and Kettinger, 2000
  7. 7. How the Internet Influences Industry Structure Threat of Substitutes (+) By making the overall industry more efficient, the Internet can expand the size of the market (-) The proliferation of Internet approaches creates new substitution threats Rivalry amongst exisiting Competitors Buyers Bargaining Power (-) Reduces difference among competitors as offerings are difficult to Bargaining Power Bargaining Power over Suppliers of Channels of End-users keep proprietary (-) Migrates competition to price (+/-) Procurement using the (-) Widens the geographic market, (+) Eliminates powerful (-) Shifts bargaining Internet tends to raise bargaining increasing the number of competitors channels or improves power to end power over suppliers, though it can bargaining power over consumers also give suppliers access to more traditional channels (-) Reduces switching customers costs (-) The Internet provides a channel for suppliers to reach end users, reducing the leverage of intervening Barriers to companies Entry (-) Internet procurement and digital markets tend to give all companies equal access to suppliers, and (-) Reduces barriers to entry such as the need for a sales gravitate procurement to standard force, access to channels, and physical assets - anything that products that reduce differentiation Internet technology eliminates or makes easier to reduce (-) Reduced barriers to entry and barriers to entry proliferation of competitors (-) Internet applications are difficult to keep proprietary from downstream shifts power to new entrants suppliers (-) A flood of new entrants has come into many industries Porter, 2001
  8. 8. Stage II - Diagnose - Company Analysis Identify current business strategies; Assess company Customers; Assess company Suppliers; Assess company E-business technologies; Use Value Chain to identify areas where IT can add value. Output - SWOT Analysis. Adapted Hackbarth and Kettinger, 2000
  9. 9. Internet Applications in the Value Chain Firm Infrastructure Web-based, distributed financial and ERP systems Self-service personnel and benefits administration Human Resource Web-based training Management Internet-based sharing and dissemination of company information Electronic time and expense reporting Technology Collaborative product design across locations and among value systems participants Development Knowledge directories accessible from all parts of the organisation Real-time access by R&D to on-line sales and service information Internet-enabled demand planning; fulfilment Procurement Other linkage of purchase, inventory, and forecasting systems with suppliers Automated requisition to pay Direct and indirect procurement via marketplaces, exchanges, auctions, and buyer-seller matching Inbound Logistics Operations Outbound Logistics Marketing After-Sales Service Real time integrated Integrated information Transaction of orders whether Online sales channels inc. Customer service scheduling, shipping, exchange, scheduling and initiated by consumer, a sales web sites and marketplaces through email, warehouse management, decision making in in-house person, or channel partner Inside and outside access electronic billing demand management and plants, contract assemblers, Automated customer-specific to customer information, etc. planning, and advanced and components suppliers agreements and contract terms product catalogs etc. Customer self planning and scheduling Customer and channel access Online product service via web sites across the company and its to product development and configurators and customer suppliers delivery status Push advertising profiling Dissemination throughout the Collaborative integration with Customer feedback through Field servie access company of real-time inbound customer forecasting systems web surveys and promotion to customer account and in-progress inventory data Integrated channel response tracking. review, parts management including availability and information exchange, ordering etc. warranty claims and contract management Porter, 2001
  10. 10. Stage III - E-Business Strategy Strategic Priorities Ranking Company Opportunity/ SWOT Industry Strength/ Threat Rankings Assessment Weakness Rankings Evaluate E-Business Strategies E-business Strategy Adapted Hackbarth and Kettinger, 2000
  11. 11. Stage IV - Transition E-Business Minus Status Quo Equals Gap Strategy Strategy Factor in Change Factor in Cost/Benefit/ Readiness Assessment Risk Analysis Analyse Gap Difference between E-business strategy & current strategy Consider potential industry responses Plot E-Business Transition Strategy including Recommended courses of Action & Milestones E-Business Transition Strategy Adapted Hackbarth and Kettinger, 2000
  12. 12. Steps in e-Business Implementation Optimisation Next Full e-Business generation e- BusinessStepwise IT Implementation Retail Transactions Launch & Growth Integration with Web-enabled Production Systems & Business Business Customers Operations Order Entry: Sales & Service via the ‘Net Searchable Pre-Launch Dynamic Web Site Providing web-presence and informational services Static Web-site Stepwise Launch of Business Propositions Morath, 2000
  13. 13. Change Readiness Assessment Factor Question Senior Management Commitment Is senior management support visibly removed or actively involved in EC implementation? Managers Willingness to Impact Are only modest impacts on people tolerable or is management willing to deal with the People consequences of extreme impacts? IT Resource Availability Are only minimal IT resources available to support EC projects or are they abundant? In-house Expertise Availability Are personal skills complete unrelated to EC or are they easily related to new technologies? Structural Flexibility Is the organisational structure rigid or is it flexible to change and learning? Acceptance of Radical Change Is the firm historically reactive or proactive? Comfort level with New Is the firm slow to respond or quick to implement new technology? Technologies Cultural Capacity for Change Does the firm culture support the status quo or actively seek participatory change? Cross-functional decision making Does the firm historically make a decision inter-departmentally or cross-functionally? Value Chain Target Is the EC implication effort targeted at internal support processes or core processes? Adapted Hackbarth and Kettinger, 2000
  14. 14. Evolution of Strategy Thinking ‘70s & early ’80s - industry structure considered to be primary determinant of profit e.g. Porter (1980); Late ‘80s & ‘90s - emphasis on resources internal to firm as principal driver of profit and strategic advantage e.g. Barney (1986) & Prahalad & Hamel (1990); Recently - shift from focus on tangible resources to intangible resources as a source of strategic advantage e.g. ‘knowledge’, ‘core competence’ and ‘learning’.
  15. 15. Implications of the Internet Rapid change in technology; More powerful and sophisticated customer; Blurring of industry boundaries - i.e. industry convergence; Reaction to change a source of strategic advantage; Worst case - impact of Internet challenges the value of strategy thinking such as industry analysis etc.
  16. 16. Sources of Value Creation in E-Business Novelty - New transaction structures - New transactional content - New participants etc. Efficiency Lock-in - Search costs - Selection range Value - Symmetric information - Simplicity - Switching costs - Speed - Loyalty programmes - Scale economies etc. - Dominant design - Trust - Customisation etc. - Positive network externalities Complementarities - Direct - Indirect - Between products and services for customers (vertical and horizontal) - Between on-line and off-line assets - Between technologies - Between activities Amit and Zott, 2001
  17. 17. Value Creation in the Air Transport Offering Source of Value (Amit and Zott, 2001) Key Findings in Aviation Context Efficiency: 1. Real-time decision-making mechanisms (e.g. Search costs; Selection range; 2. Up-to-date information for buyers and Symmetric information; Simplicity; Speed; sellers Scale economies) 3. Reductions in customers s search and transaction costs 4. Reductions in the communication and transaction costs of the seller Complementarities: 1. Bundling products and services through vertical and horizontal collaboration/ (e.g. Between products and services for /partnerships/alliances to form more customers; Between on and off-line assets; valuable holistic travel package Between technologies; Between activities) 2. Offering additional services not directly related to the core travel offering (e.g. financial services) 3. Reducing communication and promotion costs 4. Taking equity stakes in on-line agencies Lock-in: 1. Offering low(er) prices/discounted fares (e.g. for on-line bookings only, or (e.g. Switching costs - loyalty programmes, relationship-based pricing) dominant design, trust, customisation; 2. Customising offerings to suit individual Positive network externalities- direct and customer needs indirect) 3. Amalgamating rewards/bonuses for loyal customers within business networks 4. Building consumer trust Novelty: 1. New transaction structures play integral role in lowering transaction costs for (e.g. New transaction structures; New airlines and customers transactional content; New participants) 2. Disintermediation and re- intermediation of the travel agent 3. Emergence of novel retail partners (e.g. McIvor et al., 2002 internet cafés)
  18. 18. Implications of the Internet for the Business NetworkValue chains will fragment into multiple businesses;Some businesses will benefit from network economies of scale;New opportunities will arise for purely physical businesses;Value proposition underlying brand identity will change;New branding opportunities for third parties that neither producea product or deliver a primary service;Shifts in bargaining power;Customer switching costs will be reduced;Incumbents - ‘victims of their obsolete physical infrastructuresand their own psychology’. Evans and Wurster, 1997
  19. 19. Misconceptions associated with the Internet Overestimating first-mover advantage; Unintentionally diluting fit in the pursuit of reach; Unintentionally sacrificing focus in the desire to offer ‘customer solutions’; Ignoring Internet-sector differences; Relying unguardedly on partner leverage; Going global prematurely; and Treating technology as strategy. Rangan and Adner, 2001
  20. 20. Advantages and Challenges for Clicks-and-Bricks Firms Advantages: Brand recognition, reputation and credibility; Can offer product returns via physical storefronts; Higher performance via combining online and offline activities; Cost reduction e.g. online order processing and bulk deliveries to local inventory locations; and In many cases, the Internet is a source of product and service information. Challenges: Difficulties of integrating online and physical activities; and ‘Old economy’ firms have difficulties with Internet strategies. Kim et al., 2004

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