E-Strategy, Internet Communities, and Global EC

Learning Objectives
Describe the importance and essentials of business and EC strategies Describe the strategy planning and formulation process for EC Understand how EC applications are discovered, justified, and prioritized Describe strategy implementation and assessment including the use of metrics Understand EC failures and lessons for success
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Learning Objectives (cont.)

Describe the role and impact of virtual communities on EC Evaluate the issues involved in global EC Analyze the impact of EC on small businesses Describe the relationship between EC and BPR, knowledge management, and virtual corporations Describe the future of EC
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IBMs E-Business Strategy

The Problem
Need to capture new business opportunities and technologies (like EC) Develop a business strategy for that purpose IBMs current strategy is to transform itself into an ebusiness in order to provide business value to the corporation and its shareholders IBM views e-business as being much broader than EC because it:
Serves a broader constituency Offers a variety of Web-based processes and transactions
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IBMs E-Business Strategy (cont.)

The Solution is based on four goals:
Lead IBMs strategy to transform itself into ebusiness Act as a catalyst to help facilitate that transformation Help business units become more effective in their use of the Internet/intranet
Internally With their customers
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IBMs E-Businesss Strategy (cont.)

Establish a strategy for the corporate Internet site
Including definition of how it should look, feel and be navigated Create an online environment most conducive to customers doing business with IBM

Leverage the wealth of e-business transformational case studies within IBM to highlight the potential of e-business to IBMs customers
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IBMs E-Business Strategy (cont.)

IBM focused on seven key initiatives:
E-commerce E-care for customers E-care for business partners E-care for influencers E-care for employees E-procurement E-marketing communications

IBMs E-Business Strategy (cont.)

The Results
Implementation of an e-procurement system that spans IBM globally Saved IBM almost $5 billion over a 3-year period Electronic invoicing:
Reduces the number of paper invoices Enables fast, competitive tendering from its suppliers
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IBMs E-Business Strategy (cont.)

IBMs evaluation of the procurement process determined where the use of the Web adds value Identification of more than 20 initiatives to reduce costs and improve purchasing including:
Collaboration with suppliers Online purchasing Knowledge-management-based applications
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E-Strategy: Concepts & Overview

Strategysearch for revolutionary actions that will significantly change the current position of a company, shaping its future
Finding the position in a marketplace that best fits the firms skills Companys choice of new position that must be driven by its ability to find new trade-offs and leverage a new system of complementary activities into sustainable advantage
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Elements of Strategy
Elements of a strategy
Forecasting Resource allocation Core competency Environmental analysis Company analysis Business planning

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Types of E-Strategies
EC strategy (e-strategy)an organizations strategy for use of e-commerce or e-business
Click-and-mortar companies that use many EC applications Click-and-mortar companies that use only one or two EC applications Click-and-mortar companies that use one EC application that fundamentally changes all their business Pure-play EC companies
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Need for a Strategy

Why does a company need an e-strategy?
Fast changes in business and technology means that opportunities and threats can change in a minute Company must consider EC strategy that includes contingency plans to deal with changes May be too costly not to have one

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Charles Schwabs EC Strategy

In 1998 Schwab launched schwab.com one of the first click-and-mortar stockbrokers
Changed the company pricing structure radically
Took a short-term revenue loss Looking toward a long-term strategic gain

EC strategy fit well with companys overall strategy emphasizing a one-to-one relationship with its customers
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Charles Schwab (cont.)

Schwab had first-mover advantage in securing key partnerships
Schwab and Nextel agreed to build an infrastructure allowing investment opportunities over mobile phones or wireless handheld devices Initial target was existing off-line customers with incomes over $150,000 a year and who buy and hold Key benefits:
Innovative products Low fees Superior service Cutting-edge technology
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Charles Schwab (cont.)

Partnered with content providers and technology companies to offer:
Large number of financial services online Community and personalized services

Financial model composed of three parts:

The revenue model The value model The growth model
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Charles Schwab (cont.)

CyberTrader's services are designed for online, self-directed active traders who use short-term trading strategies to generate current income Cybertrader features include:
Nasdaq Level II quotes Direct Access trading capabilities Risk management tools Graphical decision support modules Streaming News Intelligent order routing Direct options routing

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E-Strategy Landscape
Strategy initiation: organization prepares information about its vision,mission,purpose,and the contribution that EC could make to the business Strategy formulation:
Identification of EC applications Cost-benefit analysis Risk analysis
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E-Strategy Landscape (cont.)

Strategy implementation:
Organizations resources are analyzed A plan is developed for attaining the goals

Strategy assessment:
Organization periodically assesses progress toward the strategic goals Involves the development of EC metrics

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Exhibit 11.1 The Landscape of EC Strategy

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Strategy Initiation
Strategy initiationthe initial phase of e-strategy in which an organization prepares information about its vision, mission, purpose, and the contribution that EC could make
1. Review the organizations business and IT vision and mission 2. Generate vision and mission for EC 3. Begin with industry and competitive analysis

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Industry Assessment
What industry is the EC initiative related to? Who are the customers? What are the current practices of selling and buying? Who are the major competitors? (How intense is the competition?) What e-strategies are used, by whom? How is value added throughout the value chain? What are the major opportunities and threats? Are there any metrics or best practices in place? What are the existing and potential partnerships for EC?
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Company Assessment
The organization investigates its own:
Business strategy Performance Customers Partners

It looks at everything that has an impact on its operations

Processes People Information flows Technology support

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Industry, Company, and Competitive Analysis

SWOT analysisa methodology that surveys the opportunities and threats in the external environment and relates them to the organizations particular strengths and weaknesses SWOT Analysis
Strengths Opportunities Weaknesses Threats
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Exhibit 11.2 SWOT Matrix

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Competitive Intelligence on the Internet

Internet can play a major role as a source of competitive information (competitive intelligence)
Review competitors Web sites Examine publicly available financial documents Ask the customersaward prizes to those who best describe your competitors strengths and weaknesses
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Competitive Intelligence on the Internet (cont.)

Analyze related discussion groups
Find out what people think about a company and its products and competitor's products Reaction to new ideas and products

Use information delivery services

Find out what it published on the Internet Known as push technologies

Corporate research companies provide information about your competitors: Examine chat rooms
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Issues in Strategy Initiation

To be a first mover or a follower?
Advantages
Chance to capture large markets Establishing a brand name Exclusive strategic alliances

Disadvantages
Cost of developing EC initiative is usually very high Chance of failure is high System may be obsolete as compared to second wave arrivals No support services are available at the beginning
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Should You Have a Separate Online Company?

Advantages
Reducing or eliminating internal conflicts Providing more freedom to management in pricing, advertising, etc. Can create new brands quickly Take the e-business to an IPO and make a fortune

Disadvantages
May be very costly and risky Collaboration with off-line business may be difficult Lose expertise of business functions unless you use close collaboration

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Strategy Formulation
Strategy formulation
Development of long-range and strategic plans to exploit opportunities and manage threats in the business environment in light of corporate strengths and weaknesses

Includes examining or redefining EC mission

Specifying achievable objectives Developing strategies Setting implementation guidelines
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Discovering EC Opportunities
3 common mistakes in allocating EC investment
Let a thousand flowers bloomfund many projects indiscriminately Bet it allput everything on a single high-stake initiative Trend-surffollow the crowd toward the next big thing

Any of the above can be risky and costly

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Discovering EC Opportunities (cont.)

Approaches to identifying EC opportunities
Problem-driven Technology-driven Market-drivenwaiting to see what the competitors will do Fear or greed-driven
Afraid if they do not practice EC they will be big losers Think they can make lots of money going into EC
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Determining an Appropriate EC Application Portfolio

Find the most appropriate portfolio in order to share limited resources
Combine long-term speculative investments in new potentially high-growth business With short-term investments in existing, profitmaking businesses

Boston Consulting Groups matrix

Cash cows Starts Questionable projects Dogs
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EC Application Portfolio
Tjans portfolio strategyInternet portfolio map
Strategy based on company fit (assessed by five levels from high to low)
Alignment with core capabilities Alignment with other company initiatives Fit with organizational structure Fit with companys culture and values Ease of technical implementation

Projects viability assessed by 4 criteria

Market value potential Time to positive cash flow Personal requirements Funding requirements

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Exhibit 11.4 Tjan Application Portfolio Map

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Strategic Directions at Chubb

Typical choice of EC model at Chubb Corp.
Create a new business model with EC as a major driverdiscarded because they had a successful business model with products matching distribution systems Spawn a secondary business model around EC; go directly to consumersdid not want to interrupt their relationships with agents and brokers
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Chubb Corp. (cont.)

Use EC as a tool within the existing business model (the selected model)
Helped Chubb further differentiate products and services by providing superb customer service over the Internet Opened several Web sitesone for each specialty group (e.g., for wine collectors) Enables superb communication with agents and business partners Allows business expansion into 20 countries
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Making the Business Case for EC

Business casewritten document that is used by managers to garner funding for specific applications or projects by providing justification for investments
Provides foundation for tactical decision making and technology by management Helps clarify the companys use of its resources to accomplish the e-strategy

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Content of an E-Business Case

Business case for EC approach for garnering funding for projects used to:
Provide justification for investments Provides bridge between EC plan and the execution Provides foundation for tactical decision making and technology risk management Clarifies how the organization will use resources to accomplish the e-strategy
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Content of an E-Business Case (cont.)

Content of an E-business case
Strategic justificationwhere are we going? Generational justificationhow will we get there? Technical justificationwhen will we get there? Financial justificationwhy will we win?

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Cost-Benefit and Risk Analysis

How to conduct an e-business case
Develop goal statement Set measurable goals Develop short- and long-term action plans Gain approval and support

Revenue model
Properly planned revenue model is a critical success factor Revenues from sales depend on customer acquisition cost and advertisement Must be figured into the analysis
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Cost-Benefit and Risk Analysis (cont.)

It is difficult to justify EC investment due to many intangible variables
Return on investment (ROI) Discounted cash flow

Two common methods

Value proposition Risk analysis
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Value Proposition
Value propositionthe benefit a company can derive from implementing a new project, such as EC, usually by increasing its competitiveness and by providing better service to its customers

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Risk Analysis
Risk analysis program should
Identify all potential risks Assess potential damage Evaluate possibility of protection (insurance) Evaluate cost of protection vs. benefits

E-business risks
Strategic risks Financial risks Operational risks

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Issues in Strategy Formulation

How to handle channel conflicts
Let established old-economy-type dealers handle e-business fulfillment Sell some products only online Help your intermediaries (e.g., build portals) Sell online and off-line Do not sell online

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Issues in Strategy Formulation (cont.)

How to handle conflict between off-line and online businesses
Clear support of top management Use of innovative processes that support collaboration Clear strategy of what and how

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Issues in Strategy Formulation (cont.)

Pricing strategy
Setting prices lower than off-line business may lead to internal conflict Setting prices at the same level may hurt competitiveness

Should you get financing from big venture capital firms?

Venture capital financing causes loss of control over business Benefit: access to various VC experts and get the cash you need
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Strategy Implementation
Strategy implementation--The execution of the e-strategy plan, in which detailed, short-term plans are developed for attaining strategic goals
Establish a Web team that continues the execution of the plan Start with a pilot project Planning for resources
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Strategy Implementation (cont.)

Strategy implementation issues
Evaluating outsourcing
Build an in-house EC infrastructure Purchase a commercial EC software package or EC suite Use a Web hosting company

Partners strategy How to coordinate B2B and B2C

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Strategy and Project Assessment

Strategy assessmentthe periodic formal evaluation of progress toward the organization's strategic goals; may include needed actions and strategy reformulation Objectives of assessment
Find out if EC project delivers what it was supposed to deliver Adjust plans if necessary Determine if EC project is still viable Reassess initial strategy in order to learn from mistakes and improve future planning Identify failing projects as soon as possible and determine reasons for failure 50

Measuring Results & Using Metrics

Metrica measurable standard or a target against which actual performance is compared
Response time to customers enquiries Response quality Security/trust level Download time, Timeliness of fulfillment How up-to-date information Availability Site effectiveness, ease of use, and navigability
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Measuring Results & Using Metrics (cont.)

Balanced scorecarda structured methodology for measuring performance in organizations, using metrics in four areas
Finance Customers assessments Internal business processes Learning and growth
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Measuring Results & Using Metrics (cont.)

Performance dashboarda structured methodology proposed by Rayport and Jaworski (2001) for measuring EC performance using:
Desired outcomes Corresponding metrics Leading and lagging indicators of performance
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EC Failures & Lessons Learned

E-Tailing failures
Lack of funding Incorrect revenue model

Exchange failures
Revenue growth too slow Need to move to new business model

EC initiatives failures
Levi Strauss stopped online direct sales of its apparel (levistrauss.com) when major distributors and retailers put pressure on the company not to compete with their brick-and-mortar outlets
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Success Stories & Lessons Learned

Reasons for success:
Brick-and-mortar companies add online channels Mergers and acquisitions Peter Drucker:
Analyze the opportunities Go out to look keep it focused Start small (one thing at a time) Aim at market leadership

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Success Stories & Lessons Learned (cont.)

Asian CEOs CSFs:
Select robust business models Understand dot-com future Foster e-innovation Evaluate a spin-off strategy Co-brand Employ ex-dot-com staffers Focus on the e-generation as your market

Get the technology right, avoid expensive technology and technology malfunctions
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Virtual Communities
Virtual communitya group of people with similar interests who interact with one another using the Internet Elements of interaction:
Communicationbulletin boards, chat rooms/threaded discussions, e-mail and instant messaging Informationdirectories and yellow pages, search engine, member-generated content EC elementse-catalogs, shopping carts, ads, auctions of all types 57

Virtual Communities (cont.)

Communities of transactions facilitate buying and selling Communities of interestpeople interact with each other on a specific topic Communities of relations (practice) organized around certain life experiences Communities of fantasyshare imaginary environments

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Virtual Communities (cont.)

Commercial aspects of community:
Understand a particular niche industry Build a site that provides valuable information Site should mirror the steps a user goes through in the information-gathering and decision-making process Build a community that relies on the site for decision support Start selling products and services that fit into the decision-support process
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Exhibit 11.9 Value Creation in E-Communities

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Virtual Communities (cont.)

Financial viability of communities
Based on sponsorship and advertisement Expenses are very high because of the need to provide:
Fresh content Free services Free membership

This model did not work well, many companies sustained heavy losses in 2000-2001; too few members, too few purchases
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Virtual Communities (cont.)

Key strategies for successful online communities
1. Increase traffic and participation 2. Focus on the needs of the members (facilitators and coordinators) 3. Encourage free sharing of opinions and information 4. Financial sponsorship is a must 5. Consider the cultural environment 6. Provide tools and activities for member use 7. Community members involved in activities and recruiting 8. Guide discussions, provoke controversy, and raise sticky issues 62

Going Global
Decision to go global is a strategic one
Geographical borders are falling Artificial borders are being erected through
Local language preferences, Local regulations Access limitations

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Benefits and Extent of Operations

Major advantage of ECability to do business any time, anywhere, rapidly at a reasonable cost Success stories
E*TRADE or boom.com as your broker for stock trading Amazon.com Small companies sell to hundreds of customers worldwide (virtualvine.com) Increasing number of out-of-the-country vendors participate in electronic requests for quotes Successful employees recruitment Successful collaboration in B2B exchanges
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Barriers to Global Electronic Commerce

Legal Issues
Uncoordinated actions must be avoided and an international policy of cooperation should be encouraged

Market Access Issues

Companies starting e-commerce need to evaluate bandwidth needs by analyzing the data required, time constraints, access demands, and user technology limitations

Financial Issues
Customs and taxation Electronic payment systems
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Small Business Goes Global

Cardiac Sciencetrying to break into the international market for years
Within 2 years after Internet inception in the company, it was shipping its products to 46 countries Today, 85 percent of the companys revenue is international, much of this is executed at (cardiacscience.com)
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Small Business Goes Global (cont.)

Advice for small businesses going global at: Universal Business Exchange (unibex.com) Several government agencies (stat-usa.gov) Cardiacs CEO crafting a solid export strategy takes a lot more commitment than putting up a snazzy Web site and waiting for the world to show up at our door. Its all about building relationships.
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Barriers to Global Electronic Commerce (cont.)

Other Issues
Language and translation
Primary problems are cost, speed, inaccuracy

Localization
Adapt local business practices

Culture
Multiple cultures warrant different marketing approaches
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Attracting Japanese Customers to Your Site

English-Japanese Promotion (ajpr.com)
Helps clients avoid the mistakes often made when they selling to the Japanese customers Target audience uses Japanese-only Web search engines Alert companies when logos or themes are likely to strike a sour chord with Japanese sensibilities
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Japanese Customers (cont.)

Japanese respond well to symbols or characters Product should be geared to Japanese males in their twenties and thirties

Ajpr.com also provides help to Japanese

Provides localization advice Advertising Document translation Consulting services

companies develop English versions of their sites

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Breaking down the Global EC Barriers

Value the human touch Be strategic Know your audience Be a perfectionist Remember, its the Web Integrate properly Keep the site flexible and up-to-date Synchronize content OECD (oecd.org) read Dismantling the Barriers to Global EC

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EC in SMEs
Advantages/benefits of EC in SMEs
Inexpensive
Source of information Advertising Conducting market research Build (or rent) a storefront Low transaction costs Niche markets are best Provide catalogs Way to reach worldwide customers
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EC in SMEs (cont.)
Disadvantages/risks
Inability to use EDI, unless it is EDI/Internet Lack of resources to fully exploit the Web Lack of expertise in legal issues, advertisement Less risk tolerance than a large company Disadvantage when a commodity is the product (for example, CDs) No more personal contact, which is a strong point of a small business No advantage to being in a local community
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Critical Success Factors for SMEs

Capital investment must be small Inventory should be minimal or non-existent Electronic payments scheme Payment methods must be flexible Logistical services must be quick and reliable The Web site should be submitted to directory-based search engine services Join an online service or mall and do banner exchange Design a Web site that is functional and provides all needed services to consumers
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Supporting Small Business

Technical support from IBM (for a fee of only $25 per month) at ibm.com.search:businesscenter Digitals virtual stores Microsofts Personal Web Server (PWS) U.S. government at ecommerce.gov Gartner Group provides access to online research material at gartner.com
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Business Process Reengineering (BPR)

Organizational transformationthe process of completely or drastically transforming an entire organization to a new mode of operation Business process reengineering (BPR)a methodology for comprehensive redesign of an enterprises processes
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BPR (cont.)
Redesign of the enterprise process and BPR
Does not make sense to automate poorly designed processso restructure Necessary to change processes to fit commercially available software Fit is required between systems and processes of different companies Change processes to fit procedures and standards of public e-marketplaces Adjust procedures and processes to align with available services (logistics, payments, security) Changes to assure flexibility and scalability
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Workflow Technologies
Workflow systemsoftware programs that manage all the steps in a business process from start to finish, including all exception conditions Two categories:
Collaborative workflowproducts address project-oriented and collaborative processes Production workflowtools address missioncritical, transaction-oriented processes
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Virtual Corporations
Virtual corporationan organization composed of several business partners (some of whom may be pure-play EC players) sharing costs and resources for the production or purchasing of a product or service Major attributes of VCs:
Utilization Opportunism Trust Technology Excellence Lack of borders Adaptability to change
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The Future of EC
Internet usage Opportunities for buying M-commerce Purchasing incentives Increased security and trust Efficient information handing Innovative organizations Virtual Communities Payment systems Business-to-business B2B exchanges Auctions Going global E-government-comprehensive Intrabusiness EC E-learning
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EC Technology Trends
Clients Embedded clients Servers Networks Wireless communications EC software and services Search engines P2P technology Integration Wearable devices

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The Digital Divide

Digital dividethe gap between those who have and those who do not have the ability to access electronic technology in general, and the Internet and EC in particular

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Integrating Marketplace and Marketspace

Click-and-mortar organization
How to cooperate in planning, advertising, logistics, resource allocation How to align the strategic plans B2C ordering systems

The impact of EC on our lives may be as much as, or more than that of the Industrial Revolution
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Managerial Issues
What is the strategic value of EC to the organization? What are the benefits and risks of EC? What metrics should we use? Can we do a pilot project? Do we have a community? How can we go global? Can we learn to love smallness? Is restructuring needed?
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Summary
Importance of strategic planning for EC The strategy planning and formulation process Application discovery, justification, and prioritization EC strategy implementation and assessment

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Summary (cont.)
Understanding failures and learning from them The role and impact of virtual communities Issues in global EC Small businesses and EC Restructuring and virtual organizations The future of EC
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