E-business Strategy

BBA-IT: 2009-2012 A.G. Kotwal

References

1. Corporate Information Strategy and Management Applegate, Austin and McFarlan; 7th Edition 2. Get the Right Mix of Bricks & Clicks By Ranjay Gulati and Jason Garino (HBR: May-June 2000) 3. Strategy and the Internet by Michael Porter (HBR, March 2001) 4. Strategic Mgment and Business Policy Wheelen, Hunger, Rangarajan (Pearson)

E- business Strategy
Strategy defines the future directions and actions of an organization The direction and scope of an organization over the long term which achieves its goals through deployment of resources in a changing environment to meet the needs of markets and to fulfil stakeholder expectations E-business strategy looks at application of the Internet and other technologies to support Corporate, Business Unit or Functional level strategies

Why does a company need strategic planning for e-business? A company faces several options: Not go for E-commerce Stay with passive advertisement Open online stores in addition to existing Establish separate online division Dissolve regular business become a pure play company

How does a Company decide?

E-strategy plan the purpose of preparing an e-business strategy plan is to decide what course of action the company must take. i.e., how to start e-business and sustain it Example: IBM (it was only a brick company till about 1990)

IBMs E-business Strategy Created an independent division Introduced EC as a corporate culture Leveraged existing strengths Re-engineered processes Started seven new initiatives Decided to be an EC leader Used ROI as a criteria to select projects

IBMs Key EC Initiatives 1. 2. 3. 4. Sell more on web (EC) Online customer support (e-care) Support for business partners (PRM) Dedicated support for IT consultants / analysts (e-service) 5. Support to employees (B2E) 6. E-procurement (B2B) 7. E-marketing communications

E-business Strategy
Corp Strategy E-business Strategy SCM Strategy Mktg/CRM Strategy

IS/IT Strategy

IT and Strategy Key Concepts

Strategy vs. Bus Model Evolving Strategy Strategic Positioning Generic Strategies Strategic Shifts

E-Strategy and Business Model

A BM defines how an enterprise interacts with its environment to define a unique strategy, attract resources and build capabilities to execute it and in the process create value for all stake holders A successful BM aligns an organization with its environment The strategy defines the revenue and growth potential of the organization

E-Strategy and Business Model

Strategy => focuses on specific goals and projects required to achieve them Capabilities => built to achieve those goals at least cost while responding quickly to change also define the revenue model => profit model Profits => enables evolving strategy and new capabilities this cycle is called the virtuous cycle Poorly aligned business model can create vicious cycle causing business to spin out of control and destroy value

Evolving Strategy

E-Strategy Planning Cycle 1. Industry/Competitive Analysis: analyze industry environment and determine relative/competitive positioning 2. Strategy Formulation: strategic objectives that will drive the strategy initiatives
Identify opportunities and associated risks Focus on customers, markets, competition and internal operations Justify projects measure ROI

3. Implementation 4. Performance assessment and strategy reassessment feedback loop

1. Industry and Competitive Analysis Means monitoring, evaluating and disseminating information from external and internal environments w.r.t. launching an eBusiness project Need to identify CSFs for the initiatives Start with SWOT analysis:
Internal strengths and weaknesses : Structure, Culture, Resources External opportunities and threats : Social Environment- general forces, Task Environmentindustry analysis

2. Strategy Formulation
Develop long range/strategic plans for effective management of environmental opportunities and threats in the light of corporate strengths and weakness Redefine corporate Mission (purpose for the organization's existence) Specify Objectives (SMART: Specific, Measurable, Achievable, Realistic, Time-bound) Develop specific activities and plans for the selected initiatives (Strategies) Prepare implementation guidelines and milestones (Policies) Examine Mission Statements and declared Strategies for various companies

2. E-Strategy Formulation Steps for E-commerce Programs 1. Conduct education/training 2. Review current processes simplify, BPR 3. Determine what customers/partners expect 4. Re-evaluate nature of products/services 5. New role to HR 6. Extend current systems to outside 7. Track new competition/market share 8. Develop web-centric marketing strategy 9. Develop virtual marketplace 10. Instill E-business management style

2. Methodologies for Strategy Formulation Critical Success Factor (Rockart)

Indispensable technology, business and human factors that help achieve desired level of goals Involves asking a series of Qs

Value Analysis (Porter)

To assess desirability of a strategy/initiative, assess added value of a series of activities performed to achieve goals Value Analysis Qs

2. Strategy Formulation (contd) Amazon Strategy

?
Dell Strategy

2. Strategy Formulation (contd) Amazon Strategy: + Stay on-line (pure play) + Product diversification + Personalization Dell Strategy + Direct marketing + Efficient supply chain + Technology based innovation

3. Implementation of Strategy Build an implementation plan (Program) Get organized user teams, technical teams Pilot Project a risk mitigating strategy Resource planning outsourcing (Budget) Content management (Procedures)

4. Performance Assessment Need for strategy and projects assessment: - Do the projects deliver what was aimed? - Projects still viable in changing environment? - Determine failing projects soonest - Determine reasons for failure - Reassess strategy- learn from mistakes Measuring Results Corporate Performance Measurement

4. Perf. Assessment: ROI and Risk Analysis Creating added value through EB initiatives requires resources ROI is benefits in relation to costs Costs are easier to quantify (TCO) For IT initiatives: Generic IT Values- Financial, strategic, stake holders Generic IT Risks- Competitive strategy, organizational strategy, uncertainty

Impact of the Internet The Internet is re-shaping the marketplace and has changed the way customer, suppliers interact It has changed the way cos work from internally Affects competition instead of just product features and costs, it has affected the whole traditional value chain. The new marketplaces:
Trading exchanges (VerticalNet, TradeMatrix) Industry sponsored exchanges (Covisint) Net Market Makers (e-Steel) value chain based

Impact of the Internet Trends 1. Changing business models bus transformation 2. New channels changing access and branding 3. Balance of power shifting to customer 4. Competition is changing more innovative 5. Pace of business is increasing drastically 6. Traditional organization boundaries are changing 7. Knowledge is becoming a key asset

Conclusion: CSFs for E-business Projects

E-business Strategy: Seven Steps 1. 2. 3. 4. 5. 6. 7. Align business strategy with Inet initiatives Communicate vision Identify core competence and key values Develop portfolio of EB initiatives Evolve year by year objectives and plans Implement change and set up measurements Monitor overall plan, adjust and improve

CSFs for E-business Projects Top management support- internal communication Project team representing functional areas Technical infrastructure- skills, pilot project Customer acceptance trust between buyer/seller User friendly web interface Integration with legacy systems Security and control Competition/market situation ROI

Strategic Positioning (Michael Porter)

Strategic Positions Strategic Positions - the result of choices in 4 areas: 1. Market/Channel positioning: choice of customers, the needs that will be met and channels to reach those customers 2. Product positioning: choice of products /services, their features and price 3. Value chain/Value network positioning: role an organization plays within the network of suppliers, producers, distributors, partners 4. Boundary positioning: determines markets, products and businesses you will not pursue

Porter: Three Generic Strategies Achieve proprietary advantage in an industry, three generic strategies: Cost Leadership Differentiation Focus Each strategy embodies two key choices: 1. Lower cost and differentiate products /services? (competitive mechanism) 2. Target a broad market or a narrow one? (competitive scope) Specific choices vary widely from industry to industry

Strategic Shift

Strategic Shifts
Four key approaches that can be applied to the four strategic positions (Product, Market/ Channel, Value Chain/Network, Boundary) + the Business Model: Enhance- incremental changes to any of four Expand- new prod, market, channel, network (outsource) Extend- new business or business model Exit- drop a feature, prod, service, market, channel, supplier/partner

E-Strategy Concepts

E-Strategy Key Concepts Strategic Grid Analysis (McFarlan) Internet and the Value Chain (Porter) Internet and the Industry Structure (Five Forces Model Porter)

The Strategic Grid Assessing Impact of IT E-business

(Warren McFarlan)

Strategic Grid: Impact of IT

Impact of IT on: Core operations (e.g., stock markets require zero defect network operations) Core strategy (steady stream of technology innovations drive the company growth examples, Amex, Google, ) Strategic Grid

Strategic Grid Analysis

COMPANY CLASSIFICATIONS H core operations L factory strategic

support L core strategy

turnaround H

IMPACT OF IT ON CORE OPERATIONS/STRATEGY

Strategic Grid Analysis

FACTORY (Ops-H, Strategy-L): (e.g., Banks) Goals: Improve performance of core processes Leadership: Business Unit executive Project management: Process reengineering SUPPORT (Ops-L, Strategy-L): (e.g., University) Goals: Improve local performance Leadership: Local level oversight Project management: Grassroots experimentation

Strategic Grid Analysis

STRATEGIC (Ops-H, Strategy-H): (e.g., Dell, Amazon ) Goals: Transform organization/industry Leadership: Senior executive and board Project management: Change management TURNAROUND (Ops-L, Strategy-H): (Google, Facebook) Goals: Identify and launch new ventures Leadership: Venture incubation unit Project management: New venture development

Strategic Grid Analysis

The Search for Opportunities
Can IT Be used to reengineer core value activities? Can IT change the basis of competition? Change relationship and balance of power between buyer and seller? Build or reduce barriers to entry? Increase or reduce switching costs? Add value to existing products/services or create new ones?

Strategic Grid Analysis

SGA Helps cos choose approach to organizing and managing IT enabled business Key questions to guide strategic decision making when evaluating the impact of IT on core operations and core strategy These questions also are indicative of the opportunities that IT creates for business transformation

Porters Value Chain Model

The Value Chain

Set of activities through which a product/service is created and delivered Supply Chain comprises of a complex set of trade relationships Also called value chain as each stage adds value to the product/service Measurement of value (generally the difference between the price and the cost)

PORTERS GENERIC VALUE CHAIN

Support Activities

FIRM INFRASTRUCTURE HR MANAGEMNET TECHNOLOGY DEVELOPMENT PROCUREMENT

Inbound Operations Logistics Outbound Logistics Marketing Service & Sales

MARGIN

Primary Activities

Generic Value Chain Model

Three basic primary activities Inbound logistics Operations Outbound logistics Two additional primary activities Marketing and Sales Service Support Procurement Technology development HR management Firm infrastructure

Value Chain Model contd

Specific value chains for each activity analyze sub activities and linkages Analysis of cost and value addition for each activity gives the overall efficiency of the value chain Every activity involves the creation, processing and communication of information IT has a pervasive influence on the value chain

Value Chain Model contd

The physical value chain and the information value chain go hand in hand Logistics Operations Mktg Sales Value Gather Organize Select Synth/Distribute Info and IT sources of new prod/services Every business is information business Business strategy and info strategy need to be integrated

Value Chain Model (contd)

VC Model a useful analysis tool for defining a firms core competence and activities in which it can pursue competitive advantage as follows: Cost advantage: by better understanding cost and squeezing them out of the value adding activities Differentiation: by focusing on the activities associated with core competencies and capabilities in order to perform them better than the competition Information Management Equivalence?

Internet Applications in the Value Chain

Inbound Logistics
Real time integrated scheduling, shipping, warehouse management, demand management, planning across the company and suppliers Disseminating real time inbound and inprogress inventory data throughout the company

Operations
Integrated information exchange, scheduling and decision making Real time available-to-promise info to sales force and channels

Inet Applns in the Value Chain Contd

Outbound Logistics
Real time transactions of orders Automated customer contracts Customer and channel access to product development Collaborative customer forecasting system

Marketing and Sales

Web sites, online sales channels, marketplaces Real time access to customer databases Online product configurator Customer profiling, customer feedback Push advertising

Inet Applns in the Value Chain Contd After-Sales Service

Support for service representatives E-mail management, billing integration, chat, .. Self service applications Field service access CRM

Inet Applns in the Value Chain Contd

Procurement
Demand planning, fulfillment systems Integration with purchase, inventory and forecasting systems with suppliers Automated requisition-to-pay Procurement via exchanges, auctions, marketplaces and buyer-seller matching

Technology Development
Collaborative product design, PLM Knowledge directories R&D access to RT sales and service info

Inet Applns in the Value Chain Contd HR Management

Self service benefits and personnel management Web-based training, e-learning Sharing/dissemination of co info Time and expense reporting

Firm Infrastructure
Web-based ERP and financial systems Online investor relations (broadcasts, conference calls, info dissemination)

Internet and the Industry Structure The 5 Forces Model

Michael Porter (HBR: March 2001)

Industry Structure and Attractiveness

Every industry has intrinsic attractiveness opportunities or limits for how much profitability you can achieve In evolving strategy for an enterprise, it is essential to recognize these opportunities The factors affecting industry attractiveness are largely environmental Innovation can help you go beyond the established boundaries but to an extent

Michael Porters Five Forces Model

Threat of substitute products and services

Bargaining power of suppliers

Rivalry among existing competitors

Bargaining power of channels/ users (buyers)

Barriers to entry

Impact of the Internet on Strategy

General belief that Internet had rendered all the old rules about competition obsolete This has led to several bad decisions: Companies have moved away from quality/features/ service to price driven strategy or created misguided partnerships affecting the overall attractiveness of the Industry Need to take a clearer view of the Internet

Impact of the Internet on Strategy contd

Need to move away from clichs like, Internet Industry, e-bus strategy, New Economy !!! Internet:
A powerful set of tools that can be used wisely or unwisely in any industry How will the pool of value created by Internet be shared Who will capture the economic benefits that Internet creates

Strategy/Internet Lessons Learnt

The question is not whether to deploy Internet but how, as it provides better opportunity to establish distinctive strategic positioning Requires building on proven principles of effective strategy Successful cos will be those that use Inet as complement to traditional ways of competing (not as separate initiatives) Inet makes strat. more essential than ever

Internet Distorted Market Signals (contd)

The dot.com boom:

Companies could raise capital without demonstrating viability Excess venture capital in the market Proliferation of companies indicative of low barrier to entry always a danger sign !

Internet Return to Fundamentals

Two conclusions from experience to date:
Many businesses are competing by artificial means propped up by venture capital As market forces play out, the old rules regain their currency the creation of true economic value becomes the final arbiter of business success (not revenue, cost reduction or stock values)

Only when use of Internet generates sustainable revenue and savings in excess of cost of deployment can technology investments be further justified

Internet Return to Fundamentals

To understand how Internet can create value, need to look at two factors that create profitability:
Industry structure that determines the profitability of the average competition Sustainable competitive advantage which allows a company to out-perform the average competition

The above factors vary widely by industry and supra-industry classifications (like, B2B and B2C) are meaningless

Internet and Industry Structure

Internet has created some new industries like, auctions and digital marketplace/ exchanges. However, maximum impact has been to reconfigure existing industries constrained by high cost of communicating, information gathering and accomplishing transactions The structural attractiveness of the industry is determined by five underlying forces of competition

Michael Porters Five Forces Model

Threat of substitute products and services

Bargaining power of suppliers

Rivalry among existing competitors

Bargaining power of channels/ users (buyers)

Barriers to entry

Internet and Five Forces Model

Rivalry among existing competitors

(-) Reduces differences among competitors (-) Migrates competition to price (-) Widens geographic market (-) Increases the number of competitors (-) Lowers the variable costs relative to fixed cost, increasing pressure for price discounting

Internet and Five Forces Model

Threat of substitute products and services

(-) The proliferation of Internet approaches creates new substitute threats (+) By making the overall industry more efficient, the internet can expand the size of the market

Internet and Five Forces Model

Barriers to entry (-) Reduces barriers to entry, such as the need for a sales force, physical assets, access to channels (-) Internet applications are difficult to keep proprietary from new entrants (-) A flood of new entrants has come into many industries

Internet and Five Forces Model

Bargaining Power of suppliers (+) Procurement over Internet raises bargaining
power over suppliers (-) Gives suppliers access to more customers (-) Reduces the leverage of intermediaries (-) Gives all companies equal access to suppliers and gravitate procurement to standardized products that reduce differentiation (-) Reduced barrier to entry and proliferation of competition downstream shifts power to suppliers

Internet and Five Forces Model

Bargaining power of channels/users (Buyers) (+) Eliminates powerful channels or improves bargaining power over traditional channels (-) Shifts bargaining power to end consumers (-) Reduces switching costs

Strategic Positioning (Michael Porter)

Strategic Positions Strategic Positions - the result of choices in 4 areas: 1. Market/Channel positioning: choice of customers, the needs that will be met and channels to reach those customers 2. Product positioning: choice of products /services, their features and price 3. Value chain/Value network positioning: role an organization plays within the network of suppliers, producers, distributors, partners 4. Boundary positioning: determines markets, products and businesses you will not pursue

Porter: Three Generic Strategies Achieve proprietary advantage in an industry, three generic strategies: Cost Leadership Differentiation Focus Each strategy embodies two key choices: 1. Lower cost and differentiate products /services? (competitive mechanism) 2. Target a broad market or a narrow one? (competitive scope) Specific choices vary widely from industry to industry

End E-strategy