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Copyright © 2003 Sherif KamelCopyright © 2003 Thomson Learning/South Western
Copyright © 2002 Marketspace LLC
Electronic Business StrategyElectronic Business Strategy
Dr Sherif Kamel
The American University in Cairo
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Outline
Business strategy and the classical framework. Past developments in the field of business strategy. The impact of the networked economy on strategy. Case of eBay 7 dimensions to an eCommerce strategy. Bonds of an eCommerce strategy. 4 positional eStrategic directions. From the old to the new world Internet as a business solution. Principles of the digital economy. Strategy elements. New form of organizations “Born-on-the-Net”. Doing business the traditional way “Move-to-the-Net”. Infomediaries. Models of eCommerce.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Defining the Concept of Strategy
Strategy formulation involves five basic decisions:
Strategy is a plan for how a company will compete in the marketplace.
Choosing themarket arena
Choosing themarket arena
Locating a defendable position
Locating a defendable position
Seeking differentiationin activities or methods
Seeking differentiationin activities or methods
Identifying andmaking tradeoffs
Identifying andmaking tradeoffs
Designing interlocking activities
Designing interlocking activities
Which customers will we serve?What products and services will we offer?Where will we operate?
What benefits do our customers seek?Do we have the resources, skills and assets to deliver the target benefits better than our competition?
Is our value proposition different from our top competitor’s?Can customers recognize the difference?
Do our resource allocations reflect our differentiation?
Do all of our strategic decisions fit together?Do we create value by providing mutually reinforcing services?
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Mission Statement
A mission statement sets the company’s direction. It provides a clear sense of purpose for the organization’s employees. It provides a clear sense of the business that the firm is in. It expresses both the company’s current business strategy and the future
strategic direction of the firm.
We help people trade practically anything on earth. We will continue to enhance the online trading experiences of all —
collectors, hobbyists, dealers, small businesses, unique-item seekers, bargain hunters, opportunistic sellers and browsers.
Example: “eBay’s mission statement”
Strategic management begins with a mission statement.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Creating Competitive Advantages
Investment to Create and Sustain Advantage
Investment to Create and Sustain Advantage
Distinctive Competencies
Distinctive Competencies
Competitive Advantages
Competitive Advantages
Performance Outcomes
Performance Outcomes
Source: Adapted from G.S. Day and R. Wensley, “Assessing Advantage: A Framework for Diagnosing Competitive Superiority,” Journal of Marketing 52 (1988): 1-20.
eMarketing StrategyeMarketing Strategy
Positioning and target-market selection Marketing tactics (4Ps)
Superior customer value
Low-cost producer
Superior skills Superior
resources
Satisfaction Loyalty Market share Profitability
Companies must continuously build competitive advantages.
Competitive advantages are:– Relative to competitors– Not mutually exclusive– Changing over time
Implications of the competitive advantage framework:
– Distinctive competencies don’t always translate into value for customers.
– The public may not perceive the firm’s superior value.
– Competitive advantages don’t always translate into superior performance outcomes.
– Sometimes outcomes are competitive advantages.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Centricity of TechnologyCentricity of Technology
CustomerGains Control
CustomerGains Control
Strategy Formulation
Fast, UnpredictableCompetition
Fast, UnpredictableCompetition
Rapidly ReconfiguredCompany Resources
Rapidly ReconfiguredCompany Resources
The Effects of the Networked Economy on Strategy Formulation
Opportunities for organizational efficiencies in back office
Face-to-screen interactions replace face-to-face meetings in front office
Instant competitive response Competition based on demand
rather than supply
When and how to interact with firm
How much information to share How much price comparison
sought How much personalization
needed
Partnerships and combinations of companies competing
How the networked economy influences strategy formulation:
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Networked Economy’s Impact on Porter’s Five Forces
The Internet provides direct connection to customers; however, it minimizes suppliers’ bargaining power
Suppliers can access end-users through the Internet, minimizing the need for middlemen
Differentiation becomes more difficult as access to suppliers is equalized via digital markets and Internet purchases
Fewer barriers to entry result in increased buyer competition, thus boosting supplier bargaining power
Reduces bargaining power of channels
Consumers have more information and ability to search for better deals
Decreases switching costs
Wherever technology enables a task to be easily undertaken, barriers to entry go down New market entrants can acquire technology applications easily Large capital pool has attracted new entrants to many industries High technology costs and expertise increase barriers to entry
Especially for Internet-related technology or services, substitute products can easily be offered The Internet has introduced new business methodologies, thus creating additional substitution threats
The Internet minimizes ability to product differentiate; less differentiation means more competition over price
Low barriers to entry open markets to heavier competition
Variable costs decrease as a percentage of fixed costs, leaving price discounting as a primary method of competition
Risk of Entry byPotential Competitors
Risk of Entry byPotential Competitors
Bargaining Powerof Suppliers
Bargaining Powerof Suppliers
Rivalry AmongEstablished Competitors
Bargaining Powerof Buyers
Bargaining Powerof Buyers
Threat of Substitute Products
Threat of Substitute Products
Source: Adapted from Michael E. Porter, Competitive Strategy (Free Press, 1980).
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Porter claims that….
“Internet technology provides better opportunities for companies to establish distinctive strategic positioning than did previous generations of information technology”.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Offering — Interactivity and Individualization
Low
Game sitesNapsterHotmail
Low High
High
Myteam.comeBay
myCNN.com*Amazon.com
First-generation websitesMost content sites
(magazines)
Individualization Customization activities initiated by user or firm
Interactivity User’s ability to conduct two-way
dialogue on a website
Measuring responsiveness to increasing customer control
* This website merged with My Netscape (my.netscape.com).
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
7 Dimensions to an eCommerce Strategy
Leadership
Infrastructure
OrganizationalLearning
ServiceTechnology
MarketBrand
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
7 Dimensions to an eCommerce Strategy
Based on a survey of 40 American and European organizations with revenues ranging between 1 million and 100 billion US dollars and labeled as global eCommerce leaders, the difference between those that have successful eCommerce strategy and those do not is a function of achieving a balance among the following 7 factors….
4 positional factors
– Technology
– Service
– Market
– Brand 3 bonding factors
– Leadership
– Infrastructure
– Organizational learning
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Strategy
The 7 dimensions model could be perfect for all forms of organizations in the traditional industrial and service sectors.
It also applies to born-on-the-net organizations where they always to adapt these different components to keep up with the changes taking place in both the marketplace and marketspace.
It is important to note that the model is particularly applicable due to its flexibility when it comes to a traditional organization formulating its eStrategy processes.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Bonds of an eCommerce Strategy
The foundations of a strong eCommerce strategy lie in the preparation if the ground before the functional issues are addressed and 3 of these are…
Leadership Infrastructure Organizational learning
There is a clear and strong interaction between these three different elements. Following are some examples and cases that reflect the importance and role of
eCommerce Strategy bonds.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Leadership Model Cases
The drivers of change and creators of organizational strategic vision are CEOs and senior executives “champion”.
Case: Motorola Corporation “Model for a meld between leadership-technology”.
Launched an initiative in 1994 attempting to use advanced communication technology to better reach their partners.
Creation of Motorola Online Channel Access “MOCA” – the target was capitalizing on communication technology.
Case: IBM’s Louis Gerstner repositioned and transformed IBM based on eCommerce concepts.
Case: Ford’s Jacques Nasser made eCommerce an integral part of Ford’s strategy.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Lessons to be learned
Executives should expand their vision for their organizations and develop creative strategies that can be effectively executed.
Failure to transition or demonstrate leadership will inevitably lead to a subsequent change in leadership.
Executives should… Keep an open mind with regard to all new technologies. Stay attached to new technologies coming over the net. Encourage continuous research and analysis of the marketspace. Always be ready to make the necessary changes in corporate strategy
with no limits.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Infrastructure Model Cases
If the need to develop eCommerce is developed and approved by the organization, the next thing to do is developing the required infrastructure [range could be from a single Internet file server to an information-intense online transaction processing company such as UPS www.ups.com.
Infrastructure issues need to be considered at a number of organizational levels such as:
Strategic Organizational Physical
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Infrastructure Levels
Strategic Level Impact technology will have on the market and the organization. Aim is to align future business planning initiatives with the new technology
challenges. Organizational Level
The challenge is to align work practices, process flow and structure of the organization to execute the strategic goals effectively and efficiently.
Physical Level Where execution takes place using hardware and software elements
complemented with the telecommunications infrastructure.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Lessons to be learned
Create a flexible infrastructure that can act as the “shock absorber” of change. Factors influencing the infrastructure come from strategic, organizational and
physical levels. Infrastructure creation requires open level of communication at and across all
levels in the organization. Creation of a technology infrastructure that is scalable, secure and robust. Maintain awareness of developments and innovations and willingness to
change, upgrade and adapt. The Techno-CEO is the successful leadership model of the future.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Organizational Learning Model Cases
The ability of an organization to react, understand and deploy eCommerce solutions is dependent on its ability to effectively leverage its organizational learning.
Organizational learning is not an isolated process, it is part of the leadership required in the organization that relate to creating and enabling brand, technology, market and service positions.
Organizational learning and the dissemination of the knowledge acquired across the different organizational levels is a key success factor.
Learning leads to improving work flows, practices and managing customer relationships in a away leading to locking customers to products and organizations.
Case: IBM website attracts over 1.5 million hits a day and leadership is keen to get customers and retailers feedback daily.
– Contribution to brand building
– IBM’s website is being adjusted and improved mainly based on customers and retailers feedback and evaluation.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Organizational Learning Model Cases (Cont’d)
IBM, in that sense, is aligning its eCommerce strategy with its organizational strategy as a whole.
Need to clearly understand the driving forces in the marketspace and when and how they change – to be able to respond ahead of the competition.
Case: Ford internalized its process control. Case: American Airlines internalized its passenger yield management
system.
– Both organizational took a leading position in their respective fields and in the industry.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Lessons to be learned
Creating an environment that stimulates and fosters organizational learning which is important to introduce technology and also for the organizational long-term survival.
Organizational learning should have a focus driven from the strategic objectives of the organization as a whole.
Organizational learning creates an environment of positive change and continuous process refinement.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
4 Positional eStrategic Directions
TechnologyLeadership
MarketLeadership
BrandLeadership
ServiceLeadership
Integrated eCommerce Strategy
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
4 Positional eStrategic Directions
In creating an eCommerce strategy, it is necessary to align and integrate the 4 main areas of positional strategic focus:
Technology Brand Service Market
This is an important task that has to be considered as of the initial steps of strategy formulation.
The process should also cater for the inevitable and continuous changes that will occur.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Technology Leadership
eCommerce strategies that are focused on leadership could be found throughout all industry sectors.
Technology leadership needs early adoption to take a leading position. Examples include:
– UPS
– Nortel
– SUN Microsystems
– Motorola
– Dow Jones Technology can offer organizations better tools to monitor customers needs
which represents an added-value based strategy.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Brand Leadership
The Internet has a huge ability to influence, change, and reinforce corporate branding.
The development of an eCommerce branding strategy means something different to a new entity than it will to an established organization.
Example: Amazon.com could be looked at as the leading brand on the Internet.
Branding in that context could be looked at as providing added value beyond low cost including convenience and quality service.
The Internet helps in creating added-value through mass customization. The key to mass customization is getting closer to the customer and
providing the product on demand at a low cost while maintaining sufficient margins for the supplier.
Case: BMW – continuous changes and improvement in the website with massive “information provision” to potential customers.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Service Leadership
Service in eStrategy means a number of elements beyond the actual purchase order and that includes:
Building relationships with customers Gathering customer information Identifying potential customers Maintaining relationships with existing ones “yielding 60% additional
revenues”.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Market Leadership
Marketing can achieve new levels on the Internet. A key factor is to respond to changing market conditions through products and
services offerings. One of the leading strategies is to combine marketing, service and information
systems to focus on issues as a cross-functional team. Case: Royal Caribbean International
– One of the world’s largest cruise lines evolved as a technology leadership focus in 1997, through a process of brand enhancement to a more recent market focus achieving significant market growth through online sales.
Case: American Express
– First focused on brand reinforcement then they moved to a market growth mode capitalizing on the Internet.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Developing a Winning eStrategy
To develop a winning eCommerce strategy, the following has to be carefully addressed:
Ensure the project is backed by a senior executive. Develop a strategy before developing a web presence. Develop a strategy by focusing on technology, branding, marketing and
service. Develop an IT infrastructure capable of matching the strategic objectives. Identify and use knowledge in the organization. The strategy must add value for customers and it must change as the
requirements of those customers change.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Internet as a Business Solution
Internet has dramatically changed the rule of doing business. “Everyday it becomes clearer that the Net is taking its place alongside the
other great transformational technologies that first challenged and then fundamentally changed the way things are done in the world”.
(Louis Gerstner, Chairman and CEO of IBM, 1999)
“The Internet is like a weapon sitting on a table and ready to be picked up by either you or your competitions.
(Michael Dell, Chairman and CEO of Dell Corporation, 20001)
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Organizational eCommerce
The new form of organizations which was “born-on-the-Internet” in the eCommerce marketspace.
Established organizations traditionally positioned in the offline marketspace “moving to the Net”.
eConsortia which are organizations that are coming together in a new organizational form aiming at leveraging the unique strengths associated with each company and partner through the virtual structure on an online organization.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
New Organizations: Born on the Net
How successful an organization will become will always be based on the business concept including its vision and foundations.
Execution and implementation is also an integral component since strong and constructive visions do not make successful organizations.
For organizations to succeed they need a winning strategy: Conceptual strategy Operational strategy
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Networked World
Established Organizations
Total Market
Online Organizations
eCommerceMarketspace
eConsortium
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Strategy Elements
The Net Profit Provider. The Web Business Pyramid. The Web Applications Pyramid. The Internet Business Segments.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Net Profit Retriever
Industry
Strategy
Management
Does the industry in whichthe company competes haveeconomic leverage?
Does the company offer its customers a closed-loopsolution?
Can the company’s managementteam adapt effectively torapid change?
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Web Business Pyramid
Level IIIPowerware
Level IIBrandware
Level ILossware
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Web Applications Pyramid
Level IIIIntegrated
Transactions
Level IIFront-End
Transactions
Level IOnline Brochures
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
The Internet Business Segments
Level IIIPowerware
Network Infrastructure Web Consulting
Internet Venture Capital
Level IIBrandware
Internet SecurityWeb Portals
Electronic CommerceWeb Content
Level ILossware
Internet Service ProvidersWeb Commerce Tools
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Key Successful Factors for “Born-on-the-Net”
Technology Goal must be understood for that
organization within its industry and market.
Should you go technology leader or rely on stable systems.
Determine the relationship between the company’s technology or product strategy and the operational aspects of that strategy.
Technology should serve customers’ needs from a technology perspective.
Can technology create barriers to entry? Can it lock in customers?
Market Identify the target market and
whether it is open to new entrants. Determine market changes and
whether the organization will be able to meet these changes.
Be ready for competition especially from larger and more equipped organizations.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Key Successful Factors for “Born-on-the-Net” – (Cont’d)
Service An organization must know its
customers’ expectation regarding service levels.
Identify the value proposition and continuously improve it.
Identify and properly manage the Internet service value chain.
Brand Determine whether the organization
can create a strong brand. Identify the basics of its brand…
– Technology leadership?– Service proposition?– Market positioning?
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Existing Organizations: Move to the Net
Technology is just like change needs to be dealt with constantly to always remain competitive.
On the Internet, businesses do not operate in linear time as suggested by Michael Porter in his 5 forces model of strategy; however the world of eCommerce compresses time.
Case: Barnes and Noble www.bn.com versus Amazon.com. The society of the Internet has led customers to expect the move from
conceptualization of a trade to execution to occur in one step. Example: Product-onDemand
Time compression ads value and encourages customers to take decisions.
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Key Successful Factors for “Move-to-the-Net”
Technology Should understood what the total
technology implications are for that organization - Internet, ERP, data warehousing, etc…
Identify whether processes are aligned to an Internet environment.
Should identify the knowledge level of customers with respect to technology use in the marketspace to be able to build and effective and flexile eCommerce strategy.
Organizations must assess its internal value chain and that of its suppliers and build it to minimize costs and maximize efficiencies.
Market Understand what the implications of
eCommerce and technology are for the marketspace with respect to..
– Branding– Relationship management
Whether the target market is the same as its traditional bricks-and-mortar marketspace or has it moved.
Understand how the market is going to segment and grow in the future due to the Internet.
Identify the strengths brought to the company due to their Internet-based operations [product and market knowledge].
Copyright © 2002 Marketspace LLCCopyright © 2002 Mohammed, Fisher, Jaworski and Cahill
Key Successful Factors for “Move-to-the-Net” – (Cont’d)
Service New service level expected from
customers should be identified. Identify what are the new value
proposition expected from the customers.
Continuous re-assessment of the service value chain.
Brand How to best leverage existing
brands? Determine whether a strong dot-com
brand could be created? Will brand positioning change on the
net?