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1 The Landscape of EC Strategy

Strategy Supplement

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Page 1: Strategy Supplement

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The Landscape of EC Strategy

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Strategy Initiation

• Strategy initiation—the 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 organization’s 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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Tools - Industry Analysis

Five Forces Model

Developed by Michael Porter

• Designed to analyze the desirability of an industry for entry…

• Or to understand the position of a company within that industry

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Tools - Industry Analysis

Threat of New EntrantsNon-industry player entering the

market

Barrier to Entry• Supply-side economies of scale –

large producers enjoy cost advantages

• Demand-side benefits of scale – network effects –willingness to buy increases as others do

• Customer Switching Costs - fixed costs that arise from switching

• Capital requirements – cost of entry e.g. plant & equipment

• Incumbancy advantages independent of size – cost or quality advantages over potential rivals e.g patents, exclusive sources of raw materials ext

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Tools - Industry Analysis

Power of SuppliersInfluence suppliers have on Industry

profitability by raising prices when manaufacturers cannot

High If:• Supplier base is more

concentrated than the industry it services

• Supplier does not depend on the industry for its revenue (

• Industry face high switching costs –e.g investment in specialized equipment

• Suppliers products are differentiated or no substitues

• Supplier group can credibly threaten to integrate forward

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Tools - Industry Analysis

Buyer PowerNon-industry player entering the market

High if:• Few Buyers• Industry Products are standard

and undifferentiated • Buyers face few switching costs• Buyers can credibly threaten to

backward integrate into vendor’s business

Price Sensitivity Occurs if • Product purchased is a significant

portion of cost• Buyer earns low profits• Buyers product quality is

unaffected by supply• Product has little effect on buyers

other costs

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Tools - Industry Analysis

Threat of SubstitutesNon-industry player entering the market

High if:

• Offers attractive Price/ Performance trade off to industry’s product (e.g Skype, Vonage)

• Switching costs are low (e.g proprietary brand vs generic)

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Tools - Industry Analysis

Rivalry Among CompetitorsIntra industry competition

High if:

• Competitors are numerous

• Industry growth is slow

• Exit barriers are high

• Switching costs are low

• Rivals are committed to the business and have aspiration for leadership

• Firms cannot read each other signals

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eBusiness - Do the Strategies of the Competitive Forces Model Still Apply?

Strategy

Product Differentiation

Focused Differentiation

Supplier/Customer Integration

Low Cost Producer

Barriers to Entry

eCommerce Enablement

• Improved customer service through self service options or availability to customer service agents (sales people)

• Speed to Market (first for functions)

• Timely feedback (demand for specific products in global markets to capitalize on industry or season trend)

• Direct marketing to target audience• Speed to Market (first for functions) • Broad Reach – generate new markets

• Enables direct systems integration at much lower costs

• Lower infrastructure costs for all players• Direct integration to global suppliers to

leverage new low cost labor markets

• Significant lowered

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Tools - The impact of EC on the Competitive Forces Model

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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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Tools - Industry Structure Value Chain

Source: Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan., Corporate Information Strategy and Management. Burr Ridge, IL: McGraw-Hill/Irwin, 2002. Introduction Figure I-2

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Tools - Value Chain Within the Firm

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Effect of EC on the Value Chain

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Tools - Industry, Company, and Competitive Analysis

• SWOT analysis—a methodology that surveys the opportunities and threats in the external environment and relates them to the organization’s particular strengths and weaknesses

• SWOT Analysis

• Strengths

• Opportunities

• Weaknesses

• Threats

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Tools - SWOT Matrix