1 prentice hall, 2002 chapter 16 ec strategy and implementation
TRANSCRIPT
Prentice Hall, 2002 1
Chapter 16
EC Strategy and Implementation
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Learning Objectives
Describe the importance and essentials of business and EC strategiesDescribe the strategy planning process fro ECUnderstand the strategy formulation processUnderstand how EC applications are discovered and prioritized
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Learning Objectives (cont.)
Describe the role of CSFs and justification of ECDescribe strategy implementationUnderstand how to reassess EC strategyDescribe the role of metrics in ECUnderstand EC failures and lessons for success
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IBM’s E-Business Strategy
Following four goals:Lead IBM’s strategy to transform itself into e-business Act as a catalyst to help facilitate that transformationHelp business units become more effective in their use of the Internet/intranet
Internally With their customers
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IBM’s E-Business’s Strategy (cont.)
Establish a strategy for the corporate Internet site
Including definition of how it should look, “feel” and be navigatedCreate 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 IBM’s customers
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IBM’s E-Business Strategy (cont.)
IBM focused on key initiatives:E-commerce—selling more goods via the WebE-care for customers—providing all kinds of customer support onlineE-care for business partners—dedicated services providing faster, better information for these important groups
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IBM’s E-Business Strategy (cont.)
E-care for employees—improving the effectiveness of IBMers by making the right information and services available to themE-procurement—working closely with IBM's customers and suppliers to improve the tendering process and to better administer the huge number of transactions involvedE-marketing communications—using the internet to better communicate IBM’s marketing stance
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Need for a Strategy
Cases of e-strategyClick-and-mortar companies that use several EC applicationsClick-and-mortar companies that use only one or two EC applicationsClick-and-mortar companies that use one EC application that fundamentally changes all their businessPure-play EC companies
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Need for a Strategy (cont.)
Why does a company need an e-strategy?Fast changes in business and technology means opportunities and threats can change in a minuteCompany must consider EC strategy that includes contingency plans to deal with changesMay be too costly not to have one
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Essentials of a Business Strategy
Strategy—search for revolutionary actions that will significantly change the current position of a company, shaping its future
Finding the position in marketplace that best fits the firm’s skillsCompany’s 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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Essentials of a Business Strategy (cont.)
Levels of strategyCorporate (or organizational) strategyIT strategyEC strategyEC functional strategies
These are interrelated
Types of strategyStrategic planningStrategic responseStrategic innovation
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Figure 16-1EC Strategy Alignment
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Essentials of a Business Strategy (cont.)
Elements of a strategyForecastingResource allocationCore competencyStrategy formulationEnvironmental analysisCompany analysis
Strategy landscapeStrategy initiationStrategy formulationStrategy implementationStrategy assessment
Four major stepsBasis for chapter organization
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Figure 16-2The Landscape of EC Strategy
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Essentials of a Business Strategy (cont.)
Information technology (IT) strategy—strongly correlated with EC strategy because:
IT provides much of the infrastructure for ECEC applications must be integrated with IT applicationsEC applications may replace or improve existing IT applicationsEC organization may report to CIOEmployees in IS department work on EC applications
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Strategy Initiation
First step is to review the organization’s business and IT vision and missionThen, a vision and mission for EC can be generatedAlthough these statements are usually very vague, they provide a springboard for generating more specific goals and objectivesBegin with industry and competitive analysis
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Industry Analysis
Analyze position of the company in its industry and the competitionRequired for assessing the changes that EC project may introduce and its chances for success
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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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Figure 16-3Company Analysis
Source: Hackbarth and Kettinger (2000), p. 85. Reprinted with permission of William J. Kettinger.
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Industry and Competitive Analysis
Monitoring, evaluating, disseminating of information from the external and internal environmentsSWOT Analysis
StrengthsOpportunitiesWeaknesses Threats
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Strengths (S) Weaknesses (W)
Opportunities (O)
Threats (T)
INTERNAL FACTORSEXTERNAL
FACTORSSO Strategies
Generate strategies here that use
strengths to take advantages of opportunities
WO Strategies Generate strategies here that take
advantage of opportunities by
overcoming weaknesses
ST Strategies Generate strategies
here that use strengths to avoid
threats
WT Strategies Generate strategies here that minimize
weaknesses and avoid threats
Figure 16-4SWOT Diagram
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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 sitesAnalyze related newsgroupsExamine publicly available financial documentsAsk the customers—award prizes to those who best describe your competitors’ strengths and weaknesses
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Competitive Intelligenceon the Internet (cont.)
Information delivery servicesFind out what it published on the Internet
NewsgroupsInformation about your competitors and their products
Known as push technologies
Corporate research companies provide information about your competitors:
Risk analysisStock market analysts’ reports
Examine chat rooms
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Competitive Intelligenceon the Internet (cont.)
Evolving experiences, need to be treated with careOverreliance on such information can be dangerousUsing publicly available search engines is free, but may produce lots of irrelevant informationUse specialty-build agents to search the overwhelming amount of information available
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Customized Competitive Intelligence
Current company information is available in their press releases and information published on their Web sites
Push technology services used to keep companies up-to-date by finding information for them
Searches should not replace in-depth background researchBusiness intelligence companies offer packaged competitive analysis
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Issues in Strategy Initiation
AdvantagesChance to capture large marketsEstablishing a brand nameExclusive strategic alliances
DisadvantagesCost of developing EC initiative is usually very highChance of failure is highSystem may be obsolete as compared to second wave arrivalsNo support services are available at the beginning
To be a first mover or a follower?
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What Do You Need an EC For?
Enhancing the sell channel by advertisement and salesEnhancing the buy (procurement channel)Enhancing the customer service channelGoing global
Facilitating value-chain integration
Providing for new products and services
Going into specialty markets
Going to mass customization
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Should You Have a SeparateOnline Company or Not?
Advantages Reducing or eliminating internal conflictsProviding more freedom to management in pricing, advertising, etc.Can create new brands quicklyTake the e-business to an IPO and make a fortune
DisadvantagesMay be very costly and riskyCollaboration with off-line business may be difficultLose expertise of business functions unless you use close collaboration
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Strategy Formulation
Strategy formulationDevelopment of long-range plans
Organization’s missionPurpose or reason for the organization’s existence
3 main reasons for establishing Web siteMARKETING, CUSTOMER SUPPORT, and SALES
Products with good fit for ECShipped easily or transmitted electronicallyTargets knowledgeable buyersPrice falls within certain optimum ranges
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EC Critical Success Factors
Special products or services tradedTop management supportProject team representing various functional areasAppropriate technical infrastructureMust have customer acceptanceUser-friendly Web interfaceIntegration with the corporate legacy systems
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EC Critical Success Factors (cont.)
Security and control of the EC systemCompetition and market situationConduct pilot project and capture corporate knowledgeUse promotion and internal communicationCost of the EC project must be reasonableNeed sufficient level of trust between buyers and sellers
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EC Opportunities
3 common mistakes in allocating EC investment
Let a thousand flowers bloom—fund many projects indiscriminatelyBet it all—put everything on a single high-stake initiativeTrend-surf—follow the crowd toward the next “big thing”
All of the above can be risky and costly
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EC Opportunities (cont.)
Problem-driven—attempt to solve a problem such as:
Excess inventoryDelivery delays
Technology-driven—trying to use existing applications
Find problems no one knew existedUsed by first movers
Approaches to finding individual EC initiatives
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EC Opportunities (cont.)
All can failMarket-driven—waiting to see what the competitors will doFear or greed-driven
Afraid if they do not practice EC they will be big losersThink they can make lots of money going into EC
Approaches to finding individual EC initiatives (cont.)
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Figure 16-5Approaches for Finding EC Opportunities
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Uncovering Specific ECOpportunities and Applications
Understand:How digital markets operateHow Internet customers behaveHow competition is created and what infrastructure is neededWhat the dynamics of EC are
Map opportunities that match current competencies and markets
Many opportunities to create new products and services
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Opportunities for EC businessesMatchmaking—matching buyers’ needs from seller without a prior knowledge of either oneAggregation of services—combines several existing services to create a new serviceBid/ask engine—creates a demand/supply floating pricing systemNotification service—tells you when the service becomes available, or when it becomes cheaper
Uncovering Specific ECOpportunities and Applications (cont.)
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Uncovering Specific ECOpportunities and Applications (cont.)
Smart needs adviser—if you want …, then you should…Negotiation—price, quantity, or features are negotiatedUp-sell—suggests an additional product or serviceConsultative adviser—provide tips on using the product
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Methods for Finding IT Applications
Brainstorming by a group of employeesSoliciting the help of experts, such as consultantsReview what the competitors are doingAsk the vendors to provide you with suggestions
Read the literature to find out what’s going onUse analogies from similar industries or business processesUse a conventional IS requirement analysis approach
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Determining an AppropriateEC 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, profit-making businesses
Boston Consulting Group’s matrixCash cows Questionable projectsStarts Dogs
Generic approaches
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EC Application Portfolio
Tjan’s portfolio strategy—Internet portfolio map
Strategy based on company fit (assessed by five levels from high to low)Project’s viability—assessed by 4 criteria
Market value potentialTime to positive cash flowPersonal requirementsFunding requirements
An EC-specific method
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Which Business Model to Use?
Typical choice of EC model at Schubb Corp.Create a new business model with EC as a major driver—discarded because they had a successful business model with products matching distribution systemsSpawn a secondary business model around EC; go directly to consumers—did not want to interrupt their relationships with agents and brokers
Case: Schubb Corp.—property and casualty insurance company
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Case: Schubb Corp. (cont.)
Use EC as a tool within the existing business model (the selected model)
Helped Schubb further differentiate products and services by providing superb customer service over the InternetOpened several Web sites—one for each specialty group (e.g., for wine collectors)Enables superb communication with agents and business partnersAllows business expansion into 20 countries
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Cost-Benefit and Risk Analysis
Business case for EC approach for garnering funding for projects used to:
Provide justification for investmentsProvides bridge between EC plan and the executionProvides foundation for tactical decision making and technology risk managementClarifies how the organization will use resources to accomplish the e-strategy
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Cost-Benefit and Risk Analysis (cont.)
Content of an E-business caseStrategic justification—”where are we going?”Generational justification—”how will we get there?”Technical justification—”when will we get there?”Financial justification—”why will we win?”
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Cost-Benefit and Risk Analysis (cont.)
How to conduct an e-business case
Develop goal statementSet measurable goalsDevelop short- and long-term action plansGain approval and support
Revenue modelProperly planned revenue model is a critical success factorRevenues from sales depend on customer acquisition cost and advertisementMust 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 variablesMethods used for analysis
Value analysis and propositionRate of return of investment (ROI) and/or discounted cash flowReal options valuation and analysisManagement by maximInformation economics
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A Value Analysis ApproachValue chain—a series of activities a company performs to achieve its goal(s)Value added
Contributes to profit and enhances the asset value as well as the competitive position of the company in the marketTo create additional value using EC channels, a company should consider the competitive market and rivalry in order to best leverage its EC assets
(Customers’ value proposition)
Value Analysis and Proposition
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Value Analysis QuestionsRepresentative Questions for Clarifying Value Chain Statements
Can I realize significant margins by consolidating parts of the value chain to my customers?Can I create significant value for customers by reducing the number of entities they have to deal with in the value chain?
Value Analysis and Proposition (cont.)
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Value Analysis and Proposition (cont.)
Value Analysis Questions (cont.)Representative question for creating new values
Can I offer additional information of transaction services to my existing customer base?Can I use my ability to attract customers to generate new sources of revenue, such as advertising or sales of complementary products?
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Return on Investment and Risk Analysis
Return on Investment (ROI)
A ratio of resources required and benefits generated by an EC project
Includes both quantifiable items (cost of resources, computed monetary savings) and Non-quantifiable items (intangibles)
Some intangible benefitsEffective marketing channelIncreased salesImproved customer service
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Return on Investment and Risk Analysis
IT valuesFinancial values—measurable to some degreeStrategic values—competitive advantage in the market and benefits generated by business proceduresStakeholder values—reflections of organizational redesign, organizational learning, empowerment, information technology architecture of a company, etc.
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Return on Investment and Risk Analysis (cont.)
IT risks risksCompetitive strategy risk—external, due to joint venture, alliances or demographic changes among othersOrganizational risk and uncertainty—internal to company
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Figure 16-7Real Option Analysis
Source: Rayport and Jaworski (2001); Exhibit 8-8; pg. 304.
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Risk Analysis
Risk analysis program should
Identify all potential risksAssess potential damageEvaluate possibility of protection (insurance)Evaluate cost of protection vs. benefits
E-business risksStrategic risks (e.g., competitive environment, wrong strategic direction)Financial risks (e.g., currency management and changes, unclear tax situations)Operational risks (e.g., technological changes and use of poor technology, security)
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EC Scenarios
Scenario planning is a methodology used in planning situations that involve much uncertainty, like that of EC (“what-if”)
Several different scenarios are createdA team compiles several future events as possible influences on the outcomeSecurities are assessed and future projections are madeScenarios are compared
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EC Scenarios (cont.)
Four scenarios described by Hutchinson:Open, global commerce scenario—removal of intermediaries flattens the value chainMembers-only subnet scenario—applies mostly to B2B ECElectronic middlemen scenario—business and consumer market suppliers can make products/services available through independent third-party distribution channels
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EC Scenarios (cont.)
4 scenarios described by Hutchinson (cont.)Consumer marketing channels scenario—traditional methods collapse into a unified consumer-centric EC medium on the Internet
BroadcastingAdvertisingConsumer telephony
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Strategic Planning Framework
EC appears in three levels:Level 1: Basic presence—company uses the Internet to feature company information and provide brochuresLevel 2: Prospecting—features added
Search engineExtensive product informationLinks to servicesAbility to interact with the companyBasic customer service
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Strategic Planning Framework (cont.)
Level 3: Business integration—more features added
EC transaction capabilitiesCustomization and personalization servicesTools fostering creation of a community
Level 4: Business transformation—supplier and customer integration added
Multichannel integrationAdvanced customization and configurationSuperb customer service
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Strategic Planning Framework (cont.)
Generic competitive strategy vs. cooperarative strategy
Competitive strategy assumes fighting against all competitors for the purpose of survival and winningCooperarative strategy plans for working together with specific competitors to gain advantage against other competitors
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Generic Competitive Strategies
Offensive strategy— usually takes place in an established competitor’s market
Frontal Assault— attacker must have superior resources and willingness to persevere Flanking Maneuver— attack a part of the market where the competitor is weak
Defensive strategies— takes place in the firm’s own current market position as a defense against possible attack by a rival
Raise structural barriersLower the inducement for attack
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Generic Cooperative Strategies
CollusionActive cooperation of firms within an industry to reduce output and increase prices in order to get around the normal economic law of supply and demand (illegal)
Strategic AlliancePartnership of two or more corporations or business units to achieve strategically significant objectives that are mutually beneficial
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Generic Cooperative Strategies (cont.)
Joint VentureA way to temporarily combine the different strengths of partners to achieve an outcome of value to both
Value-Chain PartnershipA strong and close alliance in which one company or unit forms a long-term arrangement with a key supplier or distributor for mutual advantage
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Sviokla’s Strategy
What is the company’s digital business strategy?
What is the right value proposition for a new business model?EC ventures don’t fit neatly into established business categoriesTraditional strategies probably won’t fly either
What is the right organizational structure?
Existing company structures designed to sustain existing marketplace modelCompanies usually need to realign their structures to:
Break functional “silos”Meet different business needs
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Sviokla’s Strategy (cont.)
What is the best capital structure?
Capital markets tend to reward innovative capital structuresThey are buying the future, not the pastVery risky due to overvaluation
What is the correct technology platform?
Companies succeed online only with IT designed for a digital economyEC technology must integrate seamlessly with:
Customer call centerBillingShipping systems
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Mougayar’s Approach
What questions should a strategic plan answer?
How is Electronic Commerce going to
change our business?
How do we uncover new types of
business opportunities?How can we take advantage of new electronic linkages with customers and trading partners?
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Mougayar’s Approach (cont.)
Will intermediaries be eliminated in the process? Or do we become intermediaries ourselves?How do we bring more buyers together electronically (and keep them there)?How do we change the nature of our products and services?Why is the Internet affecting other companies more than ours?How do we manage and measure the evolution of our strategy?
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Ware’s Approach
Ware et al.’s seven-step model e-strategy asks the following basic questions:
Where are you along the continuum of possible EC applications?Where do you want to go?How are you going to get there?
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Ware’s Approach (cont.)
Seven-step model e-strategyStep 1: create a map of scenarios for aligning business strategy and Internet initiatives in the futureStep 2: communicate a vision from top management to drive Internet initiativesStep 3: identify and transform key value constellations (specifically core practices and processes)
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Ware’s Approach (cont.)
Seven-step model e-strategy (cont.)Step 4: develop portfolio of EC initiatives the company wants to pursueStep 5: develop year-by-year objectives and plans for chosen initiativesStep 6: implement the changeStep 7: monitor the overall plan, learn lessons, adjust, improve
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Strategic E-Breakout Methodology
Initiation stageEnvisions potential strategic changeConfirms top management supportDetermines project schedule
Diagnosis stageGathers information about strengths, weaknesses, opportunities, and threatsAsses company and industry processesBenchmarks e-business technologies
Kettinger and Hackbarth Methodology
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Kettinger and Hackbarth Methodology
E-breakout stageFormulates an e-business strategy with objective of breaking out of the boxUsing e-business technology to transform processes and peopleTo better compete in dynamic global marketplace
Transition stageRecognizes reality that e-breakout may not be immediately obtainable because of a company’s unwillingness to changeServes as a gap strategy that allows incremental steps to the e-breakout strategy
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Issues in Strategy Formulation
EC strategies in small businessesSenior managers tend to:
Know the whole spectrum of businessPossess knowledge and authority to lead EC venture
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Issues in Strategy Formulation (cont.)
How to handle channel conflictsLet established old-economy-type dealers handle e-business fulfillmentSell some products only onlineHelp your intermediaries (e.g., build portals)Sell online and off-lineDo not sell online
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Issues in Strategy Formulation (cont.)
How to handle conflict between off-line and online businesses in a click-and-mortar situation
Clear support of top managementUse of innovative processes that support collaborationClear strategy of “what and how”
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Issues in Strategy Formulation (cont.)
Pricing strategySetting prices lower than off-line business may lead to internal conflictSetting prices at the same level may hurt competitiveness
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Issues in Strategy Formulation (cont.)
Where to compete:Current positionBackward or forward in the supply chainMove horizontally to new businessesPlay different roles
InfomediaryCommunity creatorContent providerPortal builderAggregator
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Issues in Strategy Formulation (cont.)
Should you get financing from big venture capital firms?
VC financing causes loss of control over businessBenefit: access to various VC experts and get the cash you need
Should you join an exchange?
Several benefitsMany costs and limitationsDecide early—exchange may provide sell-side or buy-side infrastructureWhich exchange to join?
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Implementation EC Plan
Starts with organizing a project teamUndertake a pilot project (help discover problems early)
Implementing ECRedesigning existing business processesBack-end processes must be automated as much as possibleCompany must set up workflow applications by integrating EC into existing accounting and financial back-ends
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Evaluating Outsourcing
Factors to consider:Ease of configuration and setupDatabase and scripting supportPayment mechanismSample storefrontsWorkflow managementDocumented database supportIntegration into existing accounting and financial back endsWhich services to outsource
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Issues in Strategy Implementation
Partners’ strategyMany potential partners, may need severalCompanies that make B2B e-marketplaces consider:
LogisticsTechnologyE-payment partners
How to coordinate B2B and B2CSelling direct is creating a B2C businessCoordination between the two can be done in different ways
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Strategy and Project Assessment
Need for assessmentFind out if EC project delivers what it was supposed to deliverAdjust plans if necessaryDetermine if EC project is still viableReassess initial strategy in order to learn from mistakes and improve future planningIdentify failing projects as soon as possible and determine reasons for failure
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Strategy and Project Assessment (cont.)
Measuring results; watch for:Goals may be unrealistic
Web server was inadequate to handle demandExpected cost savings were now realized
Exploding application requests from various functional areas in the company may follow
Review requirements and design documentsDevelop thorough checklistPose a set of questions to assess impact of EC project
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Strategy and Project Assessment (cont.)
Finalization and adjustmentsActual ROI can be computed and compared to the projected oneIf sales expectations were not met, review marketing effortsWeb assessment based on collected information
Corrective steps might be requiredProduct offerings to pricing strategyWeb promotion to review software vendors
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EC Metrics
Metrics include benchmarks in different areas related to EC implementation and strategy
Define and refine business modelsCommunicate strategyTrack performanceIncrease accountabilityAlign objectives of individuals, departments, and organizations
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EC Metrics (cont.)
Balanced scorecard—managers focus on short-term financial results and
Finance—including both short- and long-term measuresCustomers—how the customers view companiesInternal business process—finding areas in which to excelLearning and growth—sustainability to change and expand
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EC Metrics (cont.)
Scorecard approach to EC—seven sets of metrics
FinancialCompetitive leadershipMarketingTechnology ServiceInternet siteBrand
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EC Metrics (cont.)
Performance dashcardDivided into 5 desired outcomes and 5 corresponding metricsMetrics are mapped with leading and lagging indicators of performance, leading to calculated targetsStrategies are then evaluated and reformulated
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EC Failures and Lessons Learned
E-Tailing failuresLack of fundingIncorrect revenue model
Exchange failuresRevenue growth too slowNeed to move to new business model
EC initiative failuresOther failures
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Table 16-3Critical Success Factors for EC
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12 Truths About How the Internet Really Works
Internet not as disruptive to business as we thoughtIf it doesn’t make cents, it doesn’t make senseTime favors incumbentsMaking a market is harder than it looksThere is no such thing as “”Internet time”“Branding” is not a strategy
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12 Truths About How the Internet Really Works (cont.)
Entrepreneurship cannot be systematizedInvestors are not your customersInternet still changes everythingInternet changes your jobDistinction between Internet companies and non-Internet companies is fading fastReal wealth creation is yet to come
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Managerial Issues
Considering the strategic value of ECConsidering the benefits and risksIntegration is criticalMetrics are beneficialPilot projects are usefulImplementing policies and strategies must be written