s643: digital entrepreneurship spring ‘13 assessing ebusiness readiness i. what are the signs that...

S643: Digital Entrepreneurship Spring ‘13

Assessing ebusiness readiness

I. What are the signs that a firm is ready?

• Questions to ask

II. What is needed to begin an ebusiness initiative?

• Estimating costs

III. The importance of strategic orientation

• Conceptions of strategy

IV. Measuring ebusiness activity

• Return on investment



Although, e-business may help an organization gain competitive advantages over … competitors, it unfortunately incurs high level of implementation risk.

Companies … need to know whether they are really ready for implementing e-business before they jump onto the … bandwagon.

If they are not ready, they may want to know where they should improve themselves so that they will be ready for implementing e-business later on.Huang, J.H., Huang, W.W., Zhao, C.J., and Huang, H. (2004). An E-Readiness Assessment Framework and Two Field Studies. Communications of the IS. 14 Article 19, p2



Key members of the organization have expressed interest in an ebusiness initiative

They have noticed that their main competitors have web sites that are selling goods and/or services

Market research tells them that a significant % of their customers (and potential customers) are online

Presupposes an awareness of IT, the net, the web, and their impacts on business practices

Also knowledge of part of business that will be affected by ebusiness



An e-readiness assessment framework

Internal need for ebusiness

Are the goals of the ebusiness initiative suitable and effective?

Do the products and services of the firm meet the requirements of ebusiness?

Can the firm benefit from implementing ebusiness?

How and how quickly?Huang and Huang (2004), 368



An e-readiness assessment framework

External environment

Does the firm’s ebusiness initiative fit well with trends in the industry?

Does the firm’s value chain fit with the initiative?

IT diffusion and change management

Is the firm’s change management aligned with the initiative?

Is IT adoption and diffusion being resolved in the firm?



First 3 levels of the readiness assessment frameworkHuang and Huang (2004) 369



Internal needs for e-business

Are the goals of the e-business initiative are suitable and effective?

Do the products or services of a company meet the requirements of e-business?

Can a company really benefit from implementing ebusiness?

Is the overall e-business plan appropriate?



External environment

Does the company’s e-business initiative fit well with the whole industry’s development?

Does the a company’s value chain fits with the ebusiness initiative?

IT diffusion and change management

Is the change management of a company ready for and aligned with e-business implementation?

Is the IT adoption and diffusion issue is being resolved within a company?



Tasks:

Identify ebusiness opportunities and drivers

Business processes, IT apps (customer, supplier and internal orientations), systems

integration

Uncover weaknesses in current IS applications

Work out an effective e-business budget

Analyze e-business trends in the industry

Monitor a sample e-business project

Evaluate e-business investment (ROI)

Identify e-business skills training and development



Early questions to ask:

Why do you want to do this?

Do you have a plan to do this?

Is the firm ready to do this?

What will you be selling and who are your buyers?

What is the business model for this initiative?

What are the goals for this initiative?

How will it address market needs?



What will you be selling?

Why it is a good idea to sell the product or service online?

What is it about this product that makes it feasible to use this channel?

What will your customers gain by being able to buy it online?

What are the potential benefits and costs of selling it online?



What % of your market sector’s business is online?

Who will be your main competitors online?

What are the main characteristics (architectural, functional, usability) of their sites?

Business processes

How will the business have to change to integrate this marketing and distribution channel?

How will people’s work be affected by the ebusiness initiative?



Why firms get involved

External: marketplace factors (32.3%)

Internal: revenue generation (25.8%)

Process improvement (22.5%) 67.7%

Cost containment (19.4%)

Internal factors seem to be more important in the decision to implement ebusinessSaban, K.A. (2001). Strategic Preparedness: A Critical Requirement to Maximize E-commerce Investments. Electronic Markets. 11(1). 26-36.



Perceived barriers

External: marketplace factors (18%)

Internal: lack of strategy (55%)

Leadership (18%) 82%

Organizational factors (9%)

Perceived barriers to strategy

Lack of vision

Lack of business plan

Lack of perceived benefits



Do you have the personnel and infrastructure to to this?

Do you have the distribution and logistical system in place to handle this?

What organizational resources will be devoted to this?

How many people will be working on it?

Who are they?

Will there be adequate budgetary and technical resources made available for this project?

What is this venture going to cost?

How will you measure success?



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What’s involved in estimating costs?

Page design: industry standard $1,000-$10,000 and up

Site hosting: industry standard $100-$100,000 and up

It’s more expensive if you have your own domain name

Advantage: the host worries about the servers, firewalls, and data backup

Maintenance: industry standard $20-$200/hour, 10 hours minimum a month

This consists of content updates, changes to the pages, performance reports, and monthly link and

image checks



Other costs

Software and personnel: industry standard $0-$350,000

Staffing grows depending the volume of business (web server admin, programmer and…)

Merchant-level software helps manage orders, invoices, customer contact info, inventory and shipments

Some may be done in house, some outsourced

Databases: industry standard $1,000-$100,000 and up

What is the range of appropriate solutions?

How will this database be integrated into the legacy databases in the organization?



Security: industry standard $0-$40,000 and up

What types of payment options will you offer?

What protections should be in place for customers?

What protection should be in place for your site?

Backups, redundancy, mirrors

Advertising and marketing: industry standard $100-100,000

Online: search engine registration, meta-tags, keywords, and reciprocal links with other companies

Offline: billboards, phone book, media ads (newspaper, radio, television), stationary, business cards…



Electronic payment systems

This system should offer alternative means of payment

Relationships with credit card companies

The company needs secure real time processing of credit card numbers

Relationships with banks

The company needs a merchant account that can accept electronic funds transfer



Technical infrastructure

Either in-house or with a hosting solution

Reasonable availability of computing

Technical expertise

Someone in the organization should be able to understand the basics of the ebusiness

initiative

Web-business expertise

Someone should be able to understand what goes on in ebusiness in the relevant market sector



The organization also needs

Business planning and strategizing

The ebusiness initiative should be closely linked to the organization’s core business

Managerial infrastructure

People who can manage a digital enterprise

High-level buy-in

Decision makers should agree that this initiative is worth the time and effort needed succeed



This leads to a integration plan

Project management

Set out roles, responsibilities, timeline, benchmarks, and deliverables

Change control

Testing and evaluation, metrics for assessing performance

Ownership and rights, confidentiality agreements, dispute resolution



In the information sector, 20% fail in first year, 35% in second year, 50% in third year, 60% in fourth year

Professional and business services, 15% in first year, 32% in second year, 45% in third year, 55% in fourth year

Many had high cash burn rates and could not raise more capital

They did not maintain high growth rates and were not profitable

Some had problems with CRM and order fulfillment

Problem: not understanding the importance of strategyGrover, V. and Saeed, K.A. (2004). Strategic orientation and performance of Internet-based businesses. Information Systems Journal. 23-42



Two important conceptions of strategy

It is an ongoing process of evaluating the firm’s purpose (Miles and Snow)

Evaluating, questioning, verifying and redefining the firm’s interactions with its environment

Assumes organizational adaptation to environments

Strategy allows the firm to adapt to dynamic, competitive, and uncertain environments

Strategic orientations differ in risk disposition, innovativeness and operational efficiencies

Types: defenders, prospectors, analyzers, reactors



Porter's five forces model defines the relevant components of the environment

These competitive forces work at the industry level

Existing companies

Potential new companies

Substitutes for products offered

Suppliers and customers

Two adaptations are low cost and differentiation

The goal is to alter the firm’s position in the industry in relation to competitors and suppliers



Porter’s 5 forces

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There is also a view of strategy as resource based (Barney)

This involves gathering and making use of resources and developing capabilities that competitors can’t easily imitate

The goal is superior market position

It links the firm closely to its suppliers and customers

Strategic orientation can be an issue of how firms position themselves with respect to competitors

It focuses on the exploitation of firm-specific assets and capabilities



Saban, K.A. (2001). Strategic Preparedness: A Critical Requirement to Maximize E-commerce Investments. Electronic Markets. 11(1). 26-36.



Realistic view of strategy

Firms are simultaneously acquiring and making use of assets and are repositioning themselves with suppliers and customers

Some groups of firms share strategic orientations

Strategic decisions cover

Market segmentation, product characteristics, cost diversification, geographic reach

Resource commitments

How resources are deployed to maintain competitive advantage



Strategic orientation and ebusiness

Three key issues in e-business implementation: e-operations,e-marketing, and e-services

A firm should know how to develop in these opportunity domains before implementing e-business.

An e-business framework has four crucial strategic quadrants

Technology Brand

Service Market



Strategic orientation and ebusiness

There are differences between ebusiness and offline business that matter

The number of customers that can visit the store

The range of products that are available

The nature of the interaction with customers

Higher costs of acquiring customers

The nature of the interaction with suppliers

Different form of inventory management



Other differences that matter

Economics of information and other digital services

High fixed costs in compiling the product or service

Low marginal costs value-based pricing strategies, such as bundling information products and providing personalized services

Many ebusinesses could not create adequate ‘value’

They had to invest large amounts of cash to acquire customers and attempt to become profitable

Customization and personalization are expensive ongoing costs



Goal of ebusiness strategy

To leverage net infrastructure and digital economics in order to gain strategic positioning in the marketplace

Key factors in developing a strategic orientation

Risk disposition

Management’s willingness to invest in projects to stimulate growth

Financial resources are used to pursue risky projects

Risks can be short or long term

Continuum: aggressive aversive



Dimension of strategic orientation

Innovation

The firm’s commitment to support new initiatives

This includes the ability to generate slack resources and allocate funds to support innovative initiatives

Technological changes (disruptive or incremental)

Marketing innovations (targeted or pervasive)

Developing reliable and consistent customer relationship management

Continuum: innovative conservative



Another dimension

Operational efficiency

Managerial control over routine operations and assets

Efficiency and effectiveness of organizational processes

Extent of system integration with the web front-end

Also efficient co-ordination of the firm with its suppliers

Continuum: efficient inefficient



Another dimension

Marketing intensity

The aggressiveness of the firm in pursuing customers

Investing in customer-facing processes

Marketing and advertising

Efficiency in customer acquisition and order fulfillment

Continuum: innovative conservative



Developing a strategic orientation for ebusiness

Firms make multifaceted resource deployment decisions that shape their strategies

A key decision deals with the management of ICT

Recent research indicates that ICT do contribute indirectly to productivity

How are ICT resources used along with other resources to generate superior performance?



Mature orientations

Larger, older, with large customer bases, brand equity and reasonable performance

This can mean lower marketing and customer acquisition costs

Reasonable cash flow with low short term risk and high slack resources

Risky orientations

Efficient at co-ordination, advertising, order fulfillment

Low cost to sales ratios

High levels of short term risk/debt, low cash reserves



Moderate orientations

Smaller, with low costs and low levels of advertising, coordination and marketing efficiency

Low short and long term risk, moderate innovation

Moderate cash flow allows marketing expenditures but these tend not to be effective

Novice orientations

Smaller, with low advertising, coordination, and order fulfillment efficiency

Moderate short term risk

Negative cash flow, high R&D expenses



Benefits of an integrated ebusiness strategy

Enables management to close any performance gaps before the processes are implemented

Creates a unified plan of action that all operations, departments and employees can endorse

Reinforces that ebusiness is a means to improve the value chain, not an end in itself

Six managerial implications of launching an integrated e-business plan:

Leadership; innovation; organizational learning; structure; support; and resources



It’s important to be able to explain to management the return on investment for any major ICT project in a firm

This is especially the case for ebusiness

Numbers of unique visitors does not work anymore

ROI helps determine the metrics that matter

Once ROI is calculated, it is easier to do it for similar projects

It provides a sense of which ebusiness applications produce the best and fastest resultsMogollon, M. and Raisinghani,M. (2003). Measuring ROI in e-business: a practical approach. Information Systems Management. Spring. 63-83.



Measuring ROI of projects

Investment is measured as the total cost in time, dollars, or other unit needed to plan, execute, and complete the project

Return is the savings in time, dollars, or any other measurable unit generated by the project

ROI is the ratio of the total return divided by the total cost of the project

The difficulty in calculating ROI is determining what is the total cost and what is total return of the project



Tangible benefits for ROI

Sales increases

Production increases

Increases in leads and higher conversion rate

Shorter time to market

Reduction in operating costs

Reduced network downtime

Increased mean time before failure

Reduced time to configure the network



Intangible benefits for ROI

Improved customer satisfaction

Increased customer retention

Increased customer base

Improved managerial knowledge

Increased employee retention

Improved employee morale

Stronger channel ties



ROI measures the performance of one investment relative to another

The ratio of money gained or lost on an investment relative to the amount of money invested

It is expressed as a percentage and is based on returns over an associated time period, usually one year

For example, a 25 % annual ROI means that a $100 investment returns $25 in one year

After one year, the total investment becomes $125



Example: are ads worth it?

Data:

Ad cost: the amount you are spending on your ads on a site

Clicks: the number of visits from paid listings

Number of sales: the number of completed orders from product searches

Revenue: the dollar amount generated from paid listings for that product



ROI: determine the profitability of each listing and how much it costs to generate each sale

Subtract the ad cost from the revenue generated: spend $500 on a one month ad and sell $1,500 during that time -> $1,000 ad profit

Cost per acquisition: divide the ad cost by the number of sales: the ad costs $500 and you made 20 sales, CPA is $25

Determine ROI percentage by dividing ad profit by the ad cost and multiply by 100

Ad profit is $1,000 and ad cost is $500, so ROI would be 200%



Measuring ROI

1. Determine internal and external costs of implementing and maintaining current and new ebusiness application processes

2. Calculate cost savings between the current and new process (all should be measurable)

Add the benefits in productivity and efficiency

It may be easier in some cases to measure value in $

3. Calculate the ebusiness app’s risk and determine company’s cost of capital for that specific application



4. Calculate net present value

5. Compare present value of expected cash flow with required outlay

If present value of the ebusiness app cash flow exceeds cost, the project should be implemented

Otherwise, it should be rejected

So ROI = Current process cost - new process cost + expected benefits

Cost to implement the project + operation and maintenance costs

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