The Business Environment

1
Chapter 4

• The Business Environment

2
Topics

• Business Strategy
• Competitive advantage

3
Why start a business?

• Profit revenue cost
• Enhance profit by
• Increasing revenue
• Reducing cost
• Ultimate source of investment funds
• Source of return on investment
• Business investment is risky
• Higher rate of return required

4
Competitive Strategy

• Goal
• To find a position in the industry where the
  company can best defend itself against
  competitive forces or can influence them in its
  favor

5
Forces Driving Industry Competition
Potential Entrants
Threat of new entrants
Industry Competitors
Bargaining power Of suppliers
Bargaining power of buyers
Suppliers
Buyers
Rivalry Among Existing Firms
Threat of substitute products or services
Substitutes
6
Strategic Planning Cycle for EC
Industry and Competitive Analysis
Strategy Formulation
Implementation
Performance Assessment, Strategy Reassessment
7
The business strategy hierarchy
Objective define long-term direction
8
Industry and Competitive Analysis
INTERNAL FACTORS
Strengths (S)
Weaknesses (W)
EXTERNAL FACTORS
SO Strategies Generate strategies here that use
strengths to take advantages of opportunities
WO Strategies Generate strategies here that take
advantage of opportunities by overcome weaknesses
Opportunities (O)
ST Strategies Generate strategies here that use
strengths to avoid threats
WT Strategies Generate strategies here that
minimize weaknesses and avoid threats
Threats (T)
9
Strategy Formulation

• Strategy formulation
• Development of long-range plans
• Organizations mission
• Purpose or reason for the organizations
  existence
• 3 main reasons for establishing Web site
• MARKETING, CUSTOMER SUPPORT, and SALES
• Products with good fit for EC
• Digital vs Physical Dichotomy
• Shipped easily or transmitted electronically
• Targets knowledgeable buyers
• Price falls within certain optimum ranges

10
Types of Strategies

• Overall cost leadership
• Differentiation
• Focus

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Three Generic Strategies
Strategic Advantage
Uniqueness Perceived by Customer
Low Cost Position
Industry wide
Strategic Target
Particular Segment Only
12
Overall Cost Leadership
13
Differentiation
14
Focus
15
A Startup Business Plan

• Path to profitability
• Contents
• Product
• Market
• Competitors
• Customers
• Risks
• Financials

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Elements of a business plan
17
Competitive Advantage

• Something that
• Your company can do
• Your customers want (or value)
• Your competitor cannot or will not match
• Sources of competitive advantage
• Unique product
• Price
• Quality
• Cost controls and efficiency

18
The Value System
Single-Industry Firm
Firm Value Chain
Diversified Firm
Firm Value Chain
19
The Generic Value Chain
Firm Infrastructure
Human Resources Development
Margin
Support Activities
Technology Development
Procurement
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Service
Margin
Primary Activities
20
Value Chain Activities

• Building blocks of competitive advantage
• Primary Activities
• Activities involved in the physical creation of
  the product/service and its sale and transfer to
  the buyer as well as after-sale support
• Support Activities
• Support the primary activities and each other by
  providing purchased inputs, technology, human
  resources, and other firm-wide functions

21
Conflicting Objectives

• Process objectives can conflict
• Sales wants full warehouse
• Minimize inventory carrying cost
• You can have it fast, you can have it cheap, or
  you can have it right. Pick any two.
• Need for trade-offs to balance

22
The supply chain

• Conflicting objectives again
• Company vs. company