EStrategy, Internet Communities, and Global EC

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E-Strategy, Internet Communities, and Global EC
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IBMs E-Business Strategy

• The Problem
• Need to capture new business opportunities and
  technologies (like EC)
• Develop a business strategy for that purpose
• IBMs current strategy is to transform itself
  into an e-business in order to provide business
  value to the corporation and its shareholders
• IBM views e-business as being much broader than
  EC because it
• Serves a broader constituency
• Offers a variety of Web-based processes and
  transactions

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IBMs E-Business Strategy (cont.)

• The Solution is based on four goals
• Lead IBMs strategy to transform itself into
  e-business
• Act as a catalyst to help facilitate that
  transformation
• Help business units become more effective in
  their use of the Internet/intranet
• Internally
• With their customers

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IBMs E-Businesss Strategy (cont.)

• Establish a strategy for the corporate Internet
  site
• Including definition of how it should look,
  feel and be navigated
• Create 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 IBMs
  customers

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IBMs E-Business Strategy (cont.)

• IBM focused on seven key initiatives

• E-care for influencers
• E-care for employees
• E-procurement
• E-marketing communications

• E-commerce
• E-care for customers
• E-care for business partners

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IBMs E-Business Strategy (cont.)

• The Results
• Implementation of an e-procurement system that
  spans IBM globally
• Saved IBM almost 5 billion over a 3-year period
• Electronic invoicing
• Reduces the number of paper invoices
• Enables fast, competitive tendering from its
  suppliers

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IBMs E-Business Strategy (cont.)

• IBMs evaluation of the procurement process
  determined where the use of the Web adds value
• Identification of more than 20 initiatives to
  reduce costs and improve purchasing including
• Collaboration with suppliers
• Online purchasing
• Knowledge-management-based applications

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E-Strategy Concepts Overview

• Strategysearch for revolutionary actions that
  will significantly change the current position of
  a company, shaping its future
• Finding the position in a marketplace that best
  fits the firms skills
• Companys 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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Elements of Strategy

• Elements of a strategy
• Forecasting
• Resource allocation
• Core competency
• Environmental analysis
• Company analysis
• Business planning

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Types of E-Strategies

• EC strategy (e-strategy)an organizations
  strategy for use of e-commerce or e-business
• Click-and-mortar companies that use many EC
  applications
• Click-and-mortar companies that use only one or
  two EC applications
• Click-and-mortar companies that use one EC
  application that fundamentally changes all their
  business
• Pure-play EC companies

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Need for a Strategy

• Why does a company need an e-strategy?
• Fast changes in business and technology means
  that opportunities and threats can change in a
  minute
• Company must consider EC strategy that includes
  contingency plans to deal with changes
• May be too costly not to have one

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Charles Schwabs EC Strategy

• In 1998 Schwab launched schwab.comone of the
  first click-and-mortar stockbrokers
• Changed the company pricing structure radically
• Took a short-term revenue loss
• Looking toward a long-term strategic gain
• EC strategy fit well with companys overall
  strategy emphasizing a one-to-one relationship
  with its customers

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Charles Schwab (cont.)

• Schwab had first-mover advantage in securing key
  partnerships
• Schwab and Nextel agreed to build an
  infrastructure allowing investment opportunities
  over mobile phones or wireless handheld devices
• Initial target was existing off-line customers
  with incomes over 150,000 a year and who buy and
  hold
• Key benefits
• Innovative products Superior service
• Low fees Cutting-edge technology

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Charles Schwab (cont.)

• Partnered with content providers and technology
  companies to offer
• Large number of financial services online
• Community and personalized services
• Financial model composed of three parts
• The revenue model
• The value model
• The growth model

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Charles Schwab (cont.)

• CyberTrader's services are designed for online,
  self-directed active traders who use short-term
  trading strategies to generate current income
• Cybertrader features include
• Nasdaq Level II quotes
• Direct Access trading capabilities
• Risk management tools
• Graphical decision support modules
• Streaming News
• Intelligent order routing
• Direct options routing

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E-Strategy Landscape

• Strategy initiation organization prepares
  information about its vision,mission,purpose,and
  the contribution that EC could make to the
  business
• Strategy formulation
• Identification of EC applications
• Cost-benefit analysis
• Risk analysis

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E-Strategy Landscape (cont.)

• Strategy implementation
• Organizations resources are analyzed
• A plan is developed for attaining the goals
• Strategy assessment
• Organization periodically assesses progress
  toward the strategic goals
• Involves the development of EC metrics

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Exhibit 11.1The Landscape of EC Strategy
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Strategy Initiation

• Strategy initiationthe initial phase of
  e-strategy in which an organization prepares
  information about its vision, mission, purpose,
  and the contribution that EC could make
• Review the organizations business and IT vision
  and mission
• Generate vision and mission for EC
• 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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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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Industry, Company, andCompetitive Analysis

• SWOT analysisa methodology that surveys the
  opportunities and threats in the external
  environment and relates them to the
  organizations particular strengths and
  weaknesses
• SWOT Analysis
• Strengths
• Opportunities
• Weaknesses
• Threats

SWOT
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Exhibit 11.2SWOT Matrix
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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 sites
• Examine publicly available financial documents
• Ask the customersaward prizes to those who best
  describe your competitors strengths and
  weaknesses

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Competitive Intelligenceon the Internet (cont.)

• Analyze related discussion groups
• Find out what people think about a company and
  its products and competitor's products
• Reaction to new ideas and products
• Use information delivery services
• Find out what it published on the Internet
• Known as push technologies
• Corporate research companies provide information
  about your competitors
• Examine chat rooms

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Issues in Strategy Initiation

• To be a first mover or a follower?

• Advantages
• Chance to capture large markets
• Establishing a brand name
• Exclusive strategic alliances

• Disadvantages
• Cost of developing EC initiative is usually very
  high
• Chance of failure is high
• System may be obsolete as compared to second wave
  arrivals
• No support services are available at the
  beginning

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Should You Have a SeparateOnline Company?

• Advantages
• Reducing or eliminating internal conflicts
• Providing more freedom to management in pricing,
  advertising, etc.
• Can create new brands quickly
• Take the e-business to an IPO and make a fortune

• Disadvantages
• May be very costly and risky
• Collaboration with off-line business may be
  difficult
• Lose expertise of business functions unless you
  use close collaboration

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Strategy Formulation

• Strategy formulation
• Development of long-range and strategic plans
  to exploit opportunities and manage threats in
  the business environment in light of corporate
  strengths and weaknesses
• Includes examining or redefining EC mission
• Specifying achievable objectives
• Developing strategies
• Setting implementation guidelines

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Discovering EC Opportunities

• 3 common mistakes in allocating EC investment
• Let a thousand flowers bloomfund many projects
  indiscriminately
• Bet it allput everything on a single high-stake
  initiative
• Trend-surffollow the crowd toward the next big
  thing
• Any of the above can be risky and costly

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Discovering EC Opportunities (cont.)

• Approaches to identifying EC opportunities
• Problem-driven
• Technology-driven
• Market-drivenwaiting to see what the competitors
  will do
• Fear or greed-driven
• Afraid if they do not practice EC they will be
  big losers
• Think they can make lots of money going into EC

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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 Groups matrix
• Cash cows Questionable projects
• Starts Dogs

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EC Application Portfolio

• Tjans portfolio strategyInternet portfolio map

• Strategy based on company fit (assessed by five
  levels from high to low)
• Alignment with core capabilities
• Alignment with other company initiatives
• Fit with organizational structure
• Fit with companys culture and values
• Ease of technical implementation

• Projects viabilityassessed by 4 criteria
• Market value potential
• Time to positive cash flow
• Personal requirements
• Funding requirements

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Exhibit 11.4Tjan Application Portfolio Map
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Strategic Directions at Chubb

• Typical choice of EC model at Chubb Corp.
• Create a new business model with EC as a major
  driverdiscarded because they had a successful
  business model with products matching
  distribution systems
• Spawn a secondary business model around EC go
  directly to consumersdid not want to interrupt
  their relationships with agents and brokers

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Chubb Corp. (cont.)

• Use EC as a tool within the existing business
  model (the selected model)
• Helped Chubb further differentiate products and
  services by providing superb customer service
  over the Internet
• Opened several Web sitesone for each specialty
  group (e.g., for wine collectors)
• Enables superb communication with agents and
  business partners
• Allows business expansion into 20 countries

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Making the Business Case for EC

• Business casewritten document that is used by
  managers to garner funding for specific
  applications or projects by providing
  justification for investments
• Provides foundation for tactical decision making
  and technology by management
• Helps clarify the companys use of its resources
  to accomplish the e-strategy

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Content of an E-Business Case

• Business case for EC approach for garnering
  funding for projects used to
• Provide justification for investments
• Provides bridge between EC plan and the execution
• Provides foundation for tactical decision making
  and technology risk management
• Clarifies how the organization will use resources
  to accomplish the e-strategy

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Content of an E-Business Case (cont.)

• Content of an E-business case
• Strategic justificationwhere are we going?
• Generational justificationhow will we get
  there?
• Technical justificationwhen will we get there?
• Financial justificationwhy will we win?

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Cost-Benefit and Risk Analysis

• How to conduct an
• e-business case
• Develop goal statement
• Set measurable goals
• Develop short- and long-term action plans
• Gain approval and support

• Revenue model
• Properly planned revenue model is a critical
  success factor
• Revenues from sales depend on customer
  acquisition cost and advertisement
• Must 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 variables
• Return on investment (ROI)
• Discounted cash flow
• Two common methods
• Value proposition
• Risk analysis

Variables
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Value Proposition

• Value propositionthe benefit a company can
  derive from implementing a new project, such as
  EC, usually by increasing its competitiveness and
  by providing better service to its customers

Service
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Risk Analysis

• Risk analysis program should
• Identify all potential risks
• Assess potential damage
• Evaluate possibility of protection (insurance)
• Evaluate cost of protection vs. benefits

• E-business risks
• Strategic risks
• Financial risks
• Operational risks

Risk
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Issues in Strategy Formulation

• How to handle channel conflicts
• Let established old-economy-type dealers handle
  e-business fulfillment
• Sell some products only online
• Help your intermediaries (e.g., build portals)
• Sell online and off-line
• Do not sell online

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Issues in Strategy Formulation (cont.)

• How to handle conflict between off-line and
  online businesses
• Clear support of top management
• Use of innovative processes that support
  collaboration
• Clear strategy of what and how

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Issues in Strategy Formulation (cont.)

• Pricing strategy
• Setting prices lower than off-line business may
  lead to internal conflict
• Setting prices at the same level may hurt
  competitiveness
• Should you get financing from big venture capital
  firms?
• Venture capital financing causes loss of control
  over business
• Benefit access to various VC experts and get the
  cash you need

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Strategy Implementation

• Strategy implementation--The execution of the
  e-strategy plan, in which detailed, short-term
  plans are developed for attaining strategic
  goals
• Establish a Web team that continues the execution
  of the plan
• Start with a pilot project
• Planning for resources

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Strategy Implementation (cont.)

• Strategy implementation issues
• Evaluating outsourcing
• Build an in-house EC infrastructure
• Purchase a commercial EC software package or EC
  suite
• Use a Web hosting company
• Partners strategy
• How to coordinate B2B and B2C

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Strategy and Project Assessment

• Strategy assessmentthe periodic formal
  evaluation of progress toward the organization's
  strategic goals may include needed actions and
  strategy reformulation
• Objectives of assessment
• Find out if EC project delivers what it was
  supposed to deliver
• Adjust plans if necessary
• Determine if EC project is still viable
• Reassess initial strategy in order to learn from
  mistakes and improve future planning
• Identify failing projects as soon as possible and
  determine reasons for failure

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Measuring Results Using Metrics

• Metrica measurable standard or a target against
  which actual performance is compared
• Response time to customers enquiries
• Response quality
• Security/trust level
• Download time,
• Timeliness of fulfillment
• How up-to-date information
• Availability
• Site effectiveness, ease of use, and navigability

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Measuring Results Using Metrics (cont.)

• Balanced scorecarda structured methodology for
  measuring performance in organizations, using
  metrics in four areas
• Finance
• Customers assessments
• Internal business processes
• Learning and growth

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Measuring Results Using Metrics (cont.)

• Performance dashboarda structured methodology
  proposed by Rayport and Jaworski (2001) for
  measuring EC performance using
• Desired outcomes
• Corresponding metrics
• Leading and lagging indicators of performance

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EC Failures Lessons Learned

• E-Tailing failures
• Lack of funding
• Incorrect revenue model
• Exchange failures
• Revenue growth too slow
• Need to move to new business model
• EC initiatives failures
• Levi Strauss stopped online direct sales of its
  apparel (levistrauss.com) when major distributors
  and retailers put pressure on the company not to
  compete with their brick-and-mortar outlets

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Success Stories Lessons Learned

• Reasons for success
• Brick-and-mortar companies add online channels
• Mergers and acquisitions
• Peter Drucker
• Analyze the opportunities
• Go out to look
• keep it focused
• Start small (one thing at a time)
• Aim at market leadership

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Success Stories Lessons Learned (cont.)

• Asian CEOs CSFs
• Select robust business models
• Understand dot-com future
• Foster e-innovation
• Evaluate a spin-off strategy
• Co-brand
• Employ ex-dot-com staffers
• Focus on the e-generation as your market
• Get the technology right, avoid expensive
  technology and technology malfunctions

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Virtual Communities

• Virtual communitya group of people with similar
  interests who interact with one another using the
  Internet
• Elements of interaction
• Communicationbulletin boards, chat
  rooms/threaded discussions, e-mail and instant
  messaging
• Informationdirectories and yellow pages, search
  engine, member-generated content
• EC elementse-catalogs, shopping carts, ads,
  auctions of all types

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Virtual Communities (cont.)

• Communities of relations (practice)organized
  around certain life experiences
• Communities of fantasyshare imaginary
  environments

• Communities of transactionsfacilitate buying and
  selling
• Communities of interestpeople interact with each
  other on a specific topic

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Virtual Communities (cont.)

• Commercial aspects of community
• Understand a particular niche industry
• Build a site that provides valuable information
• Site should mirror the steps a user goes through
  in the information-gathering and decision-making
  process
• Build a community that relies on the site for
  decision support
• Start selling products and services that fit into
  the decision-support process

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Exhibit 11.9Value Creation in E-Communities
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Virtual Communities (cont.)

• Financial viability of communities
• Based on sponsorship and advertisement
• Expenses are very high because of the need to
  provide
• Fresh content
• Free services
• Free membership
• This model did not work well, many companies
  sustained heavy losses in 2000-2001 too few
  members, too few purchases

60
Virtual Communities (cont.)

• Key strategies for successful online communities
• Increase traffic and participation
• Focus on the needs of the members (facilitators
  and coordinators)
• Encourage free sharing of opinions and
  information
• Financial sponsorship is a must
• Consider the cultural environment
• Provide tools and activities for member use
• Community members involved in activities and
  recruiting
• Guide discussions, provoke controversy, and raise
  sticky issues

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Going Global

• Decision to go global is a strategic one
• Geographical borders are falling
• Artificial borders are being erected through
• Local language preferences,
• Local regulations
• Access limitations

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Benefits and Extent of Operations

• Major advantage of ECability to do business any
  time, anywhere, rapidly at a reasonable cost
• Success stories
• ETRADE or boom.com as your broker for stock
  trading
• Amazon.com
• Small companies sell to hundreds of customers
  worldwide (virtualvine.com)
• Increasing number of out-of-the-country vendors
  participate in electronic requests for quotes
• Successful employees recruitment
• Successful collaboration in B2B exchanges

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Barriers to Global Electronic Commerce

• Legal Issues
• Uncoordinated actions must be avoided and an
  international policy of cooperation should be
  encouraged
• Market Access Issues
• Companies starting e-commerce need to evaluate
  bandwidth needs by analyzing the data required,
  time constraints, access demands, and user
  technology limitations
• Financial Issues
• Customs and taxation
• Electronic payment systems

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Small Business Goes Global

• Cardiac Sciencetrying to break into the
  international market for years
• Within 2 years after Internet inception in the
  company, it was shipping its products to 46
  countries
• Today, 85 percent of the companys revenue is
  international, much of this is executed at
  (cardiacscience.com)

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Small Business Goes Global (cont.)

• Advice for small businesses going global at
• Universal Business Exchange (unibex.com)
• Several government agencies (stat-usa.gov)
• Cardiacs CEO crafting a solid export strategy
  takes a lot more commitment than putting up a
  snazzy Web site and waiting for the world to show
  up at our door. Its all about building
  relationships.

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Barriers to Global Electronic Commerce (cont.)

• Other Issues
• Language and translation
• Primary problems are cost, speed, inaccuracy
• Localization
• Adapt local business practices
• Culture
• Multiple cultures warrant different marketing
  approaches

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Attracting Japanese Customers to Your Site

• English-Japanese Promotion (ajpr.com)
• Helps clients avoid the mistakes often made when
  they selling to the Japanese customers
• Target audience uses Japanese-only Web search
  engines
• Alert companies when logos or themes are likely
  to strike a sour chord with Japanese sensibilities

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Japanese Customers (cont.)

• Japanese respond well to symbols or characters
• Product should be geared to Japanese males in
  their twenties and thirties
• Ajpr.com also provides help to Japanese companies
  develop English versions of their sites
• Provides localization advice
• Advertising
• Document translation
• Consulting services

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Breaking down theGlobal EC Barriers

• Value the human touch
• Be strategic
• Know your audience
• Be a perfectionist
• Remember, its the Web
• Integrate properly

• Keep the site flexible and up-to-date
• Synchronize content
• OECD (oecd.org) read
• Dismantling the Barriers to Global EC

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EC in SMEs

• Advantages/benefits of EC in SMEs
• Inexpensive
• Source of information
• Advertising
• Conducting market research
• Build (or rent) a storefront
• Low transaction costs
• Niche markets are best
• Provide catalogs
• Way to reach worldwide customers

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EC in SMEs (cont.)

• Disadvantages/risks
• Inability to use EDI, unless it is EDI/Internet
• Lack of resources to fully exploit the Web
• Lack of expertise in legal issues, advertisement
• Less risk tolerance than a large company
• Disadvantage when a commodity is the product (for
  example, CDs)
• No more personal contact, which is a strong point
  of a small business
• No advantage to being in a local community

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Critical Success Factors for SMEs

• Capital investment must be small
• Inventory should be minimal or non-existent
• Electronic payments scheme
• Payment methods must be flexible
• Logistical services must be quick and reliable
• The Web site should be submitted to
  directory-based search engine services
• Join an online service or mall and do banner
  exchange
• Design a Web site that is functional and provides
  all needed services to consumers

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Supporting Small Business

• Technical support from IBM (for a fee of only 25
  per month) at ibm.com.searchbusinesscenter
• Digitals virtual stores
• Microsofts Personal Web Server (PWS)
• U.S. government at ecommerce.gov
• Gartner Group provides access to online research
  material at gartner.com

74
Business Process Reengineering (BPR)

• Organizational transformationthe process of
  completely or drastically transforming an entire
  organization to a new mode of operation
• Business process reengineering (BPR)a
  methodology for comprehensive redesign of an
  enterprises processes

75
BPR (cont.)

• Redesign of the enterprise process and BPR
• Does not make sense to automate poorly designed
  processso restructure
• Necessary to change processes to fit commercially
  available software
• Fit is required between systems and processes of
  different companies
• Change processes to fit procedures and standards
  of public e-marketplaces
• Adjust procedures and processes to align with
  available services (logistics, payments,
  security)
• Changes to assure flexibility and scalability

76
Workflow Technologies

• Workflow systemsoftware programs that manage all
  the steps in a business process from start to
  finish, including all exception conditions
• Two categories
• Collaborative workflowproducts address
  project-oriented and collaborative processes
• Production workflowtools address
  mission-critical, transaction-oriented processes

77
Virtual Corporations

• Virtual corporationan organization composed of
  several business partners (some of whom may be
  pure-play EC players) sharing costs and resources
  for the production or purchasing of a product or
  service
• Major attributes of VCs
• Utilization Excellence
• Opportunism Lack of borders
• Trust Adaptability to change
• Technology

78
The Future of EC

• Internet usage
• Opportunities for buying
• M-commerce
• Purchasing incentives
• Increased security and trust
• Efficient information handing
• Innovative organizations
• Virtual Communities

• Payment systems
• Business-to-business
• B2B exchanges
• Auctions
• Going global
• E-government--comprehensive
• Intrabusiness EC
• E-learning

79
EC Technology Trends

• EC software and services
• Search engines
• P2P technology
• Integration
• Wearable devices

• Clients
• Embedded clients
• Servers
• Networks
• Wireless communications

80
The Digital Divide

• Digital dividethe gap between those who have and
  those who do not have the ability to access
  electronic technology in general, and the
  Internet and EC in particular

Digital Divide
81
Integrating Marketplace and Marketspace

• Click-and-mortar organization
• How to cooperate in planning, advertising,
  logistics, resource allocation
• How to align the strategic plans
• B2C ordering systems
• The impact of EC on our lives may be as much as,
  or more than that of the Industrial Revolution

82
Managerial Issues

• What is the strategic value of EC to the
  organization?
• What are the benefits and risks of EC?
• What metrics should we use?
• Can we do a pilot project?
• Do we have a community?
• How can we go global?
• Can we learn to love smallness?
• Is restructuring needed?

83
Summary

• Importance of strategic planning for EC
• The strategy planning and formulation process
• Application discovery, justification, and
  prioritization
• EC strategy implementation and assessment

84
Summary (cont.)

• Understanding failures and learning from them
• The role and impact of virtual communities
• Issues in global EC
• Small businesses and EC
• Restructuring and virtual organizations
• The future of EC