Chapter 9: Choosing the appropriate strategy for the internal organisation of e-business activities

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Chapter 9 Choosing the appropriate strategy for
the internal organisation of e-business
activities
After this session you should be able to

• Describe the spectrum of make-or-buy options
• Identify the main reasons that favour make
  decisions
• Identify the main reasons that favour buy
  decisions
• Describe the concept of value chain
  deconstruction and the role of the Internet
  within this concept
• Understand the concept of unbundling the
  corporation.

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Exhibit 9.1 During the 1990s, the PC industry
became increasingly fragmented
IBM-Integrated value chain (1985)
Micro processors, integrated circuits, memory
chips
Application software
Operating systems
Marketing, sales and distribution
PCs
Retail
Compaq
Microsoft Office
Dell
Windows
Megastores
IBM
Intel
Unbundled value chain (1999)
Online
Apple
Netscape
Motorola
UNIX
Post order
Adobe
OS/2
AMD
Cyrix
Mac OS
Direct sales
Linux
Source Adapted from D. Heuskel (1999), p. 53.
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Companies can choose from a variety of options
for making a product or service.
Market transactions
entail the purchase from an external provider on
an individual one-by-one contractual basis.
Long-term contracts
entail the purchase from an external provider on
a contractual basis, spanning over an extended
period of time.
Alliances
entail the close co-operation of two separate
firms that join up in the production of a certain
product or service.
Parent/subsidiary
entail the setting up of a distinct firm that
operates separately from, yet under the auspices
of, the parent company.
Internal production
entails a process that is managed completely
internally, without any outsourcing to external
providers.
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Reasons favouring make or buy decisions
Reasons favouring make decisions
Reasons favouring buy decisions
High economies of scale High capital
requirements Specialised know-how Higher
efficiency of the open markets
Strong linkage between activities Confidentiality
of information High transaction costs
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Exhibit 9.2 The clicks-and-mortar spectrum spans
from integration to separation of a companys
e-business activities
The clicks-and-mortar spectrum

• Integration
• established brand
• shared information
• purchasing leverage
• cross-promotion
• distribution efficiencies
• shared customer services

Independent business/ spin-off (e.g. BOL.de)
Strategic alliance (e.g. Amazon.com and Borders)
Joint venture (e.g. KB Toys and Brain- Play.com)
In-house division (e.g,Tesco.com)

• Separation
• greater focus
• more flexibility
• access to venture
• capital for funding

• Separation
• greater focus
• more flexibility
• access to venture
• capital for funding

Source Adapted from R. Gulati and J. Garino
(2000).
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Separation and integration are two fundamental
forms of organising e-business activities
Integrated e-business organisation
Separate e-business organisation

• Established and trusted brand
• Shared information
• Cross-promotion
• Purchasing leverage
• Distribution efficiencies
• Shared customer service

• Greater focus
• More flexibility and faster decisions
• Entrepreneurial culture
• Access to venture capital

Source R. Gulati and J. Garino (2000), pp.
107-114
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Exhibit 9.3 The traditional corporation can be
unbundled into three distinct businesses
Customer relationship management Identify,
attract, and build relationships with customers
Infrastructure management Build and manage
facilities for high-volume, repetitive
operational tasks
Product innovation Conceive attractive new
products and services and commercialise them
Source Adapted from J. Hagel and M. Singer
(1999).
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Exhibit 9.4 Different businesses within a
corporation have different imperatives regarding
economics, culture and competition
Businesses
Product innovation
Customer relationship management
Infrastructure management
Economics
I m p e r a t i v e s
High cost of customer acquisition makes it
imperative to gain large shares of wallet
economies of scope are the key
Early market entry allows for a premium price and
a large market share speed is the key
High fixed costs make large volumes essential to
achieving low unit costs economies of scale are
the key
Culture
Employee centered coddling the creative stars
Highly service oriented customer comes first
Cost focused stress on standardisation,
predictability, efficiency
Competition
Battle for talent low barriers to entry many
small players thrive
Battle for scope rapid consolidation a few big
players dominate
Battle for scale rapid consolidation a few big
players dominate
Source Adapted from J. Hagel and M. Singer
(1999).
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Exhibit 9.5 The channel conflict matrix analyses
how different types of channel conflicts should
be resolved
Relative importance of threatened channel
Low
High
Address channel conflict
Accept the decline of threatened channel
1
2
High
M a i l o r d e r
Conflict
Traditional retailer
Internet
Risk of conflict between different channels
Reassure members of threatened channel
Ignore
3
4
O t h e r s
Low
Source Adapted from C. Bucklin, P. Thomas-Graham
and E. Webster, Channel conflict when is it
dangerous?, McKinsey Quarterly, 1997, No. 3, pp.
3643.