MGT 3225 EBusiness Lecture 4 EBusiness Strategy Book

MGT 3225: E-Business Lecture 4: E-Business Strategy (Book Chapter 5) Md Mahbubul Alam, Ph. D Associate Professor

Intended Learning outcomes • Understand how e-business strategy differs from traditional business strategy. • Identify an appropriate e-business strategy and integrate it with existing business and information systems strategy. • Outline alternative strategic approaches to achieve e-business. • Evaluate investment priorities and returns from e-business. Prepared and Presented by Md. Mahbubul Alam, Ph. D 2

E-business Strategy • What is strategy? ü A plan of action designed to achieve a particular goal. • o ‘Defines how we will meet our objectives’. o ‘Sets allocation of resources to meet goals’. o ‘Selects preferred strategic option to compete within a market’. o ‘Provides a long-term plan for the development of the organization’. o ‘Identify competitive advantages through developing an appropriate positioning defining a value proposition delivered to customer segments’. What is E-business strategy? ü Approaches by which applications of internal and external electronic communications can support and influence corporate strategy. ü A fusion of existing approaches to business, marketing, supply chain management and information systems strategy development. ü NOT only define ‘how to do business online’ BUT defines ‘how to do business differently online’. Prepared and Presented by Md. Mahbubul Alam, Ph. D 3

Forms of Organizational Strategy Corporate strategy • Business unit strategy • • Business unit strategy Operational strategy Functional strategy Where should e-business strategy be incorporated with? Defines how to compete successfully in a particular market. Operational strategy • • Concerned with achieving corporate and business unit strategies. Functional strategy • • Concerned with the overall purpose and scope of the organization. • Describe how the corporate and business unit strategies will be operationalized in different functional areas or business processes. • Refers to marketing, SCM, HR, Finance, IS strategies. ü Functional strategy Vs. Corporate strategy Prepared and Presented by Md. Mahbubul Alam, Ph. D 4

Relationship between e-business strategy and other strategies • Buy-side e-commerce strategy ü Maximize operational efficiencies through o Automate internal processes o Link internal resource management systems with external purchasing systems o Prioritize suppliers / partners collaborating using this channel o Prioritize applications for E-SCM o Involves selection of appropriate strategic partners • Sell-side e-commerce strategy ü Channel strategy which defines how firms should o Hit channel leads and sales targets o Communicate benefits of using this channel o Prioritize products available through channel o Prioritize audiences targeted through channel Prepared and Presented by Md. Mahbubul Alam, Ph. D 5

E-channel strategies • E-channel strategy ü Describe how a company should set specific objectives and develop specific differential strategies for communicating with its customers and partners through electronic media such as the Internet, e-mail, wireless media. ü Without specific goals and strategies, adoption of the new channel will be slow. • Multi-channel e-business strategy: ü Defines how different marketing and supply chain channels should integrate and support each other to drive business efficiency and effectiveness. ü It also defines how an organization gains value internally from using electronic networks, such as sharing employee knowledge and improving process efficiencies through intranets. • “Right-channelling” Selective adoption of e-channels by business according to product or stakeholder preferences. ü Reaching the right customers ü Using the right channel ü With the right message or offering ü All the right time. Prepared and Presented by Md. Mahbubul Alam, Ph. D 6

What happens where there is no e-business strategy? • Missed opportunities for additional sales on the sell-side and for more efficient purchasing on the buy-side. • Fall-behind competitors in delivering online services – may become difficult to catch-up, for example, Tesco, Dell. • Inappropriate direction of e-business strategy, e. g. , wrong emphasis on buy-side, sell-side or internal process. • Limited integration of e-business, e. g. , separate organizational team with distinct responsibilities. • Poor customer experience from poorly integrated channels. • Resource wastage through duplication of e-business development, e. g. , developing separate websites for suppliers. Prepared and Presented by Md. Mahbubul Alam, Ph. D 7

Strategy Process Model for e-Business • A framework that gives a logical sequence to follow to ensure inclusion of all key activities of e-business strategy development. It includes ü Internal and external environmental scanning or analysis is needed. ü A clear statement of vision and objectives is required. ü Strategy development can be broken down into strategy option generation, evaluation and selection. It consists reviewing a range of alternatives and selecting the best on its merits. ü Implement the strategy, and monitor operational and strategy effectiveness problems and adjust the operations or strategy accordingly. Prepared and Presented by Md. Mahbubul Alam, Ph. D 8

Strategy Process Model for e-Business (Cont’d) • Three key elements (Jelassi & Enders, 2008) 1. Strategy analysis : Where will the organization compete? 2. Strategy development: Strategy option to generate value through o Cost leadership-> company competes in terms of low prices o Differentiation leadership-> company competes in terms of superior products and services 3. Strategy implementation: How should the organization be designed to deliver value? o Internal structure and resource and interfaces with external companies. • Prescriptive Strategy Vs. Emergent Strategy • • All elements are linked together sequentially-> Prescriptive strategy, e. g. , short-time budgeting All elements are interrelated and are developed together, e. g. , respond to marketplace dynamics. Prepared and Presented by Md. Mahbubul Alam, Ph. D 9

Dynamic e-Business Strategy Model (Kalakota & Robinson, 2000) Strategy Approaches Strategic analysis • Monitor introduction of new approaches by competitors. • Third-party benchmarking service reporting monthly or quarterly on new functionality introduced by competitors. • Ad hoc customer panel used to suggest or review new ideas. • Quarterly longitudinal testing of usability. • Subscription to audience panel data. Strategy formulation and selection • Budget flexible to reassign priorities. • Digital channel strategy group meets monthly, empowered to take decision. Strategy implementation • Use of agile development methodologies to enable rapid development. • Area of site used to showcase new tools currently under trial Prepared and Presented by Md. Mahbubul Alam, Ph. D 10

Strategic Analysis and Elements of Strategic Situation Analysis • Collection and review of information about the external environment and internal resource. ü Immediate competition, i. e. , microenvironment, e. g. , customer demand behavior. ü Wider environment, i. e. , macroenvironment in which a company operates, e. g. , economic development and regulation by governments, social, legal, economic and political factors. ü Internal resources and processes of the company, to assess its e-business capabilities. Prepared and Presented by Md. Mahbubul Alam, Ph. D 11

Stage Models of e-Business Development Prepared and Presented by Md. Mahbubul Alam, Ph. D 12

Stage Models of e-Business Development (cont’d) Level Feature(s) Level 0 No web site or presence on web Level 1 Basic web presence (awareness creation) Level 2 Simple static information web site (basic company and product information) Level 3 Simple interactive site (Users can search and make queries to retrieve information such as product availability and pricing. Level 4 Interactive site supporting transactions with users (online buying and interactive customer feedback) Level 5 Fully interactive site supporting the whole buying process Prepared and Presented by Md. Mahbubul Alam, Ph. D 13

Technique 1: Resource and Process Analysis • Concerns with e-business capabilities • Review of the technological, financial and human resources of an organization and how they are utilized in business processes. ü Resources: tangible and intangible assets o Tangible: IT infrastructure, bricks and mortar and financial capital o Intangible: company’s brand credibility, employee knowledge, licenses and patents. ü Capabilities: the ability of a firm to use resources effectively to support value creation. In other words, the process of plan, review, enhance e-channel performance through web analytics. Prepared and Presented by Md. Mahbubul Alam, Ph. D 14

Technique 2: Application Portfolio Analysis • Purpose: o To assess current information systems capability o To inform future strategy • Benchmarking of e-commerce capabilities and identifying strategic priorities (E-consultancy, 2008) 1. Digital channel strategy: e. g. , situation analysis, goal setting, identification of key target markets & audience. 2. Online customer acquisition: e. g. , gaining new customers through online digital media channels. 3. Online customer conversion and experience: e. g. , improve online service levels and increase conversion. 4. Customer development and growth: e. g. , encourage visitors & customers to continue using online services. 5. Cross-channel integration and brand development: e. g. , combination of traditional and online channel. 6. Digital channel governance: e. g. , technology infrastructure such as hardware and networking facilities. Prepared and Presented by Md. Mahbubul Alam, Ph. D 15

Technique 2: Application Portfolio Analysis (cont’d) Prepared and Presented by Md. Mahbubul Alam, Ph. D 16

SWOT analysis • An analysis that helps organizations to analyze their internal resources in terms of strengths and weakness and match them against the external environment in terms of opportunities and threats. • Not only used to analyze the current situation but also as a tool to formulate strategies. Prepared and Presented by Md. Mahbubul Alam, Ph. D 17

Competitive Environment Analysis Porter’s competitive forces model • Competitive rivalry o Strength of competition in the industry • Threat of new entrants o Ease with new competitors can enter the market • Bargaining power of supplier o Drive up the prices of your inputs • Bargaining power of customers o Drive down your prices/switching to competitor • Threat of substitutes o Availability of different products/services How does the Internet impact the five competitive forces? Plz. see Table 5. 5, p. 277 Prepared and Presented by Md. Mahbubul Alam, Ph. D 18

Competitive Forces in e-business Prepared and Presented by Md. Mahbubul Alam, Ph. D 19

Strategic Objectives • Strategic objectives o Statement and communication of an organization's mission, vision and objectives. • Vision or mission o A concise summary defining the scope and broad aims of an organization’s digital channel in the future, explaining how they will contribute to the organization and support customers and interactions with partners. Prepared and Presented by Md. Mahbubul Alam, Ph. D 20

Strategic Objectives (cont’d) 1. 2. SMART objectives: Specific, measurable, actionable, relevant, time-related. 3. Conversion Marketing: Using marketing communications to maximize conversion of potential Online or Internet Revenue contribution (ORC): An assessment of the direct or indirect contribution of the Internet to sales, usually expressed as a percentage of overall sales revenue. customers to actual customers. o o o Awareness efficiency: target web-users/all web-users Locatability or attractability efficiency: number of individual visits/number of seekers Contact efficiency: number of active visitors/number of visits Conversion efficiency: number of purchases/number of active visits Retention efficiency: number of repurchases/number of purchases 4. Balanced scorecard: next page Prepared and Presented by Md. Mahbubul Alam, Ph. D 21

Balanced Scorecard • A framework for setting and monitoring business performance. • Tool for translating organizational strategies into objectives. Prepared and Presented by Md. Mahbubul Alam, Ph. D 22

How can e-business create value? • Adding values: better quality products and services o Sense and respond communications-> Use technology to monitor consumers’ preferences indicated by their responses to websites or e-mail communications in order to target them with relevant, personalized and targeted communications. • Reducing cost: making the business process more efficient • Managing risks: improve information flow and availability • Creating new reality: create new way in which products or services can be developed Prepared and Presented by Md. Mahbubul Alam, Ph. D 23

Creating value for e-business Ref. Marchand et al. 2002 Prepared and Presented by Md. Mahbubul Alam, Ph. D 24

Strategy Definition • Formulation, review and selection of strategies to achieve strategic objectives. o Alignment with core capabilities o Alignment with other company initiatives o Fit with organizational structure o Fit with company’s culture and value o Ease of technical implementation. Prepared and Presented by Md. Mahbubul Alam, Ph. D 25

Matrix for evaluating e-business strategy alternatives 1. Business value generated: 2. Customer value generated: 3. incremental financial benefit, e. g. , conversion rates, repeat customers would customer recommend the site? Alignment with business strategy: does support current business goals? 4. Alignment with digital strategy 5. Alignment with brand values Ref: Econsultancy (2008) Prepared and Presented by Md. Mahbubul Alam, Ph. D 26

E-business Channel Priorities • ‘Getting the right mix of bricks and clicks’ • Internet pureplay: A company trading online that has limited or no physical presence such as retail units. • Switch-fully is impractical for many businesses. • Right-Channeling: Integrate different channels to reach the right person at the right time using the right channel with a relevant offer, product or message. Prepared and Presented by Md. Mahbubul Alam, Ph. D 27

Market and Product Development Strategy A key strategic considering is which market to target and using what products. Prepared and Presented by Md. Mahbubul Alam, Ph. D 28

Positioning and Differentiation Strategy 1. 2. 3. 4. Product performance excellence Price performance excellence Transactional excellence Relationship excellence Prepared and Presented by Md. Mahbubul Alam, Ph. D 29

Other Decisions • Business and revenue model: how a company will generate revenue? • Marketplace restructuring: opportunities for new market structures to be created through disintermediation, reintermediation and Countermediation within a marketplace. • SCM capabilities: how should firm integrate more closely with suppliers? e. g. , Extranet • Internal Knowledge management capabilities: how should firm support internal business process? e. g. , Intranet • Organizational resourcing and capabilities o o In-house division (integration) Joint venture (mixed) Strategic partnership (mixed) Spin-off (separation) Prepared and Presented by Md. Mahbubul Alam, Ph. D 30

Strategy Implementation Prepared and Presented by Md. Mahbubul Alam, Ph. D 31

Failed e-Business Strategies • • • Timing errors Lack of creativity: copied existing business model Free services Over ambition Other classic mistakes • Situation Analysis: insufficient research on demand completive forces • Object setting: no or unrealistic objectives • Strategy definition: poor business and revenue models • Implementation: problems with customer services and product quality, infrastructure and change management, etc. Prepared and Presented by Md. Mahbubul Alam, Ph. D 32

Strategy Implementation Success Factors for SMEs 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Content—effective presentation Convenience—usability Control—manageable and under control Interaction Community Price sensitivity Brand image Commitment Partnership Process Improvement Integration Prepared and Presented by Md. Mahbubul Alam, Ph. D 33

Question Please ? Acknowledgement: “E-Business and E-Commerce Management: Strategy, Implementation and Practice” by Dave Chaffey