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EStrategy, Internet Communities, and Global EC


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Title: EStrategy, Internet Communities, and Global EC

E-Strategy, Internet Communities, and Global EC
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

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

IBMs E-Businesss Strategy (cont.)
  • Establish a strategy for the corporate Internet
  • 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

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

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

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

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

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

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
  • 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
  • Pure-play EC companies

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
  • Company must consider EC strategy that includes
    contingency plans to deal with changes
  • May be too costly not to have one

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

Charles Schwab (cont.)
  • Schwab had first-mover advantage in securing key
  • 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
  • Key benefits
  • Innovative products Superior service
  • Low fees Cutting-edge technology

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

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

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

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

Exhibit 11.1The Landscape of EC Strategy
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

Industry Assessment
  • What industry is the EC initiative related to?
  • Who are the customers?
  • What are the current practices of selling and
  • 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?

Company Assessment
  • The organization investigates its own
  • Business strategy
  • Performance
  • Customers
  • Partners
  • It looks at everything that has an impact on its
  • Processes
  • People
  • Information flows
  • Technology support

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
  • SWOT Analysis
  • Strengths
  • Opportunities
  • Weaknesses
  • Threats

Exhibit 11.2SWOT Matrix
Competitive Intelligence on the Internet
  • Internet can play a major role as a source of
    competitive information (competitive
  • Review competitors Web sites
  • Examine publicly available financial documents
  • Ask the customersaward prizes to those who best
    describe your competitors strengths and

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

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
  • Chance of failure is high
  • System may be obsolete as compared to second wave
  • No support services are available at the

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
  • Lose expertise of business functions unless you
    use close collaboration

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

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

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

Determining an AppropriateEC Application
  • 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

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

Exhibit 11.4Tjan Application Portfolio Map
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

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

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

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

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

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

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

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

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

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

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
  • Clear strategy of what and how

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
  • Should you get financing from big venture capital
  • Venture capital financing causes loss of control
    over business
  • Benefit access to various VC experts and get the
    cash you need

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

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

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

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

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

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

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 ( when major distributors
    and retailers put pressure on the company not to
    compete with their brick-and-mortar outlets

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

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

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

Virtual Communities (cont.)
  • Communities of relations (practice)organized
    around certain life experiences
  • Communities of fantasyshare imaginary
  • Communities of transactionsfacilitate buying and
  • Communities of interestpeople interact with each
    other on a specific topic

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
  • Build a community that relies on the site for
    decision support
  • Start selling products and services that fit into
    the decision-support process

Exhibit 11.9Value Creation in E-Communities
Virtual Communities (cont.)
  • Financial viability of communities
  • Based on sponsorship and advertisement
  • Expenses are very high because of the need to
  • 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

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
  • Financial sponsorship is a must
  • Consider the cultural environment
  • Provide tools and activities for member use
  • Community members involved in activities and
  • Guide discussions, provoke controversy, and raise
    sticky issues

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

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

Barriers to Global Electronic Commerce
  • Legal Issues
  • Uncoordinated actions must be avoided and an
    international policy of cooperation should be
  • 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

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
  • Today, 85 percent of the companys revenue is
    international, much of this is executed at

Small Business Goes Global (cont.)
  • Advice for small businesses going global at
  • Universal Business Exchange (
  • Several government agencies (
  • 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

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

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

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

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 ( read
  • Dismantling the Barriers to Global EC

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

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

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
  • Design a Web site that is functional and provides
    all needed services to consumers

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

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

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,
  • Changes to assure flexibility and scalability

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

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
  • Major attributes of VCs
  • Utilization Excellence
  • Opportunism Lack of borders
  • Trust Adaptability to change
  • Technology

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

EC Technology Trends
  • EC software and services
  • Search engines
  • P2P technology
  • Integration
  • Wearable devices
  • Clients
  • Embedded clients
  • Servers
  • Networks
  • Wireless communications

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
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

Managerial Issues
  • What is the strategic value of EC to the
  • 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?

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

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
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