Chapter 16 EC Strategy and Implementation (modified for class 16.04.02) Judith Molka-Danielsen

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Chapter 16EC Strategy and Implementation(modif
ied for class 16.04.02)Judith Molka-Danielsen
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Learning Objectives

• EC strategies
• Essentials
• planning process
• strategy formulation process
• Applications - discovery and prioritize
• Role of CSFs and justification of EC
• Implementation
• Reassessment
• Metrics
• Failures and lessons learned

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IBMs E-Business Strategy

• Mission
• 20 initiatives defined, begin with 7
• Separate EC division
• Use existing strengths
• Tie to business processes
• Decide to be an EC-leader
• Selection criteria (ROI)

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Need for a Strategy

• Cases of e-strategy
• Click-and-mortar companies that use
• several EC applications (comprehensive strategy)
• only one or two EC applications (add on,
  additional selling channel)
• one EC application that fundamentally changes all
  their business (changes business strategy, cannot
  go back, ie. Rosenbluth)
• Pure-play EC companies

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Need for a Strategy (cont.)

• Why does a company need an e-strategy?
• Fast changes in business and technology means
  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
• These are questions the business needs to answer
  for its investors

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(Strategy) - The Business Plan (from Jim Willams
lecture)

• What Offerings (services, products)?
• Who are the customers?
• Who is the competition?
• How will the services be delivered?
• What technologies can be utilized?
• What is the cost of delivering service?
• What resources are required to deliver and
  support the services?

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(Strategy) -The Business Plan from Jim Williams
lecture (cont.)

• What system architecture is required?
• What processes, functions, procedures, etc. are
  needed?
• What are the capacities and volumes of the
  resources needed?
• What Financial Resources are Needed?
• The Economic Model

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Essentials of a Business Strategy

• Strategy what is the plan to compete?
• What is the firms position in the marketplace?
• How does it keep its strategic position?
• What is it good at doing?
• What other activities will leverage its position
  to sustain competitive advantage?

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Essentials of a Business Strategy (cont.)

• Types of strategy
• Strategic planning future, long term
• Strategic response to innovations, what-if
• Strategic innovation proactive, introduce new

• Levels of strategy
• Corporate (all) strategy
• IT strategy
• EC strategy
• EC functional strategies

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Figure 16-1EC Strategy Alignment
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Essentials of a Business Strategy (cont.)

• Strategy landscape
• Strategy initiation vision, mission, purpose
• Strategy formulation applications, risk
  analysis, cost analysis
• Strategy implementation resources analysis,
  budgets, milestones established
• Strategy assessment based on milestones,
  reformulate

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

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Figure 16-2The Landscape of EC Strategy

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1. Strategy Initiation

• Vision and Mission vague but springboard for
  specific goals and objectives.
• Industry Analyze - position of the company in
  its industry and the competition
• Required for assessing the changes that EC
  project may introduce and its chances for success
• Industry, Company, Competitive Assessments.

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Industry Assessment understand the industry

• 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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Figure 16-3Company Analysis (Assessment)
Source Hackbarth and Kettinger (2000), p. 85.
Reprinted with permission of William J. Kettinger.
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Competitive Analysis

• Monitoring, evaluating, disseminating of
  information from the external and internal
  environments
• SWOT Analysis
• Strengths (internal)
• Opportunities (external)
• Weaknesses (internal)
• Threats (external)

SWOT
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Figure 16-4 SWOT Diagram
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 overcoming
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)
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In class example of SWOT. Based on (Ch.02 Shapiro
Varian) Electronic Publishing. Below is
Britannica 2002 Comparison Chart
Britannica 2002 Comparison Chart for Windows
Versions


FEATURE StandardCD-ROM(WIN/MAC) DeluxeCD-ROM(WINDOWS) EXPANDEDDVD(WINDOWS)
Total Articles 80,000 85,000 85,000
Encyclopedia, Dictionary, Atlas Entries - Word Count 55 million 56 million 56 million
Visual Tours   44 44
Photos, Illustrations, Tables Maps        5,400 12,100 18,500
Videos Sound 114 clips, over 30 minutes 131 clips, over 1 hour 517 clips, over 7 hours
Indexed References 613,000 613,000 613,000
Web Links 300,000 300,000 300,000
Merriam-Webster's Dictionary 200,000 entries 200,000 entries 200,000 entries
Interactivities Animations 13 105 105
Timelines   14 categories, 4,100 entries 14 categories, 4,100 entries
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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
• Analyze related newsgroups
• 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.)

• Information delivery services
• Newsgroups
• Information about your competitors and their
  products
• Known as push technologies
• Corporate research companies provide information
  about your competitors
• Risk analysis
• Stock market analysts reports
• Examine chat rooms
• Should not substitute for in-depth background
  research. Some do this.

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Issues in Strategy Initiation

• To be a first mover or a follower?

• Disadvantages
• Cost of developing EC initiative is usually very
  high (Are there common standards and best
  practices?)
• Chance of failure is high
• System may be obsolete as compared to second wave
  arrivals
• No support services are available at the
  beginning

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

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What Do You Need an EC For?

• Enhancing the sell channel by advertisement and
  sales
• Enhancing the buy (procurement channel)
• Enhancing the customer service channel
• Going global

• Facilitating value-chain integration
• Providing for new products and services
• Going into specialty markets (niche)
• Going to mass customization

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Should You Have a Separate(spin-off) Online
Company or Not?

• Advantages (new IPO)
• 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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2. Strategy Formulation

• Strategy formulation for the effective
  management of opportunities and threats given
  strengths and weaknesses
• 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
• Shipped easily or transmitted electronically
• Targets knowledgeable buyers
• Price falls within certain optimum ranges

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EC Critical Success Factors indispensable
factors that help the firm achieve its goals.

• Special products or services traded
• Top management support
• Project team representing various functional
  areas
• Appropriate technical infrastructure
• Must have customer acceptance
• User-friendly Web interface
• Integration with the corporate legacy systems

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EC Critical Success Factors (different list for
every firm)

• Security and control of the EC system
• Competition and market situation
• Conduct pilot project and capture corporate
  knowledge
• Use promotion and internal communication
• Cost of the EC project must be reasonable
• Need sufficient level of trust between buyers and
  sellers

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Critical Factors for Success (from Jim Williams
lecture on BroadStreet Inc.)

• In real estate the 3 critical factors are
• Location, Location, and Location
• In Telecommunications the 3 critical factors are
• Execute, Execute, and Execute

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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
• All of the above can be risky and costly

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EC Opportunities (How do they pick the important
EC initiatives?)

• Problem-drivenattempt to solve a problem such
  as
• Excess inventory
• Delivery delays
• Technology-driventrying to use existing
  applications
• Find problems no one knew existed
• Used by first movers
• Market-drivenwaiting to see what the competitors
  will do
• Fear or greed-driven to lose, or make big money.

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Figure 16-5Approaches for Finding EC
Opportunities
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Uncovering Specific ECOpportunities and
Applications (cont.)

• Examples of Opportunities for EC businesses
• Matchmakingmatching buyers needs from seller
  without a prior knowledge of either one
• Aggregation of servicescombines several existing
  services to create a new service
• Bid/ask enginecreates a demand/supply floating
  pricing system
• Notification servicetells you when the service
  becomes available, or when it becomes cheaper

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Uncovering Specific ECOpportunities and
Applications (cont.)

• Smart needs adviserif you want , then you
  should
• Negotiationprice, quantity, or features are
  negotiated
• Up-sellsuggests an additional product or service
• Consultative adviserprovide tips on using the
  product

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Methods for Finding IT Applications

• Brainstorming
• Soliciting help of experts
• Review what the competitors are doing
• vendors suggestions

• Read the literature
• Use analogies from similar industries or business
  processes
• Use a conventional IS requirement analysis
  approach

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Determining an AppropriateEC Application
Portfolio
Generic approaches (portfolio analysis)

• 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, current
  profit-making businesses
• Boston Consulting Groups matrix
• Cash cows Questionable projects
• Starts Dogs

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EC Application Portfolio

• An EC-specific method

• Tjans portfolio strategyInternet portfolio map
• Strategy based on company fit (assessed by 5
  levels, high to low)
• Alignment with core capabilities, Org.
  initiatives, Org. structure, Org. culturevalues,
  Ease of technical implementation.
• Projects viability assessed by 4 criteria
• Market value potential
• Time to positive cash flow
• Personal requirements
• Funding requirements

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Cost-Benefit and Risk Analysis

• 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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Cost-Benefit and Risk Analysis (cont.)

• Content of an E-business case
• Strategic justificationwhere are we going?
  (goal statement)
• Generational justificationhow will we get
  there? how to execute, (measurable goals)
• Technical justificationwhen will we get there?
  (short term and long term plan)
• Financial justificationwhy will we win?
  (revenue plan, costs of acquiring and maintaining
  customers)

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Cost-Benefit and Risk Analysis (cont.)

• It is difficult to justify EC investment due to
  many intangible variables
• Methods used for analysis
• Value analysis and proposition
• Rate of return of investment (ROI) and/or
  discounted cash flow
• Real options valuation and analysis
• Management by maxim
• Information economics

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Value Analysis and Proposition

• A Value Analysis Approach
• Value chaina series of activities a company
  performs to achieve its goal(s)
• Value added (to profit, using many channels)
  (Customers value proposition)
• Can I realize significant margins by
  consolidating parts of the value chain to my
  customers?
• Can I create significant value for customers by
  reducing the number of entities they have to deal
  with in the value chain?

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Value Analysis and Proposition (cont.)

• Value Analysis Questions (cont.)
• Representative question for creating new values
• Can I offer additional information of transaction
  services to my existing customer base?
• Can I use my ability to attract customers to
  generate new sources of revenue, such as
  advertising or sales of complementary products?

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Return on Investment (ROI)

• Return on Investment and Risk Analysis

• A ratio of resources required and benefits
  generated by an EC project
• Includes both quantifiable items (cost of
  resources, computed monetary savings) and
• Non-quantifiable items (intangibles)
• Some intangible benefits
• Effective marketing channel
• Increased sales
• Improved customer service

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Return on Investment and Risk Analysis

• IT values
• Financial values measurable to some degree
• Strategic values competitive advantage in the
  market and benefits generated by business
  procedures
• Stakeholder values reflections of organizational
  redesign, organizational learning, empowerment,
  information technology architecture of a company,
  etc.

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Return on Investment and Risk Analysis (cont.)

• IT risks
• Competitive strategy riskexternal, due to joint
  venture, alliances or demographic changes among
  others
• Organizational risk and uncertaintyinternal to
  company

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Figure 16-7Real Option Analysis (option
valuation, option pricing) (Rayport Jaworski,
2001)
Source Rayport and Jaworski (2001) Exhibit 8-8
pg. 304.
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Risk Analysis

• Risk analysis program should
• Id all potential risks
• Assess potential damage
• Evaluate possibility of protection (reduce loss
  or uncertainty) (backup, insurance)
• Evaluate cost of protection vs. benefits (of
  applying protection)

• E-business risks
• Strategic risks (e.g., competitive environment,
  wrong strategic direction)
• Financial risks (e.g., currency management and
  changes, unclear tax situations)
• Operational risks (e.g., technological changes
  and use of poor technology, security)

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EC Scenarios (Scenario Analysis)

• Scenario planning is a methodology used in
  planning situations that involve much
  uncertainty, like that of EC (what-if)
• Several different scenarios are created
• A team compiles several future events as possible
  influences on the outcome
• Securities are assessed and future projections
  are made
• Scenarios are compared (does not reduce
  uncertainty)

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EC Scenarios (cont.)

• Four scenarios described by Hutchinson
• Open, global commerce scenarioremoval of
  intermediaries flattens the value chain
• Members-only subnet scenarioapplies to B2B
• Electronic middlemen scenariomake
  products/services available through 3rd party
  distribution channels
• Consumer marketing channels scenariocollapse
  marketing to a unified consumer-centric EC medium
  on the Internet

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Strategic Planning Framework

• EC appears in three levels
• Level 1 Basic presence company uses the
  Internet to feature company information and
  provide brochures
• Level 2 Prospectingfeatures added
• Search engine
• Extensive product information
• Links to services
• Ability to interact with the company
• Basic customer service

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Strategic Planning Framework (cont.)

• Level 3 Business integrationmore features added
• EC transaction capabilities
• Customization and personalization services
• Tools fostering creation of a community
• Level 4 Business transformationsupplier and
  customer integration added
• Multichannel integration
• Advanced customization and configuration
• Superb customer service

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Strategic Planning Framework (cont.)

• Generic competitive strategy vs. cooperarative
  strategy
• Competitive strategy assumes fighting against all
  competitors for the purpose of survival and
  winning
• Cooperarative strategy plans for working together
  with specific competitors to gain advantage
  against other competitors

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Generic Competitive Strategies

• Defensive strategies takes place in the firms
  own current market position as a defense against
  possible attack by a rival
• Raise structural barriers
• Lower the (draw) inducement for attack

• Offensive strategy usually takes place in an
  established competitors market
• Frontal Assault attacker must have superior
  resources and willingness to persevere
• Flanking Maneuver attack a part of the market
  where the competitor is weak

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Generic Cooperative Strategies

• Collusion
• Active cooperation of firms within an industry
  to reduce output and increase prices in order to
  get around the normal economic law of supply and
  demand (illegal)
• Strategic Alliance
• Partnership of two or more corporations or
  business units to achieve strategically
  significant objectives that are mutually
  beneficial

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Generic Cooperative Strategies (cont.)

• Joint Venture
• A way to temporarily combine the different
  strengths of partners to achieve an outcome of
  value to both
• Value-Chain Partnership
• A strong and close alliance in which one company
  or unit forms a long-term arrangement with a key
  supplier or distributor for mutual advantage

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Svioklas Strategy

• What is the right organizational structure?
• Companies need to realign their structures
• Break functional silos
• Meet different business needs
• What is the correct technology platform?
• IT must design for a digital economy
• EC IT must integrate seamlessly with (back
  office)
• Customer call center
• Billing
• Shipping systems

• What is the companys digital business strategy?
• new business model?
• business categories?
• What is the best capital structure?
• Capital markets reward innovative, buying the
  future, not the past
• Very risky due to overvaluation

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Mougayars Approach

• What questions should a strategic plan answer?
• How EC changes our business?
• How uncover new business opportunities?
• How use e-linkages with customers and trading
  partners?
• Intermediaries be eliminated? Are we
  intermediaries?
• How bring more buyers together?
• How do we change the nature of our products and
  services?
• Why is the Internet affecting other companies
  more than ours?
• How do we manage and measure the evolution of our
  strategy?

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Wares Approach

• Ware et al.s 7-step model e-strategy (see book)
• Where are you along the continuum of possible EC
  applications? Want to go? How get there?
• Kettinger and Hackbarth Methodology
• Initate top support, schedule
• Diagnosis SWOT, scan for best practises and
  technologies
• Breakout use IT to transform processes and
  better compete
• Transition time, lack of resources, qualified
  people, gap strategy, steps towards breakout
  strategy

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Issues in Strategy Formulation (cont.)

• How to handle channel conflicts (alternative
  approaches)
• 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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Handling channel conflict

• Offline vs. Online
• Clear support of top management
• Use of innovative processes that support
  collaboration
• Clear strategy of what and how
• Pricing strategy
• Setting prices lower than off-line business may
  lead to internal conflict
• Setting prices at the same level may hurt
  competitiveness

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Issues in Strategy Formulation (cont.)

• Where to compete different roles on Supply
  Chain, who adds value?
• Play different roles
• Infomediary. Community creator, Aggregator,
• Content provider
• Should you get financing from big venture capital
  firms?
• VC financing causes loss of control over business
• Benefit access to various VC experts and get the
  cash you need
• Should you join an exchange?
• Many costs and limitations, but it may give you
• sell-side or buy-side infrastructure you need.
• Which exchange to join?

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3. Implementation EC Plan

• project team
• pilot project (help discover problems early)
• Implementing EC
• Redesigning existing business processes
• Back-end processes must be automated
• workflow applications by integrating EC into
  existing accounting and financial back-ends

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Issues in Strategy Implementation

• Evaluating Outsourcing (Ch. 12)
• Partners strategy
• Many potential partners, may need several
• Companies that make B2B e-marketplaces consider
• Logistics
• Technology
• E-payment partners
• How to coordinate B2B and B2C
• Selling direct is creating a B2C business
• Coordination done in different ways

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4. Strategy and Project Assessment

• Need for 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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Strategy and Project Assessment (cont.)

• Measuring results watch for
• Goals may be unrealistic
• Web server was inadequate to handle demand
• Expected cost savings were now realized
• Exploding application requests from various
  functional areas in the company may follow
• Review requirements and design documents
• Develop thorough checklist
• Pose a set of questions to assess impact of EC
  project

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Strategy and Project Assessment (cont.)

• Finalization and adjustments
• Actual ROI can be computed and compared to the
  projected one
• If sales expectations were not met, review
  marketing efforts
• Web assessment based on collected information
• Corrective steps might be required
• Product offerings to pricing strategy
• Web promotion to review software vendors

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EC Metrics the need for them

• Metrics include benchmarks in different areas
  related to EC implementation and strategy
• Define and refine business models
• Communicate strategy
• Track performance
• Increase accountability
• Align objectives of individuals, departments, and
  organizations

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EC Metrics (health of the company)

• Balanced scorecardmanagers focus on short-term
  financial results and look at
• Finance both short- and long-term measures
• Customershow the customers view companies
• Internal business processareas to excel
• Learning and growthsustain ability to change and
  expand

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EC Metrics (cont.)

• Scorecard approach to ECseven sets of metrics
  (fig. 6-10 vertical)
• Financial
• Competitive leadership
• Marketing
• Technology
• Service
• Internet site
• Brand

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EC Metrics (an EC model)

• Performance dashcard (fig 6-11, horizontal)
• Divided into 5 desired outcomes and 5
  corresponding metrics
• Metrics are mapped with leading and lagging
  indicators of performance, leading to calculated
  targets
• Strategies are then evaluated and reformulated

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EC Failures and Lessons Learned

• E-Tailing failures
• Lack of funding (burn cash before gaining enough
  customers)
• Incorrect revenue model (little ad money)
• Exchange failures
• Revenue growth too slow
• Need to move to new business model
• EC initiative failures (within firms, Levis)
• Other failures (comparison sites)

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Table 16-3Critical Success Factors for EC
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12 Truths About How the Internet Really Works

• Internet not as disruptive to business as we
  thought
• If it doesnt make cents, it doesnt make sense
• Time favors incumbents (channel confluence)
• Making a market is harder than it looks
• No Internet time, venture take a long time to
  reach success
• Branding is not a strategy (brand recognition
  is a goal)

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12 Truths About How the Internet Really Works
(cont.)

• Entrepreneurship cannot be systematized
• Investors are not your customers
• Internet still changes everything
• Internet changes your job (intermediaries)
• Distinction between Internet companies and
  non-Internet companies is fading fast
• Real wealth creation is yet to come

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Managerial Issues

• Considering the strategic value of EC
• Considering the benefits and risks
• Integration is critical
• Metrics are beneficial
• Pilot projects are useful
• Implementing policies and strategies must be
  written