Chapter 5

Follow an appropriate strategy process model for e-business

Produce and select e-business strategies Outline alternative strategic approaches to

achieve e-business goals.

How does e-business strategy differ from traditional business strategy?

How should we integrate e-business strategy with existing business and IS strategy?

How should we evaluate our investment priorities and returns from e-business?

The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it

Porter, M. (2001) Strategy and the Internet, Harvard Business Review, March 2001, 62–78.

What is strategy? A plan of action designed to achieve a

particular goal. ‘Defines how we will meet our objectives’ ‘Sets allocation of resources to meet goals’ ‘Selects preferred strategic option to

compete within a market’ ‘Provides a long-term plan for the development

of the organization’

Think about the implications if e-business strategy is not clearly defined. The following may result:

Missed opportunities from lack of evaluation of opportunities or insufficient resourcing of e-business initiatives. These will result in more savvy competitors gaining a competitive advantage;

Inappropriate direction of e-business strategy (poorly defined objectives, for example, with the wrong emphasis on buy-side or process support)

Limited integration of e-business at a technical level resulting in silos (separate organizational team with distinct responsibilities which does not work in an integrated manner with other teams) of information in different systems.

Resource wastage through duplication of e-business development in different functions and limited sharing of best practice. For instance, each business unit or region may develop a separate web site with different suppliers without achieving economies of scale.

Figure 5.1 Different forms of organizational strategy

To help avoid typical problems of implementing e-business in traditional organization, organizations will want e-business strategy to be based on corporate objectives such as which markets to target and targets for revenue generation from electronic channels.

It is logical that e-business strategy should support corporate strategy objectives and it should also support functional marketing and supply chain management strategies.

However, these corporate objectives should be based on new opportunities and threats related to electronic network adoption.

Sell-side e-commerce is a channel strategy Objectives for online contribution percentage

should drive our strategy Our e-commerce strategy defines how we should

Hit our channel leads and sales targets Acquisition, Conversion, Retention, Service, Profitability

Communicate benefits of using this channel Prioritize products available through channel Prioritize audiences targeted through channel Select partners for this channel

Channel strategy thrives on differentials BUT, need to manage channel integration

Buy-side e-commerce strategy is about maximizing operational efficiencies while improving customer service quality

Operational efficiency should drive our strategy Our buy-side e-commerce strategy defines how

we should Automate internal processes Link internal resource management systems with

external purchasing systems Prioritize suppliers / partners collaborating using

this channel Prioritize applications for E-SCM – create a roadmap

Involves selection of appropriate strategic partners

Figure 5.2 Relationship between e-business strategy and other strategies

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, Dell

Poor customer experience from poorly integrated channels

Figure 5.3 BA communicates its online value proposition (www.britishairways.com)

Source: Based on Revolution (2005)

Figure 5.4 A generic strategy process model

Figure 5.5 Dynamic e-business strategy modelSource: Adapted from Kalakota/Robinson, EBUSINESS 2.0 © 2001, 1999 Pearson Education, Inc. Reproduced by permission of Pearson Education, Inc.

Collection and review of information about the external environment and internal resources Immediate competition Wider environment Internal resources

Figure 5.6 Elements of strategic situation analysis for the e-business

Earlier in chapter 1 a stage model was presented, which could be helpful in assessing the business’s position and resources

Figure 1.13 A simple stage model for buy-side and sell-side e-commerce

Strengths, weaknesses, opportunities, and Threats analysis is a useful tool for analyzing the current situation and for formulating strategies

Next slide shows an example of e-business SWOT analysis

Figure 5.8 SWOT analysis

A e-Business strategy must be based on the balance between internal capability and external forces

Next slide presents different options based on such a balance

Figure 5.9 Matrix for evaluation of external capability against internal capabilitySource: Perrott (2005)

Power ofsuppliers

Bargainingpowers ofcustomers

Extent of rivalrybetween

competitors

Threat ofsubsitutes

Threat of newentrants

The business

Source: adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from COMPETITIVE STRATEGY: Techniques for Analyzing Industries and Competitorsby Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved

For one of the industries below, assess how the Internet has changed the competitive forces, for example, has it increased or decreased power of suppliers and customers?

Industries: Banking Supermarkets Retail Travel Oil industry Rail industry

Figure 5.11 Elements of strategic objective setting for the e-business

Following methods were proposed Adding values—better quality products and

services Reducing cost—making the business process

more efficient Managing risks—improve information flow and

availability Creating new reality—create new way that

products and or services

Figure 5.12 An evaluation tool relating information to business value. An organization’s use of information on each axis can be assessed from 1 to 10 Source: Marchand et al. (2002)

Figure 5.16 Elements of strategy definition for the e-business

Various models were suggested for defining e-business strategies

Some reasons were articulated Overestimate the speed that the marketplace

adopts the dot.com innovation Timing errors Lack of creativity Free services Over ambition

Usually there are more fundamental problems than surfaced

Major problems occurred at the strategy development and implementation process Situation Analysis—insufficient research on

demand and completive forces Object setting—no objectives or unrealistic Strategy definition—poor business models Implementation—problems with customer

services and product quality, etc.

Content—effective presentation Convenience—usability Control—manageable and under control Interaction Community Price sensitivity Brand image Commitment Partnership Process Improvement Integration

These two are closely related. Business-alignment approach—top down.

Start with business strategy and make IS strategy so that it aligns with business strategy

Business-impact approach—bottom up. Examine new IS opportunities to see if they can bring positive impact to business strategy

Research indicates that there is a week or poor correlation between IS investment and business performance

It’s agreed that IT investment has a strong positive relationship with sales, assets and equity but not with net income.

Investment on IT staff and user training does show positive relationship on income

It’s strongly recommended that more attention should be paid to business process change when implementing e-business strategy