“E-business Strategy”

Academic Year 2015

Learning objectives• Follow an appropriate strategy process model

for e-business;• Apply tools to generate and select e-business

strategies;• Outline alternative strategic approaches to

achieve e-business.

Issues for managers• 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?

How does e-business strategy differ from traditional business strategy?• In the one-to-many hierarchical information flow that

characterized the Industrial Age, information flowed one way, from the producer to the consumers. The Internet has changed this in three important ways.– the Internet allows consumers to talk to consumers– consumers can find and access information much easier than

before– enables the information flow to be reversed so customer-

centric companies can pull information from consumers to improve and customize products

Michael Porter on the Internet

• ‘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.’

What is e-business strategy ?• “The direction and scope of an organization over

long-term which achieves advantage for the organization through its configuration of resources within a changing environment to meet the needs of markets and to fulfil stakeholder expectations”

Different levels of organizational strategy

Different levels of organizational strategy • Corporate strategy: Strategy concerned with the overall

purpose and scope of the organization. What business should you be in? Looks at the whole range of business opportunities

• Business unit strategy: Strategy defining how to compete successfully in a particular market

• Operational strategy: Strategy concerned with achieving corporate and business unit strategies

• Functional (Process) strategy: Strategy that describe how the corporate and business unit strategies will be operationalized in different functional areas or business processes

Imperative for e-business strategy• Missed opportunities for additional sales on the

sell-side and more efficient purchasing on the buy-side

• Fall behind competitors in delivering online services – may become difficult to catch up

• Poor customer experience from poorly integrated channels

E-channel strategies• Define how a company should set specific

objectives and develop specific differential strategies for communicating with its customers and partners through electronic media such as internet emails and wireless media

• An important aspect of e-business strategies is that they create new e-channel strategies for organization

E-channel strategies (contd.)• E-channels do not exist in isolation so channel

integration still has to be managed as e-channel itself may not be appropriate for all products/services – Right channeling

• Right-Channeling: – Reaching the right customer– Using the right channel– With the right message or Offering– At the right time

E-channel strategies (contd.)• British Airways asks “Have you clicked it yet”– 2004 Campaign – educate and change the way in

which BA customers behave before, while and after they travel

– New online services –check in, e-boarding pass– Early adopters targeted - T3.co.uk,

Newscientist.com and DigitalHomeMag.com– Occasional users – JazzFM.com, Vogue.com and

Menshealth.com

Relationship between e-business strategy and other strategies

Strategy process models• A framework for approaching strategy

development• Gives a logical sequence to follow to ensure

inclusion of all key activities of e-business strategy development

A generic strategy process model

Alternative strategy process models• Jelassi and Enders (2008) E-business strategy

framework – SWOT summarizing external analysis (e.g. marketplace, customers, competitors) internal analysis(e.g. human resource, financial and operation)

• Smith (1999) SOSTAC Sequential marketing strategy model – Situation Analysis

Stage 1: Strategic Analysis• Also known as situation analysis• Collection and review of information about an

organization’s internal and external environment to understand the organization’s capabilities

• Involves review of:– Micro Environment– Macro Environment

Micro vs Macro Environment• Micro in terms of business indicates the items a

company can control, often internal processes.– Micro issues can be the amount of skilled labor within the

company, production processes used to manufacture goods, facilities owned by the company and other related issues. All these issues fall under the direct control of the firm.

• Macro —In business, the macro represents items outside of the company’s control.– Availability of raw materials, government laws and

regulations, number of eligible employees available to hire and the threat of competition

Elements of strategic situation analysis for the e-business

SLEPT• Social

– Relates to pattern of change in consumer behavior

– An understanding of social change gives business a better feel for the future market situation

• Legal– Relates to the laws regarding

businesses e.g. consumer protection law, health and safety law

• Economic– Relates to the series of

fluctuations associated with general booms and slumps

– Economic changes may include inflation rate, wage rate and interest rate

• Political– Relates to the changes in

government influences• Technology

– Relates to the change in technological world

SLEPT Example for Tourism• Social: increased popularity of foreign travel leading to a boom in

demand for air travel. However, this has been adversely affected by international terrorism.

• Legal: there are increasingly tight rules about the materials that need to go into aircraft construction in order to make them safer and more resistant to fire hazards. This has had the impact of raising costs.

• Economic: lower interest rates have meant that people have more disposable income to spend on luxuries like long distance air travel.

• Political: the development of freedom of movement and trade in the European Union has led to greater levels of competition on European routes coupled with increased movement of people.

• Technological: modern aircraft are safer and more economic to run than in the past making possible cheap air travel.

Resource Analysis• Review of technological, financial and human

resources of an organization and how they are utilized in business processes

Application Portfolio Analysis• Application portfolio: enterprise IT software

applications and software-based services• Usually used to select the most appropriate future

Internet projects

SWOT Analysis• Alternatively SWOT matrix: structured planning method used to

evaluate the strengths, weaknesses, opportunities and threats involved in a project or in a business venture.

• E.g. Bay Area Rapid Transit

Demand Analysis• Research into the desire of consumers for a

particular product or service. • Used to identify:– who wants to buy a given product– how much they are likely to pay for it– how many units they might purchase– other factors that can be used to determine product

design, selling cost, and advertising strategy for a product.

Competitor Analysis• An assessment of the strengths and weaknesses of current and

potential competitors. • Competitor analysis has two primary activities,– obtaining information about important competitors– using that information to predict competitor behavior.

• Provides both an offensive and defensive strategic context to identify opportunities and threats.

• The goal of competitor analysis is to understand:– with which competitors to compete,– competitors' strategies and planned actions,– how competitors might react to a firm's actions,– how to influence competitor behavior to the firm's own

advantage.

Competitor Analysis Framework• Framework proposed by Michael Porter

Competitor’s Strategy• The two main sources of information about a competitor's

strategy is what the competitor says and what it does. • What a competitor is saying about its strategy is revealed

in: annual shareholder reports, interviews with analysts, statements by managers and press releases

• This stated strategy often differs from what the competitor actually is doing. What the competitor is doing is evident in where its cash flow is directed, such as in the following tangible actions: hiring activity, R & D projects, capital investments, promotional campaigns, strategic partnerships, mergers and acquisitions

Competitor’s Objective• Knowledge of a competitor's objectives facilitates a better

prediction of the competitor's reaction to different competitive moves.

• For example, a competitor that is focused on reaching short term financial goals might not be willing to spend much money responding to a competitive attack. Rather, such a competitor might favor focusing on the products that hold positions that better can be defended.

• On the other hand, a company that has no short term profitability objectives might be willing to participate in destructive price competition in which neither firm earns a profit.

Competitor’s Assumptions• The assumptions that a competitor's managers hold about their

firm and their industry help to define the moves that they will consider.

• For example, if in the past the industry introduced a new type of product that failed, the industry executives may assume that there is no market for the product. – Honda was able to enter the U.S. motorcycle market with a small

motorbike because U.S. manufacturers had assumed that there was no market for small bikes based on their past experience

• A competitor's assumptions may be based on a number of factors, including any of the following:– beliefs about its competitive position– past experience with a product– regional factors

Competitor’s Resources and Capabilities• Knowledge of the competitor's assumptions,

objectives, and current strategy is useful in understanding how the competitor might want to respond to a competitive attack. However, its resources and capabilities determine its ability to respond effectively