Chapter 11

E-Strategy,
Internet Communities,
and Global EC

Prentice Hall, 2003 1

 Learning Objectives

Describe the importance and essentials of business

and EC strategies
Describe the strategy planning and formulation
process for EC
Understand how EC applications are discovered,
justified, and prioritized
Describe strategy implementation and assessment
including the use of metrics
Understand EC failures and lessons for success

Prentice Hall, 2003 2

 Learning Objectives (cont.)

Describe the role and impact of virtual

communities on EC
Evaluate the issues involved in global EC
Analyze the impact of EC on small businesses
Describe the relationship between EC and BPR,
knowledge management, and virtual corporations
Describe the future of EC

Prentice Hall, 2003 3

 IBM’s E-Business Strategy
The Problem
Need to capture new business opportunities and
technologies (like EC)
Develop a business strategy for that purpose
IBM’s 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 transactions

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IBM’s E-Business Strategy (cont.)

The Solution is based on four goals:

Lead IBM’s strategy to transform itself into e-
business
Act as a catalyst to help facilitate that
transformation
Help business units become more effective in
their use of the Internet/intranet
Internally
With their customers

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IBM’s E-Business’s Strategy (cont.)

Establish a strategy for the corporate Internet

site
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 IBM’s
customers

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 IBM’s E-Business Strategy (cont.)

IBM focused on seven key initiatives:

E-commerce E-care for influencers

E-care for customers E-care for employees
E-care for business E-procurement
partners E-marketing
communications

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IBM’s 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 suppliers

Prentice Hall, 2003 8

IBM’s E-Business Strategy (cont.)

IBM’s 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

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E-Strategy: Concepts & Overview

Strategy—search 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 firm’s skills
Company’s 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

Prentice Hall, 2003 10

Elements of Strategy

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

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 Types of E-Strategies

EC strategy (e-strategy)—an organization’s

strategy for use of e-commerce or e-business
Click-and-mortar companies that use many
EC applications
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 business
Pure-play EC companies
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 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
minute
Company must consider EC strategy that includes
contingency plans to deal with changes
May be too costly not to have one

Prentice Hall, 2003 13

Charles Schwab’s EC Strategy
In 1998 Schwab launched schwab.com—
one 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 company’s overall
strategy emphasizing a one-to-one
relationship with its customers
Prentice Hall, 2003 14
 Charles Schwab (cont.)
Schwab had first-mover advantage in securing
key partnerships
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
hold
Key benefits:
Innovative products Superior service
Low fees Cutting-edge technology
Prentice Hall, 2003 15
 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

Prentice Hall, 2003 16

 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 17
Prentice Hall, 2003
 E-Strategy Landscape

Strategy initiation: organization prepares

information about its vision,mission,purpose,and
the contribution that EC could make to the
business
Strategy formulation:
Identification of EC applications
Cost-benefit analysis
Risk analysis

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 E-Strategy Landscape (cont.)

Strategy implementation:
Organization’s 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

Prentice Hall, 2003 19

 Exhibit 11.1
The Landscape of EC Strategy

Prentice Hall, 2003 20

 Strategy Initiation
Strategy initiation—the initial phase of e-strategy
in which an organization prepares information
about its vision, mission, purpose, and the
contribution that EC could make
1. Review the organization’s business and IT vision
and mission
2. Generate vision and mission for EC
3. Begin with industry and competitive analysis

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 Industry Assessment

What industry is the EC How is value added

initiative related to? throughout the value
chain?
Who are the customers?
What are the major
What are the current opportunities and
practices of selling and threats?
buying? Are there any metrics
Who are the major or best practices in
competitors? (How place?
intense is the What are the existing
competition?) and potential
partnerships for EC?
What e-strategies are
used, by whom?
Prentice Hall, 2003 22
 Company Assessment
The organization It looks at everything
investigates its own: that has an impact on
Business strategy its operations
Performance Processes
Customers People
Partners Information flows
Technology
support

Prentice Hall, 2003 23

 Industry, Company, and
Competitive Analysis

SWOT analysis—a methodology that surveys the

opportunities and threats in the external
environment and relates them to the organization’s
particular strengths and weaknesses
SWOT Analysis
Strengths
Opportunities
Weaknesses
Threats

Prentice Hall, 2003 24

 Exhibit 11.2
SWOT Matrix

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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
Examine publicly available financial documents
Ask the customers—award prizes to those who
best describe your competitors’ strengths and
weaknesses

Prentice Hall, 2003 26

 Competitive Intelligence
on 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

Prentice Hall, 2003 27

 Issues in Strategy Initiation

To be a first mover or a follower?

Advantages Disadvantages
Chance to capture Cost of developing EC
large markets initiative is usually very
Establishing a brand high
name Chance of failure is high
Exclusive strategic System may be obsolete
alliances as compared to second
wave arrivals
No support services are
available at the beginning
Prentice Hall, 2003 28
 Should You Have a Separate
Online Company?

Advantages Disadvantages
Reducing or eliminating May be very costly
internal conflicts and risky
Providing more freedom Collaboration with
to management in off-line business
pricing, advertising, etc.
may be difficult
Can create new brands
quickly Lose expertise of
business functions
Take the e-business to
an IPO and make a unless you use close
fortune collaboration

Prentice Hall, 2003 29

 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

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 Discovering EC Opportunities

3 common mistakes in allocating EC

investment
Let a thousand flowers bloom—fund many
projects indiscriminately
Bet it all—put everything on a single high-stake
initiative
Trend-surf—follow the crowd toward the next
“big thing”
Any of the above can be risky and costly
Prentice Hall, 2003 31
Discovering EC Opportunities (cont.)

Approaches to identifying EC opportunities

Problem-driven
Technology-driven
Market-driven—waiting 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

Prentice Hall, 2003 32

 Determining an Appropriate
EC Application Portfolio

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 Group’s matrix
Cash cows Questionable projects
Starts Dogs

Prentice Hall, 2003 33

 EC Application Portfolio
Tjan’s portfolio strategy—Internet portfolio map
Strategy based on company Project’s viability—
fit (assessed by five levels assessed by 4 criteria
from high to low)
Alignment with core Market value potential
capabilities Time to positive cash
Alignment with other flow
company initiatives Personal
Fit with organizational requirements
structure
Fit with company’s culture Funding requirements
and values
Ease of technical
implementation

Prentice Hall, 2003 34

 Exhibit 11.4
Tjan Application Portfolio Map

Prentice Hall, 2003 35

 Strategic Directions at Chubb

Typical choice of EC model at Chubb Corp.

Create a new business model with EC as a major
driver—discarded because they had a successful
business model with products matching
distribution systems
Spawn a secondary business model around EC;
go directly to consumers—did not want to
interrupt their relationships with agents and
brokers

Prentice Hall, 2003 36

 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 sites—one for each
specialty group (e.g., for wine collectors)
Enables superb communication with agents
and business partners
Allows business expansion into 20 countries

Prentice Hall, 2003 37

Making the Business Case for EC

Business case—written 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 company’s use of its
resources to accomplish the e-strategy

Prentice Hall, 2003 38

 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

Prentice Hall, 2003 39

Content of an E-Business Case (cont.)

Content of an E-business case

Strategic justification—”where are we going?”
Generational justification—”how will we get
there?”
Technical justification—”when will we get there?”
Financial justification—”why will we win?”

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 Cost-Benefit and Risk Analysis

How to conduct an Revenue model

e-business case Properly planned
revenue model is a
Develop goal critical success
statement factor
Set measurable goals Revenues from
Develop short- and sales depend on
long-term action customer
plans acquisition cost and
Gain approval and advertisement
support Must be figured into
the analysis

Prentice Hall, 2003 41

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

Prentice Hall, 2003 42

 Value Proposition

Value proposition—the 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

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 Risk Analysis
Risk analysis program E-business risks
should Strategic risks
Identify all potential Financial risks
risks
Operational risks
Assess potential
damage
Evaluate possibility
of protection
(insurance)
Evaluate cost of
protection vs.
benefits

Prentice Hall, 2003 44

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

Prentice Hall, 2003 45

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
collaboration
Clear strategy of “what and how”

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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
competitiveness
Should you get financing from big venture
capital firms?
Venture capital financing causes loss of control
over business
Benefit: access to various VC experts and get
the cash you need
Prentice Hall, 2003 47
 Strategy Implementation

Strategy implementation--The execution of

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

Prentice Hall, 2003 48

 Strategy Implementation (cont.)

Strategy implementation issues

Evaluating outsourcing
Build an in-house EC infrastructure
Purchase a commercial EC software package
or EC suite
Use a Web hosting company
Partners’ strategy
How to coordinate B2B and B2C

Prentice Hall, 2003 49

 Strategy and Project Assessment
Strategy assessment—the 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
Prentice Hall, 2003 50
Measuring Results & Using Metrics

Metric—a 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
Prentice Hall, 2003 51
 Measuring Results &
Using Metrics (cont.)

Balanced scorecard—a structured

methodology for measuring performance
in organizations, using metrics in four
areas
Finance
Customers’ assessments
Internal business processes
Learning and growth

Prentice Hall, 2003 52

 Measuring Results &
Using Metrics (cont.)

Performance dashboard—a structured

methodology proposed by Rayport and
Jaworski (2001) for measuring EC performance
using:
Desired outcomes
Corresponding metrics
Leading and lagging indicators of performance

Prentice Hall, 2003 53

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

Prentice Hall, 2003 54

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
Prentice Hall, 2003 55
 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
Prentice Hall, 2003 56
 Virtual Communities

Virtual community—a group of people with similar

interests who interact with one another using the
Internet
Elements of interaction:
Communication—bulletin boards, chat rooms/threaded
discussions, e-mail and instant messaging
Information—directories and yellow pages, search
engine, member-generated content
EC elements—e-catalogs, shopping carts, ads, auctions
of all types

Prentice Hall, 2003 57

 Virtual Communities (cont.)

Communities of Communities of
transactions— relations (practice)—
facilitate buying and organized around
selling certain life
Communities of experiences
interest—people Communities of
interact with each fantasy—share
other on a specific imaginary
topic environments

Prentice Hall, 2003 58

 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 process
Build a community that relies on the site for
decision support
Start selling products and services that fit into
the decision-support process
Prentice Hall, 2003 59
 Exhibit 11.9
Value Creation in E-Communities

Prentice Hall, 2003 60

 Virtual Communities (cont.)

Financial viability of communities

Based on sponsorship and advertisement
Expenses are very high because of the need to
provide:
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

Prentice Hall, 2003 61

 Virtual Communities (cont.)
Key strategies for successful online communities
1. Increase traffic and participation
2. Focus on the needs of the members (facilitators and
coordinators)
3. Encourage free sharing of opinions and information
4. Financial sponsorship is a must
5. Consider the cultural environment
6. Provide tools and activities for member use
7. Community members involved in activities and
recruiting
8. Guide discussions, provoke controversy, and raise
sticky issues Prentice Hall, 2003 62
 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

Prentice Hall, 2003 63

Benefits and Extent of Operations
Major advantage of EC—ability to do business any
time, anywhere, rapidly at a reasonable cost
Success stories
E*TRADE or boom.com as your broker for stock trading
Amazon.com
Small companies sell to hundreds of customers
worldwide (virtualvine.com)
Increasing number of out-of-the-country vendors
participate in electronic requests for quotes
Successful employees recruitment
Successful collaboration in B2B exchanges

Prentice Hall, 2003 64

Barriers to Global Electronic Commerce

Legal Issues
Uncoordinated actions must be avoided and an
international policy of cooperation should be
encouraged
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
Prentice Hall, 2003 65
 Small Business Goes Global

Cardiac Science—trying to break into the

international market for years
Within 2 years after Internet inception in the
company, it was shipping its products to 46
countries
Today, 85 percent of the company’s revenue
is international, much of this is executed at
(cardiacscience.com)

Prentice Hall, 2003 66

Small Business Goes Global (cont.)

Advice for small businesses going global at:

Universal Business Exchange (unibex.com)
Several government agencies (stat-usa.gov)
Cardiac’s 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. It’s all about building
relationships.”

Prentice Hall, 2003 67

 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
approaches

Prentice Hall, 2003 68

Attracting Japanese Customers
to Your Site

English-Japanese Promotion (ajpr.com)

Helps clients avoid the mistakes often made
when they selling to the Japanese customers
Target audience uses Japanese-only Web
search engines
Alert companies when logos or themes are
likely to strike a sour chord with Japanese
sensibilities

Prentice Hall, 2003 69

 Japanese Customers (cont.)
Japanese respond well to symbols or
characters
Product should be geared to Japanese
males in their twenties and thirties
Ajpr.com also provides help to Japanese
companies develop English versions of their
sites
Provides localization advice
Advertising
Document translation
Consulting services
Prentice Hall, 2003 70
 Breaking down the
Global EC Barriers
Value the human
touch
Be strategic
Know your audience
Be a perfectionist
Remember, it’s the
Web
Integrate properly
Prentice Hall, 2003
Keep the site flexible
and up-to-date
Synchronize content
OECD (oecd.org) read
“Dismantling the
Barriers to Global EC”
71
 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

Prentice Hall, 2003 72

 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
Prentice Hall, 2003 73
 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 exchange
Design a Web site that is functional and provides all
needed services to consumers
Prentice Hall, 2003 74
 Supporting Small Business

Technical support from IBM (for a fee of only

$25 per month) at
ibm.com.search:businesscenter
Digital’s virtual stores
Microsoft’s Personal Web Server (PWS)
U.S. government at ecommerce.gov
Gartner Group provides access to online
research material at gartner.com

Prentice Hall, 2003 75

Business Process Reengineering (BPR)

Organizational transformation—the
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 enterprise’s processes

Prentice Hall, 2003 76

 BPR (cont.)

Redesign of the enterprise process and BPR

Does not make sense to automate poorly designed
process—so 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, security)
Changes to assure flexibility and scalability

Prentice Hall, 2003 77

 Workflow Technologies

Workflow system—software programs that

manage all the steps in a business process
from start to finish, including all exception
conditions
Two categories:
Collaborative workflow—products address
project-oriented and collaborative processes
Production workflow—tools address mission-
critical, transaction-oriented processes
Prentice Hall, 2003 78
 Virtual Corporations
Virtual corporation—an 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
service
Major attributes of VCs:
Utilization Excellence
Opportunism Lack of borders
Trust Adaptability to change
Technology
Prentice Hall, 2003 79
 The Future of EC
Internet usage Payment systems
Opportunities for buying Business-to-business
M-commerce B2B exchanges
Purchasing incentives Auctions
Increased security and Going global
trust
E-government--
Efficient information comprehensive
handing
Intrabusiness EC
Innovative organizations
E-learning
Virtual Communities

Prentice Hall, 2003 80

 EC Technology Trends

Clients EC software and

Embedded clients services
Servers Search engines
Networks P2P technology
Wireless Integration
communications Wearable devices

Prentice Hall, 2003 81

 The Digital Divide

Digital divide—the 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

Prentice Hall, 2003 82

 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

Prentice Hall, 2003 83

 Managerial Issues

What is the strategic value of EC to the

organization?
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?
Prentice Hall, 2003 84
 Summary

Importance of strategic planning for EC

The strategy planning and formulation
process
Application discovery, justification, and
prioritization
EC strategy implementation and assessment

Prentice Hall, 2003 85

 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

Prentice Hall, 2003 86