Strategic management of

E-Business

Chapter 3
E-Business strategy formulation
Why focus on e-business
planning?
Important trends enabled by IT and Internet
Ability to re-engineer supply chains
Use of information to smooth out inefficiencies &
bottlenecks, & thus achieve efficiency & effectiveness
gains
Ability to re-engineer relationships with customers
Manipulate large amounts of information about
customer to identify trends, preferences
Improve decision making about delivering on customer
value proposition
Ability to use Internet to disseminate information
throughout organisation
Results in more efficient internal operations
Why focus on e-business
planning?
Strategy vital to achieving benefits of
these trends
IT adopting more strategic role
Concern about delivery of business value
To realise value, need to undertake strategic
analysis of possibilities of IT and Internet
‘High stakes’ with IT investments
Need to recognise and manage risk, and
weigh this against the achievement of
organisational objectives
Why focus on e-business
planning?

Proportion of capital expenditure on IT

 50% capital equipment expenditure in some
organisations and in some industries
Future of business now inextricably linked
to IT
Challenges

How to leverage connectivity, speed, and

accessibility created by Internet and
associated technologies to
extend/enhance/enable our business vision?
To be successful (viable) long term, must
identify where profitability lies
Must develop coherent strategies by which to
exploit potentialities of I/IS/IT to deliver
value to customers and shareholders
 SISP*defined

‘...planning for the effective long-

term management and optimal
impact of information, information
systems, and information
technology…’
(Ward & Griffiths 1996, p.6)

*SISP: Strategic Information Systems Planning

Objectives of planning IS/IT/
e-commerce requirements

Ensure that focus of all IT investments

(including Internet-based technologies) is
on delivery of business goals and
objectives
Ensure all stakeholders (especially senior
management team) understand what IT and
Internet can achieve
Increase their commitment to deploy IT to
enable achievement of organisational
objectives
Objectives of planning IS/IT/e-
commerce requirements

Develop appropriate resourcing levels for

IT and e-commerce
Establish priorities for IT investments
 What is business strategy?

Plan that integrates organisation’s goals,

policies, actions into integrated whole
Direction organisation takes in order to compete
effectively and meet stakeholder expectations
Requires vision (challenging desired future
state for organisation) and mission (reason for
existence, overriding purpose
 Business, IS, and IT
strategies
Establish direction
IT impact Business Strategy and objectives
& potential

IS Strategy Articulate information

requirements and systems
Demand oriented needed to deliver that
Application focused information

IT Strategy Identify technological

Supply oriented infrastructure required
Technology focused

(Ward & Peppard

 Impacts of Internet on
planning
Implications
Business Strategy of
Internet

IS Strategy

Has a major effect of Internet

IT Strategy (and hype!) been to elevate
strategic thinking about technology
to the level of business strategy?
Objectives of e-business
planning
To ensure that IT and e-commerce support and enhance
achievement of business objectives
To achieve cost-effective investment in IT and
e-commerce for measured business benefits
Controlling expenditures and ensuring delivery of
value from IT
To protect existing information and IT assets
Reduce maintenance costs
To prioritise IT investments according to ability to
support achievement of business objectives
To gain commitment and understanding of senior
executives with respect to the role of IT in the
organisation
 Who should be involved?

Senior IS
Specialist planners
management

Representatives
from different
functions

Senior executives
Trading partners?
Major customers?
Problems of NOT planning
competitors gain competitive advantage
business goals unachievable due to systems
limitations
organisational information resource not
adequately exploited
systems not integrated
duplication of effort
inaccuracy
poor management information
lack of commitment from senior executives
Problems of NOT planning

new systems fail to deliver business

benefits
lack of focus on business needs
technologies become a constraint on
business
no means of prioritising appropriate
resource levels for IS/IT
Framework for e-business strategy
formulation
Appreciate the strategic
context
Understanding long term goals and vision for
organisation
Its ‘strategic intent’ (Broadbent & Weill 1997)
Understand external environment
Identify potential synergies and economies of
scale through similarities between business
units
Appreciate impacts of Internet on organisation
and industry
Appreciate the strategic
context

Understand external and internal IT

environments
Recognising key IT trends in industry
Appreciate how competitors and business partners
are using IT
Understand internal strengths and weaknesses
Recognise capabilities
Perform audit of IT infrastructure, IT skills and IT
management
High level strategic
visioning and thinking
 Articulate business and IT
maxims
Business maxims: high level statements about
competitive position, how value created for
customers, intentions regarding growth and
development, its position of use of resources,
etc.

IT maxims: statements about how information

and IT will be valued and deployed in the
organisation
 Defining key parameters
for IT
Role of IS/IT
strategic enabler (opportunistic) or support?
Sourcing of IS/IT
Insourced, selectively sourced, or outsourced?
Structure of IS/IT dept
Decentralised, federal, or centralised?
View of IT infrastructure
Enabling or utility view?

Decisions about parameters should be aligned with business strategy

Complementary views of
strategy
View presented so far regards strategy as
developed from understanding of nature of
competition, industry and organisational structure
and competitive response
But strategy can be articulated based on
understanding of internal resources, capabilities
and competencies, and access to external
resources etc., which can be harnessed as sources
of competitive advantage
Each perspective offers valuable insights into
strategies that an organisation can adopt
 Tools to support strategy
formulation
SWOT analysis
Product and service lifecycles
PEST analysis
Competitive forces analysis
Value chain analysis
Critical success factor analysis
Business technology audit
Gap analysis
SWOT analysis
Strengths, Weaknesses
Analyse internal capabilities, skills
Look to exploit strengths for advantage
Consider weaknesses and minimise potential disadvantage
Opportunities, Threats
External analysis to identify opportunities for
exploitation, threats to be minimised or countered
SWOT analysis can provide understanding of
IT resource requirements and future
developments
 SWOT Analysis

Strengths Weaknesses
Self 1. … 1. …
Environment 2. … 2. …
1. …
tunities
Oppor-

Attack Strenghten
2. …
1. …
Threats

Protect Retreat
2. …
Industry and product
lifecycles
Product and service
portfolios
 Product lifecycle – emergence

demand is uncertain
market ill-defined

I/IS/IT focus:
market research
product development
 Product lifecycle – growth

need major investment to meet growth in

demand
marketing
production
new product development
revised supplier
relationships
 Product lifecycle – growth

I/IS/IT focus:
support growth
must not inhibit ability to satisfy demand
create barriers to entry
tie in suppliers and customers
high investment needed
 Product lifecycle – maturity

competition increases
supply starts to exceed demand
fight to retain market share
 Product lifecycle – maturity

I/IS/IT focus:
defensive strategy
understand competition
increase productivity
more efficient, effective use of resources
build up customer switching costs
better management of supply and distribution
channels
 Product lifecycle – decline

cost effective in serving market

I/IS/IT focus:
detailed and accurate management info
demand forecasts
profitability of customers, products
cost controls
 Product and service lifecycle

Help managers think creatively about

whether or not they have information
needed to manage wildcats, rising stars,
cash cows and dogs effectively
Helps to identify gaps in existing
information provision
PEST Analysis

Political/legal
Government legislation, taxation, industrial relations,
privacy, environmental protection requirements, etc.
Economic
Stage of economic cycle, unemployment, inflation,
interest rates, relative affluence of society
Sociocultural
Lifestyle changes, demographic characteristics,
income distribution, consumer preferences, etc.
PEST Analysis (cont.)
Technological
Rate of technological innovation, rate of infusion
and diffusion with respect to technology
Consider key environmental influences,
drivers of change and how these might change
over time
For e-businesses, consider how technological
change is driving changes in other areas
Consider role of IT in exploiting of mitigating
against the effects of these changes
Threat of new entrants
Barriers to entry will be high if
economies of scale are extremely important
capital requirement of entry is high
access to distribution channels is difficult
patents or specialist skills are required
there are a large number of existing rivals
existing rivals are large and strongly
positioned
 Threat of new entrants (cont.)

competition in the industry is intense

product offerings in the industry are highly
differentiated
high brand loyalty exists
access to raw materials or other critical
resources is difficult
Threat of new entrants (cont.)

How has the Internet,

vastly increased connectivity,
and improved communication channels
impacted the
threat of new entrants?
 Threat of new entrants

New entrants mean IS/IT can

additional capacity reduce costs
reduced prices increase rate of product /
new basis for service innovation and
competition development
better control distribution
and supply channels
achieve better match
between products and
customers
Bargaining power of suppliers

Supplier power is likely to be high

few suppliers
switching costs are high
there is a possibility of the supplier
integrating forward
brand of a supplier is powerful
suppliers’ customers are of little
importance to the supplier
Bargaining power of suppliers

How has the Internet,

vastly increased connectivity,
and improved communication channels
affected the
bargaining power of suppliers?
 Supplier power high

If supplier power is high IS/IT can

prices/costs will tend to use supplier sourcing systems
be higher help to extend quality control
into suppliers
quality of supply will
tend to be lower enable forward planning with
suppliers through
there will tend to be interorganisational systems
reduced availability of including the use of EDI
supply and/or Internet technologies
Bargaining power of buyers

Buyer power is likely to be high when

there are few buyers
there are alternative sources of supply
component or material cost is a high
percentage of total cost
there is a threat of backward
integration by the buyer if satisfactory
prices or suppliers cannot be obtained
Bargaining power of buyers

How has the Internet,

vastly increased connectivity,
and improved communication channels
affected the
bargaining power of buyers?
 Buyer power high

If buyer power is high IS/IT can help by

prices forced down differentiating
products/services
higher quality
demanded improving
price/performance
service requirements
higher and more increasing switching
flexible costs of buyers
higher competition in facilitating buyer
industry product selection
Threat of substitution
Threat of substitution may take many forms:
actual or possible substitution of one product
for another
a new process may render a product superfluous
substitutes may be thought of as competing for
discretionary expenditure
‘doing without’ can also be thought of as a
substitute
Threat of substitution

How has the Internet,

vastly increased connectivity,
and improved communication channels
impacted on the
threat of substitution?
 Threat of substitute products

The threat of substitute IS/IT can reduce the effects

by
products
helping to improve
tends to limit the price/performance
potential market and helping to enhance
profit products and services to
increase value
tends to put a ceiling improving rate of
on prices innovation
identifying new customer
needs
Rivalry within industry
Competitive rivalry will be intensified if
market growth is slow or in decline
a small number of similar sized
competitors dominate
there are high fixed costs and/or there are
high industry exit barriers for all rivals
there is over-capacity in the industry
 Rivalry within industry

How has the Internet,

vastly increased connectivity,
and improved communication channels
impacted on
competitive rivalry?
 Rivalry within industry
Intense competition from IS/IT can reduce the effects by
rivals leads to
aggressive competition on
price
competition regarding
product development
distribution and service
being critical factors in
customer choice
the need for customer
loyalty
helping to improve price
performance
helping to differentiate
products and services
helping the firm ‘get closer to
the end consumer’
understand the requirements
or needs of the ‘end
consumer’
 Using competitive forces

identify / analyse significant players in each

force
determine nature / strength of impact of
each player
devise strategy to exploit / defend /
neutralise impacts
identify opportunities for IS/IT to support /
implement / manage strategy
Value chain analysis
(internal)
Value chain analysis enables
consideration of internal activities and
processes, thus understanding where
costs are incurred, and where value is
added
Examines organisation in terms of
primary activities (core business
processes) and support activities
Internal value chain analysis
External value chain analysis
 Critical success factor
analysis
Important device for ensuring that managers
receive information they need to monitor
achievement of corporate goals and
objectives
CSFs require information to monitor
achievement in key result areas
CSFs may require systems enhancements or
new systems
Critical success factor analysis
CSFs and the value chain
Business-technology audit
Provides managers with an assessment of
business value of IS, against an assessment
of their technical quality
Business value: value judgement about
contribution an IS makes to achievement of
business goals and objectives
Technical quality: assessment of age,
amount spent on maintenance, ease of
maintenance, required infrastructure, risk
Business-technology audit
 Gap analysis

Aims to identify and then help remedy gaps

that exist between skills, knowledge,
competencies, capabilities that an
organisation requires to be successful, and
resources an organisation currently has
Combining the tools
Portfolio of systems

At end of strategy formulation process,

organisation should be clear on
business goals and objectives
e-business goals and objectives
how IT used to support achievement of goals
and objectives
State of existing portfolio of systems
Where strengths and weaknesses lie
Prioritised set of new systems, required
refurbishments
Portfolio of systems (cont.)

Application portfolio analysis helps to ‘map’

balance required of new investments and
maintenance of existing investments

Portfolio of systems needs to be aligned with

business strategy
Application portfolio analysis
Matching portfolio against
strategy
Circumstances dictate change
in portfolio