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E-Business

The Strategy of e-Business

Introduction

Strategy can be define in four ways: Pattern of choices made over time, as plan for possible actions, as a position relating to choice about which products or services to offers or as a perspective- presenting choices about how a business can be conceptualized.

Strategic

Strategy is the plan to gain advantage over the enemy in war. Strategy in business means to create new opportunities, position the product and beat competition.

E-strategy

E-strategy is the strategic use of electronic capabilities to achieve business objectives .


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E-strategy

E-strategy refers to the delivery of a powerful combination of strategy, issue advocacy, and cutting-edge webtechnology services (including all services that can come under umbrella of E) to empower, activate, educate, and mobilize/support business strategy, marketing strategy, IT and infrastructure strategy, and resources of a business to achieve business objectives.

Strategic Planning Process


The strategic planning process involves a sequence of steps taken by management to:
Develop new plans Modify existing plans that may require revision Discontinue plans that are no longer justified

The strategic planning process is about designing, monitoring and revising a plan of action for everyone working for the organization.

The Strategic Planning Process

Mission Statement

A basic description of the fundamental purpose for the organizations existence. The mission statement is developed at the highest level of the firms management & ownership structure, including its board of directors. It should be relatively stable over long period of time.

Analysis of External and Internal Information


External factors include: sociocultural, technological, legal and regulatory, political, economic, and competitive forces. Internal factors include: the organizations human, material, informational, and financial structure; operational style; culture; and other characteristics that are at work within it.

Strategic Planning at the Three Primary Organizational Levels of the Firm

Planning is organized hierarchically from the top down. Corporate-Level Planning Division/Strategic Business UnitLevel Planning Operating/Functional-Level Planning

Corporate-Level Planning
Planning at corporate level answers fundamental questions about the nature of the business. What business model, mission statement, who are our customers, will we have strategic alliances etc.. Planning Strategic Alliance: exists when the strategic planning of one firms is dependant on the corporate strategic planning of another. Partnership : represents a more permanent & longer term commitments between firms.

Corporate-Level Planning
Merger: is the combination of two more or less equal firms into a new firms. Acquisition: implies that a larger firm has bought a smaller operation & subsumed it into its organizational structure. Vertical integration: refer to a strategy of growth in which a firm takes on more activities either further up or further back in the production process.

Division/Strategic Business UnitLevel Planning


Cost leadership strategy: implies that the firm is able to channel its distinctive competencies into lowering its costs of operations. Focus strategy: is based on creating value by satisfying the wants and needs of specific targeted groups of customers. Differentiation: the firms directs its distinctive competencies into differentiating its products from those of its competitors.

Operating/Functional-Level Planning

Efficiency: doing things at a lower cost Quality improvements: making a better product & so, doing increasing customers perceived value. Innovation: refers to the idea of creating new product, design, style,& other features that are attractive to customers Customer responsiveness: refers how well the firm is serving & responding to the needs of its customers

The effects of e-business on industry structure


How can we assess the industry impact of e-business?
1. Porters framework most widely used, modelling competitive intensity of an industry and hence its attractiveness adapted to growth of e-business technologies 2. Electronic Markets Hypothesis (Malone)
Hierarchical to biased electronic markets Biased to non-biased electronic markets Non-biased to personalised markets Shifts can be made by new entrants

Glassberg & Merhout critique


Stress the continuing importance of relationships, rather than just direct transactions New markets may be more collaborative in nature

The Five Forces Model

Porters five force model extended for E-strategy


(1) Force One: Bargain power of buyer E-Impact: Increased due to choices Increased because of increase in customer knowledge and transparency - Increased because of availability of different channels - Increased because of availability of different sources E-Strategy to make business work: Quality beyond technology E for extra

Force two
Force Two: Bargain power of supplier E-Impact Reduced due to choices Commoditization of e-procurement and e-marketplaces More price driven E Strategy to make Business work Limit commoditization by new measurement Let business drive commerce Value for money

Force Three
Force Three: Threats of substitute products and services E Impact New product being introduced because of availability of knowledge and market place from different resources Monitoring such entry became easier Faster production of services E Strategy to make business work Proper tracking with technology Strategy to build barriers Innovation with E

Force Four
Force Four: Barrier to entry E Impact Reduced for service organizations and retailers who need mobile sales force Monitoring entrant became easier Easy for followers due to internet E Strategy to make business work Build barrier with innovation and new techniques Optimal use Barrier with service

Force Five
Force Five: Rivalry among existing competitors E Impact More intense because of shorter product life cycles Commoditization E Strategy to make business work Capturing complete value chain E-strategy to target niche market Knowledge enabled business

The effects of e-business on industry structure


2. Electronic Markets Hypothesis (Malone) (EMH)
It suggest that e-business will cause a shift from hierarchical to more market based forms of economic activity. Hierarchical market represents conventional industry structures which involves purchasing from a sole suppliers Malone suggested that as co-ordination costs fall, more, open & competitive mechanisms of economics behaviours would emerge. Further product description & purchase would become less complex & asset specificity would be reduced. Three stages of the EMH proposed that industries will moves from:
Hierarchical to biased electronic markets: Biased to non-biased electronic markets Non-biased to personalised markets Shifts can be made by new entrants

The effects of e-business on industry structure


Hierarchical to biased electronic markets:
biased electronic market provides for an intermediate stage in which firms use e-business technologies to put into place market mechanism that bias information in their favour. Think of the way in which a search engine might put in place a weighting mechanism to favour prioritizing a particular companys product & services over others.

Biased to non-biased electronic markets:


non biased markets makes all options for trading available & no supplier receives particular prominence, other than in response to buyer requirements, Think here of the case of Autobytel.com which is a brand neutral electronic platform for the dealers of thirty four different motor vehicle firms.

The effects of e-business on industry structure


Non-biased to personalised markets:
It offer functionality that allows the buyer to filter the options available for trading in ways that shifts the balance of power decisively to the end users. Think here of the way in which service such as iGoogle and My Yahoo allows the user to create a personalized interface.

These Shifts do not need to be made by industry incumbents; they can be made by new entrants to a market or industry.

Electronic Markets Hypothesis (Malone) Choices


Choose Markets when: Transaction cost is a primary concern Searching for brand-new suppliers Purchasing commodities The market is highly fragmented Choose Hierarchies When: Proprietary issues are of high concern Asset specificity is very high Monitoring cost is high Choose Cooperative Ventures When: Non-contractible issues (quality, timing, flexibility, customisation, and responsiveness) are paramount
To gain access to centres of excellence To build long term win-win relationships

E-business, firms, and the value chain


Michael Porters Five Forces Model points to the primary sources of opportunities and threats in the business environment. The Value Chain is a view of the firm as an organization of activities concerned with transforming inputs into customer-valued outputs. By selecting superior activities the firm can deliver superior customer value, and thereby create a competitive advantage.

E-business, firms, and the value chain


At the level of the firm, the concept of value and how value can be added for the customer or consumer has become the focus of discussion Value chains provide a useful mechanism for identifying particular kinds of activity from which an individual firm can seek to provide better value than its competitors Differentiate between primary activities (such as operations) and support activities (such as procurement) in thinking about the value chain Extension of the value chain framework outside the individual firm Amit & Zotts sources of value creation
Transaction cost efficiency Complementarities Lock-in Novelty

E-business, firms, and the value chain

Value Chain

Creating Competitive Advantage

From chains to networks


From chains a network or constellation approach to value creation Critique of Amit & Zott
TCEs adversely affected by lack of context in information transmitted Lockin: customers may still free-ride information resources Novelty: lack of empirical evidence that this always brings first mover advantage

Value and information intermediaries

From chains to networks

Business models, competition, and ebusiness


Business models: refers to the way a company does business, a means by which it can sustain itself. a representation of a firms underlying core logic and strategic choices for creating and capturing value within a value network (Shafer et al) in practice, a business model is much more than a rational description of how an organization creates value. Its a rich, tacit understanding about how all the pieces work together to make money. Linder and Cantrell, 2000 a successful e-business strategy may be determined either by successful strategy content, or process, or both

Business models, competition, and ebusiness

Why business models fail


1. 2. 3. 4. Four common problem for business model failure: Flawed assumptions underlying the core logic; Limitations in the strategic choices considered; Misunderstandings about value creation or value capture; and Flawed assumptions about the value network E.g. social networks
Many social networking firms have yet to demonstrate that their sites are actually profitable in the longer run Facebooks profitability relies upon marketers and advertisers developing new and effective mechanisms for capturing the attention of people who are looking for each other rather than for goods and services Although youve provided the infrastructure, the network and all the interactions belong to the members they feel like the space and the networks are theirs, and are very uncomfortable with you, as a company, taking too much advantage of it. Gary Stein, Ammo Marketing, quoted in Lamb, 2008

Moving to implementation
Moving from strategic choices, to business model, to implementation requires that organizations develop a wellthought-out process. the challenge of the Internet is less how to respond to a completely different channel structure than how to manage a more complex one in which a new Internet channel sits beside pre-existing channels and in which Internet technology alters how the existing ones function. Saloner and Spence, 2002 Implementation road maps Guy Kawasakis cynics checklist includes
the importance of strategic singleness of purpose through to assumptions about production, inventory, and distribution costs

Moving to implementation

Public sector e-business strategies


Should we expect public sector experience to be any different from that of the commercial sector? E-business strategies in public services and government are much less well researched than in the commercial sector An essentially non-competitive environment Absence of commercial motives for moving to e-business Beynon-Davies public services value chain Two dimensions of e-government
Vertical (central, regional & local) Horizontal (external/internal processes of government)

Role of government agencies and outsourced government services mimics B2B

Public sector e-business strategies

Building an Online Presence for an Existing Business

Complementing Existing Non-InternetBased Plans Complexity and Time Concerns Motivating Acceptance of e-Business Plans

Industry- and Global-Level Issues Related to e-Business Planning

The Industry Supply Chain A Fragmented Industry Environment Industry Life Cycle Issues Global-Level Strategic Planning Issues

Preparing the e-Business Plan

After selecting one or more e-business models that define the fundamental nature of the e-business, the strategic planning process begins with the clarification of the firms mission statement.
External and Internal factors that could affect planning should be researched and analyzed.

Preparing the e-Business Plan (Contd)


Michael Porters Five Forces model provides a structure for identifying opportunities and threats that should be researched and analyzed. Plans should be defined and developed for each level of the firm based on the search for distinctive competencies that will enable the firm to create competitive advantage in the marketplace. Consideration should be given to industry- and global-level issues related to the e-business plan.