Chapter 9

EC Strategy
and Implementation

Learning Objectives

Describe the importance and essentials of

business and EC strategies
Describe the strategy planning process fro EC
Understand the strategy formulation process
Understand how EC applications are
discovered and prioritized

Learning Objectives (cont.)

Describe the role of CSFs and justification
of EC
Describe strategy implementation
Understand how to reassess EC strategy
Describe the role of metrics in EC
Understand EC failures and lessons for
success

IBMs E-Business Strategy

Following four goals:
Lead IBMs 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
4

IBMs E-Businesss 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
IBMs customers
5

IBMs E-Business Strategy (cont.)

IBM focused on key initiatives:
E-commerceselling more goods via the
Web
E-care for customersproviding all kinds
of customer support online
E-care for business partnersdedicated
services providing faster, better
information for these important groups
6

IBMs E-Business Strategy (cont.)

E-care for employeesimproving the
effectiveness of IBMers by making the right
information and services available to them
E-procurementworking closely with IBM's
customers and suppliers to improve the
tendering process and to better administer
the huge number of transactions involved
E-marketing communicationsusing the
internet to better communicate IBMs
marketing stance
7

Need for a Strategy

Cases of e-strategy
Click-and-mortar companies that use
several 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
8

Need for a Strategy (cont.)

Why does a company need an e-strategy?
Fast changes in business and technology means
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

Essentials of a Business Strategy

Strategysearch for revolutionary actions
that will significantly change the current
position of a company, shaping its future
Finding the position in marketplace that best
fits the firms skills
Companys 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

10

Essentials of a Business Strategy (cont.)

Levels of strategy
Corporate (or
organizational)
strategy
IT strategy
EC strategy
EC functional
strategies

Types of strategy
Strategic planning
Strategic response
Strategic
innovation

These are interrelated

11

Figure 16-1
EC Strategy Alignment

12

Essentials of a Business Strategy (cont.)

Elements of a strategy
Forecasting
Resource allocation
Core competency
Strategy
formulation
Environmental
analysis
Company analysis

Strategy landscape
Strategy initiation
Strategy formulation
Strategy
implementation
Strategy assessment

Four major steps

Basis for chapter
organization

13

Figure 16-2
The Landscape of EC Strategy

14

Essentials of a Business Strategy (cont.)

Information technology (IT) strategy
strongly correlated with EC strategy
because:
IT provides much of the infrastructure for EC
EC applications must be integrated with IT
applications
EC applications may replace or improve existing
IT applications
EC organization may report to CIO
Employees in IS department work on EC
applications
15

Strategy Initiation
First step is to review the organizations
business and IT vision and mission
Then, a vision and mission for EC can be
generated
Although these statements are usually
very vague, they provide a springboard for
generating more specific goals and
objectives
Begin with industry and competitive
analysis
16

Industry Analysis

Analyze position of the company in its

industry and the competition
Required for assessing the changes
that EC project may introduce and its
chances for success

17

Industry Assessment
What industry is the EC
initiative related to?
Who are the
customers?
What are the current
practices of selling and
buying?
Who are the major
competitors? (How
intense is the
competition?)
What e-strategies are
used, by whom?

How is value added

throughout the value
chain?
What are the major
opportunities and
threats?
Are there any metrics
or best practices in
place?
What are the existing
and potential
partnerships for EC?
18

Figure 16-3
Company Analysis

Source: Hackbarth and Kettinger (2000), p. 85. Reprinted with permission of William J. Kettinger.

19

Industry and Competitive Analysis

Monitoring, evaluating, disseminating
of information from the external and
internal environments
SWOT Analysis
Strengths
Opportunities
Weaknesses
Threats
20

Figure 16-4
SWOT Diagram
INTERNAL
EXTERNAL FACTORS
FACTORS

Strengths (S)

Opportunities (O)

SO Strategies
Generate strategies
here that use
strengths to take
advantages of
opportunities

Threats (T)

ST Strategies
Generate strategies
here that use
strengths to avoid
threats

Weaknesses (W)
WO Strategies Generate
strategies here that take
advantage of
opportunities by
overcoming weaknesses
WT Strategies
Generate strategies
here that minimize
weaknesses and avoid
threats
21

Competitive Intelligence on the Internet

Internet can play a major role as a source
of competitive information (competitive
intelligence)
Review competitors Web sites
Analyze related newsgroups
Examine publicly available financial
documents
Ask the customersaward prizes to those
who best describe your competitors
strengths and weaknesses
22

Competitive Intelligence
on the Internet (cont.)
Information delivery services
Find out what it published on the Internet
Newsgroups
Information about your competitors and
their products

Known as push technologies

Corporate research companies provide

information about your competitors:
Risk analysis
Stock market analysts reports

Examine chat rooms

23

Competitive Intelligence
on the Internet (cont.)
Evolving experiences, need to be treated with
care
Overreliance on such information can be
dangerous
Using publicly available search engines is free,
but may produce lots of irrelevant information
Use specialty-build agents to search the
overwhelming amount of information available

24

Customized Competitive Intelligence

Current company information is
available in their press releases and
information published on their Web sites
Push technology services used to keep
companies up-to-date by finding
information for them

Searches should not replace in-depth

background research
Business intelligence companies offer
packaged competitive analysis
25

Issues in Strategy Initiation

To be a first mover or a follower?
Advantages
Chance to capture
large markets
Establishing a
brand name
Exclusive strategic
alliances

Disadvantages
Cost of developing EC
initiative is usually very
high
Chance of failure is high
System may be obsolete
as compared to second
wave arrivals
No support services are
available at the
beginning
26

What Do You Need an EC For?

Enhancing the sell
channel by
advertisement and
sales
Enhancing the buy
(procurement
channel)
Enhancing the
customer service
channel
Going global

Facilitating valuechain integration

Providing for new
products and
services
Going into specialty
markets
Going to mass
customization
27

Should You Have a Separate

Online Company or Not?
Advantages
Reducing or eliminating
internal conflicts
Providing more freedom
to management in
pricing, advertising, etc.
Can create new brands
quickly
Take the e-business to
an IPO and make a
fortune

Disadvantages
May be very costly
and risky
Collaboration with
off-line business
may be difficult
Lose expertise of
business functions
unless you use
close collaboration

28

Strategy Formulation
Strategy formulation
Development of long-range plans

Organizations mission
Purpose or reason for the organizations existence

3 main reasons for establishing Web site

MARKETING, CUSTOMER SUPPORT, and SALES

Products with good fit for EC

Shipped easily or transmitted electronically
Targets knowledgeable buyers
Price falls within certain optimum ranges
29

EC Critical Success Factors

Special products or services traded
Top management support
Project team representing various functional
areas
Appropriate technical infrastructure
Must have customer acceptance
User-friendly Web interface
Integration with the corporate legacy systems
30

EC Critical Success Factors (cont.)

Security and control of the EC system
Competition and market situation
Conduct pilot project and capture
corporate knowledge
Use promotion and internal
communication
Cost of the EC project must be
reasonable
Need sufficient level of trust between
buyers and sellers
31

EC Opportunities
3 common mistakes in allocating EC
investment
Let a thousand flowers bloomfund many
projects indiscriminately
Bet it allput everything on a single highstake initiative
Trend-surffollow the crowd toward the
next big thing

All of the above can be risky and costly

32

EC Opportunities (cont.)
Approaches to finding individual EC
initiatives
Problem-drivenattempt to solve a
problem such as:
Excess inventory
Delivery delays

Technology-driventrying to use existing

applications
Find problems no one knew existed
Used by first movers
33

EC Opportunities (cont.)
Approaches to finding individual EC
initiatives (cont.)
All can fail
Market-drivenwaiting 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
34

Figure 16-5
Approaches for Finding EC Opportunities

35

Uncovering Specific EC
Opportunities and Applications
Understand:
How digital markets operate
How Internet customers behave
How competition is created and what
infrastructure
is needed
What the dynamics of EC are

Map opportunities that match current

competencies and markets
Many opportunities to create new products and
services
36

Uncovering Specific EC
Opportunities and Applications (cont.)
Opportunities for EC businesses
Matchmakingmatching buyers needs from
seller without a prior knowledge of either one
Aggregation of servicescombines several
existing services to create a new service
Bid/ask enginecreates a demand/supply
floating pricing system
Notification servicetells you when the
service becomes available, or when it
becomes cheaper
37

Uncovering Specific EC
Opportunities and Applications (cont.)
Smart needs adviserif you want , then
you should
Negotiationprice, quantity, or features
are negotiated
Up-sellsuggests an additional product or
service
Consultative adviserprovide tips on using
the product

38

Methods for Finding IT Applications

Brainstorming by a
group of employees
Soliciting the help
of experts, such as
consultants
Review what the
competitors are
doing
Ask the vendors to
provide you with
suggestions

Read the literature

to find out whats
going on
Use analogies from
similar industries
or business
processes
Use a conventional
IS requirement
analysis approach

39

Determining an Appropriate
EC Application Portfolio
Generic approaches
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 Groups matrix

Cash cows
Starts

Questionable projects
Dogs
40

EC Application Portfolio
An EC-specific method
Tjans portfolio strategyInternet portfolio
map
Strategy based on company fit (assessed
by five levels from high to low)
Projects viabilityassessed by 4 criteria
Market value potential
Time to positive cash flow
Personal requirements
Funding requirements
41

Which Business Model to Use?

Case: Schubb Corp.property and
casualty insurance company
Typical choice of EC model at Schubb Corp.
Create a new business model with EC as a
major driverdiscarded because they had
a successful business model with products
matching distribution systems
Spawn a secondary business model around
EC; go directly to consumersdid not want
to interrupt their relationships with agents
and brokers
42

Case: Schubb Corp. (cont.)

Use EC as a tool within the existing business
model (the selected model)
Helped Schubb further differentiate
products and services by providing
superb customer service over the Internet
Opened several Web sitesone for each
specialty group (e.g., for wine collectors)
Enables superb communication with
agents and business partners
Allows business expansion into 20
countries
43

Cost-Benefit and Risk Analysis

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
44

Cost-Benefit and Risk Analysis (cont.)

Content of an E-business case
Strategic justificationwhere are we going?
Generational justificationhow will we get
there?
Technical justificationwhen will we get
there?
Financial justificationwhy will we win?

45

Cost-Benefit and Risk Analysis (cont.)

How to conduct an
e-business case
Develop goal
statement
Set measurable
goals
Develop short- and
long-term action
plans
Gain approval and
support

Revenue model
Properly planned
revenue model is a
critical success
factor
Revenues from
sales depend on
customer
acquisition cost
and advertisement
Must be figured
into the analysis
46

Cost-Benefit and Risk Analysis (cont.)

It is difficult to justify EC investment due

to many intangible variables
Methods used for analysis
Value analysis and proposition
Rate of return of investment (ROI) and/or
discounted cash flow
Real options valuation and analysis
Management by maxim
Information economics
47

Value Analysis and Proposition

A Value Analysis Approach
Value chaina series of activities a company
performs to achieve its goal(s)
Value added
Contributes to profit and enhances the
asset value as well as the competitive
position of the company in the market
To create additional value using EC
channels, a company should consider the
competitive market and rivalry in order to
best leverage its EC assets

(Customers value proposition)

48

Value Analysis and Proposition (cont.)

Value Analysis Questions
Representative Questions for Clarifying Value
Chain Statements
Can I realize significant margins by
consolidating parts of the value chain to
my customers?
Can I create significant value for
customers by reducing the number of
entities they have to deal with in the
value chain?
49

Value Analysis and Proposition (cont.)

Value Analysis Questions (cont.)
Representative question for creating new
values
Can I offer additional information of
transaction services to my existing
customer base?
Can I use my ability to attract customers
to generate new sources of revenue,
such as advertising or sales of
complementary products?
50

Return on Investment (ROI)

Return on Investment and Risk Analysis
A ratio of resources required and benefits
generated by an EC project
Includes both quantifiable items (cost of
resources, computed monetary savings) and
Non-quantifiable items (intangibles)
Some intangible benefits
Effective marketing channel
Increased sales
Improved customer service
51

Return on Investment
and Risk Analysis
IT values
Financial valuesmeasurable to some
degree
Strategic valuescompetitive advantage in
the market and benefits generated by
business procedures
Stakeholder valuesreflections of
organizational redesign, organizational
learning, empowerment, information
technology architecture of a company, etc.
52

Return on Investment
and Risk Analysis (cont.)
IT risks risks
Competitive strategy riskexternal, due
to joint venture, alliances or
demographic changes among others
Organizational risk and uncertainty
internal to company

53

Figure 16-7
Real Option Analysis

Source: Rayport and Jaworski (2001); Exhibit 8-8; pg. 304.

54

Risk Analysis
Risk analysis
program should
Identify all
potential risks
Assess potential
damage
Evaluate possibility
of protection
(insurance)
Evaluate cost of
protection vs.
benefits

E-business risks
Strategic risks (e.g.,
competitive
environment, wrong
strategic direction)
Financial risks (e.g.,
currency
management and
changes, unclear tax
situations)
Operational risks
(e.g., technological
changes and use of
poor technology,
security)
55

EC Scenarios
Scenario planning is a methodology
used in planning situations that involve
much uncertainty, like that of EC
(what-if)
Several different scenarios are created
A team compiles several future events as
possible influences on the outcome
Securities are assessed and future
projections are made
Scenarios are compared
56

EC Scenarios (cont.)
Four scenarios described by Hutchinson:
Open, global commerce scenarioremoval of
intermediaries flattens the value chain
Members-only subnet scenarioapplies mostly
to B2B EC
Electronic middlemen scenariobusiness and
consumer market suppliers can make
products/services available through
independent third-party distribution channels

57

EC Scenarios (cont.)
4 scenarios described by Hutchinson (cont.)
Consumer marketing channels scenario
traditional methods collapse into a unified
consumer-centric EC medium on the
Internet
Broadcasting
Advertising
Consumer telephony

58

Strategic Planning Framework

EC appears in three levels:
Level 1: Basic presencecompany uses
the Internet to feature company
information and provide brochures
Level 2: Prospectingfeatures added
Search engine
Extensive product information
Links to services
Ability to interact with the company
Basic customer service
59

Strategic Planning Framework (cont.)

Level 3: Business integrationmore features
added
EC transaction capabilities
Customization and personalization services
Tools fostering creation of a community

Level 4: Business transformationsupplier and

customer integration added
Multichannel integration
Advanced customization and configuration
Superb customer service
60

Strategic Planning Framework (cont.)

Generic competitive strategy vs.
cooperarative strategy
Competitive strategy assumes fighting
against all competitors for the purpose of
survival and winning
Cooperarative strategy plans for working
together with specific competitors to gain
advantage against other competitors

61

Generic Competitive Strategies

Offensive strategy
usually takes place in
an established
competitors market
Frontal Assault
attacker must have
superior resources and
willingness to
persevere
Flanking Maneuver
attack a part of the
market where the
competitor is weak

Defensive strategies
takes place in the
firms own current
market position as a
defense against
possible attack by a
rival
Raise structural
barriers
Lower the
inducement for
attack
62

Generic Cooperative Strategies

Collusion
Active cooperation of firms within an industry to
reduce output and increase prices in order to get
around the normal economic law of supply and
demand (illegal)

Strategic Alliance
Partnership of two or more corporations or business
units to achieve strategically significant objectives
that are mutually beneficial
63

Generic Cooperative Strategies (cont.)

Joint Venture
A way to temporarily combine the different
strengths of partners to achieve an outcome of
value to both

Value-Chain Partnership
A strong and close alliance in which one
company or unit forms a long-term
arrangement with a key supplier or distributor
for mutual advantage
64

Svioklas Strategy
What is the
companys digital
business strategy?
What is the right value
proposition for a new
business model?
EC ventures dont fit
neatly into established
business categories
Traditional strategies
probably wont fly
either

What is the right

organizational
structure?
Existing company
structures designed to
sustain existing
marketplace model
Companies usually
need to realign their
structures to:
Break functional
silos
Meet different
business needs

65

Svioklas Strategy (cont.)

What is the best
capital structure?
Capital markets
tend to reward
innovative capital
structures
They are buying
the future, not
the past
Very risky due to
overvaluation

What is the correct

technology platform?
Companies succeed
online only with IT
designed for a digital
economy
EC technology must
integrate seamlessly
with:
Customer call center
Billing
Shipping systems
66

Mougayars Approach
What questions should a strategic plan
answer?
How is Electronic Commerce going to
change our business?
How do we uncover new types of
business opportunities?
How can we take advantage of new
electronic linkages with customers and
trading partners?
67

Mougayars Approach (cont.)

Will intermediaries be eliminated in the process?
Or do we become intermediaries ourselves?
How do we bring more buyers together
electronically (and keep them there)?
How do we change the nature of our products
and services?
Why is the Internet affecting other companies
more than ours?
How do we manage and measure the evolution
of our strategy?
68

Wares Approach

Ware et al.s seven-step model e-strategy

asks the following basic questions:
Where are you along the continuum of
possible EC applications?
Where do you want to go?
How are you going to get there?

69

Wares Approach (cont.)

Seven-step model e-strategy
Step 1: create a map of scenarios for
aligning business strategy and Internet
initiatives in the future
Step 2: communicate a vision from top
management to drive Internet initiatives
Step 3: identify and transform key value
constellations (specifically core practices
and processes)
70

Wares Approach (cont.)

Seven-step model e-strategy (cont.)
Step 4: develop portfolio of EC initiatives
the company wants to pursue
Step 5: develop year-by-year objectives
and plans for chosen initiatives
Step 6: implement the change
Step 7: monitor the overall plan, learn
lessons, adjust, improve
71

Strategic E-Breakout Methodology

Kettinger and Hackbarth Methodology
Initiation stage
Envisions
potential
strategic change
Confirms top
management
support
Determines
project schedule

Diagnosis stage

Gathers information
about strengths,
weaknesses,
opportunities, and
threats
Asses company and
industry processes
Benchmarks ebusiness technologies
72

Kettinger and Hackbarth Methodology

E-breakout stage
Formulates an
e-business strategy
with objective of
breaking out of the
box
Using e-business
technology to
transform processes
and people
To better compete
in dynamic global
marketplace

Transition stage
Recognizes reality
that e-breakout may
not be immediately
obtainable because
of a companys
unwillingness to
change
Serves as a gap
strategy that allows
incremental steps
to the e-breakout
strategy

73

Issues in Strategy Formulation

EC strategies in small businesses

Senior managers tend to:
Know the whole spectrum of business
Possess knowledge and authority to lead EC
venture

74

Issues in Strategy Formulation (cont.)

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
75

Issues in Strategy Formulation (cont.)

How to handle conflict between offline and online businesses in a clickand-mortar situation
Clear support of top management
Use of innovative processes that support
collaboration
Clear strategy of what and how

76

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

77

Issues in Strategy Formulation (cont.)

Where to compete:
Current position
Backward or forward in the supply chain
Move horizontally to new businesses
Play different roles
Infomediary
Community creator
Content provider
Portal builder
Aggregator
78

Issues in Strategy Formulation (cont.)

Should you get
financing from big
venture capital
firms?
VC financing causes
loss of control over
business
Benefit: access to
various VC experts
and get the cash
you need

Should you join an

exchange?
Several benefits
Many costs and
limitations
Decide early
exchange may
provide sell-side
or buy-side
infrastructure
Which exchange
to join?
79

Implementation EC Plan
Starts with organizing a project team
Undertake a pilot project (help discover
problems early)

Implementing EC
Redesigning existing business processes
Back-end processes must be automated as
much as possible
Company must set up workflow applications
by integrating EC into existing accounting
and financial back-ends
80

Evaluating Outsourcing
Factors to consider:
Ease of configuration and setup
Database and scripting support
Payment mechanism
Sample storefronts
Workflow management
Documented database support
Integration into existing accounting and
financial back ends
Which services to outsource
81

Issues in Strategy Implementation

Partners strategy
Many potential partners, may need several
Companies that make B2B e-marketplaces
consider:
Logistics
Technology
E-payment partners

How to coordinate B2B and B2C

Selling direct is creating a B2C business
Coordination between the two can be done
in different ways
82

Strategy and Project Assessment

Need for 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
83

Strategy and Project Assessment (cont.)

Measuring results; watch for:
Goals may be unrealistic
Web server was inadequate to handle
demand
Expected cost savings were now realized

Exploding application requests from various

functional areas in the company may follow
Review requirements and design
documents
Develop thorough checklist
Pose a set of questions to assess impact
of EC project
84

Strategy and Project Assessment (cont.)

Finalization and adjustments
Actual ROI can be computed and compared to
the projected one
If sales expectations were not met, review
marketing efforts
Web assessment based on collected
information
Corrective steps might be required
Product offerings to pricing strategy
Web promotion to review software vendors
85

EC Metrics
Metrics include benchmarks in different
areas related to EC implementation and
strategy
Define and refine business models
Communicate strategy
Track performance
Increase accountability
Align objectives of individuals, departments,
and organizations
86

EC Metrics (cont.)
Balanced scorecardmanagers focus
on short-term financial results and
Financeincluding both short- and longterm measures
Customershow the customers view
companies
Internal business processfinding areas in
which to excel
Learning and growthsustainability to
change and expand
87

EC Metrics (cont.)
Scorecard approach to EC
seven sets of metrics
Financial
Competitive leadership
Marketing
Technology
Service
Internet site
Brand
88

EC Metrics (cont.)
Performance dashcard
Divided into 5 desired outcomes and 5
corresponding metrics
Metrics are mapped with leading and
lagging indicators of performance,
leading to calculated targets
Strategies are then evaluated and
reformulated
89

EC Failures and 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 initiative failures
Other failures
90

Table 16-3
Critical Success Factors for EC

91

12 Truths About How

the Internet Really Works
Internet not as disruptive to business as we
thought
If it doesnt make cents, it doesnt make
sense
Time favors incumbents
Making a market is harder than it looks
There is no such thing as Internet time
Branding is not a strategy
92

12 Truths About How

the Internet Really Works (cont.)
Entrepreneurship cannot be systematized
Investors are not your customers
Internet still changes everything
Internet changes your job
Distinction between Internet companies
and non-Internet companies is fading fast
Real wealth creation is yet to come
93

Managerial Issues
Considering the strategic value of EC
Considering the benefits and risks
Integration is critical
Metrics are beneficial
Pilot projects are useful
Implementing policies and strategies
must be written
94