Reynolds: E-Business: A Management Perspective

1. Reynolds: E-Business: A Management Perspective Chapter 6: The Strategy of e-Business

2. Completing this Chapter will enable you to: Understand the effects of e-business on industry structure Consider how value is created in firms and how e-business influences the value chain Explore the ways in which firms involved in e-business can compete Appreciate whether the concept of a business model is relevant to e-business firms Understand what e-business strategy means for public sector organizations “Far from making strategy less important, as some have argued, the Internet actually makes strategy more essential than ever.” (Michael Porter) Learning Outcomes

3. The effects of e-business on industry structure • How can we assess the industry impact of e-business? • 1. Porter’s 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

4. EMH positioning 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

5. 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 & Zott’s ‘sources of value creation • Transaction cost efficiency • Complementarities • Lock-in • Novelty

6. 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 • Moller & Rajala business net classification

7. Business models, competition, and e-business • Business models: ‘part of the Internet’s destructive lexicon’? • “a representation of a firm’s 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. It’s 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

8. Why business models fail • 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 • Facebook’s 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 you’ve 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

9. Moving to implementation • Moving from strategic choices, to business model, to implementation requires that organizations develop a well-thought-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 Kawasaki’s ‘cynic’s checklist’ includes • the importance of strategic singleness of purpose through to assumptions about production, inventory, and distribution costs

10. 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

11. Long case 6.1: ASOS • ‘The Clothing sector is now the Internet’s third largest, so “ya boo sucks” to those who said fashion would never sell online.’ Blogger • ASOS founded in 2000 as seller of celebrity-inspired products • By 2009 #2 in UK online clothing market • 2008 sales up by 90% to £81.0mn , profits of £7.3mn • 14,000 lines for sale • #17 of all UK websites in terms of traffic • Strategy based on choice, presentation and service • Lean profile: high stock turn, delivery terms of 1-2 days • Substantially different cost profile than store-based retailer • Questions • Why has ASOS been so successful when the sales of most conventional store-based clothing retailers have stalled or declined during the past two years? • ‘It’s as big as we want to make it’ (Nick Robertson, ASOS). Is it? Are there limits to ASOS’s growth?

12. Long Case 6.2: Guardian Media Group • Guardian founded as a weekly paper by John Edward Taylor in 1821 • The independent Scott Trust now owns the Guardian Media Group • GMG, but not Guardian News & Media, profitable in 1999 • ‘Guardian Unlimited’ websites first launched 1999 • GMG since transformed into 24/7 international print and media publisher • Web presence relaunched as guardian.co.uk • £19mn invetsment • 23mn unique users in August 2008 • Served over 200mn pages in the same month • New blogs, alerts and RSS services launched • Questions • While the Guardian’s growth in page impressions has been impressive since the beginning of the decade, the growth in those of its rivals (for example, the Daily Telegraph and the Sun) appears to have been faster, especially in the last two years. Why? • ‘Over the next few years, traditional newspaper companies will be falling like trees in the rain forest’ (commentator). Do you agree?