Part 2 Strategy and applications Chapter 5 Digital business strategy

1. Part 2 Strategy and applications Chapter 5 Digital business strategy

2. Learning outcomes Follow an appropriate strategy process model for digital business Apply tools to generate and select digital business strategies Outline alternative strategic approaches to achieve digital business

3. Management issues How does digital business strategy differ from traditional business strategy? How should we integrate digital business strategy with existing business and information systems strategy? How should we evaluate our investment priorities and returns from digital business?

4. Michael Porter on the Internet ‘The key question is not whether to deploy Internet technology – companies have no choice if they want to stay competitive – but how to deploy it.’ Porter, M. (2001) Strategy and the Internet, Harvard Business Review, March 2001, 62–78.

5. Alternative definitions of strategy What is strategy? ‘Defines how we will meet our objectives’ ‘Sets allocation of resources to meet goals’ ‘Selects preferred strategic option to compete within a market’ ‘Provides a long-term plan for the development of the organisation’.

6. Figure 5.1 Different forms of organisational strategy

7. Figure 5.2 Relationship between digital business strategy and other strategies

8. What happens where there is no digital business strategy? Missed opportunities for additional sales on the sell-side and more efficient purchasing on the buy-side Fall-behind competitors in delivering online services – may become difficult to catch-up, for example, Tesco, Dell Poor customer experience from poorly integrated channels.

9. Figure 5.4 A generic strategy process model

10. Figure 5.6 Elements of strategic situation analysis for the digital business

11. Table 5.3 A stage model for digital business development

12. Figure 5.10 Competitive threats acting on the digital business

13. Activity Impact of Internet For one of the industries below, assess how the Internet has changed the competitive forces, for example, has it increased or decreased power of suppliers and customers? Industries: Banking Supermarkets Oil industry Rail industry

15. Figure 5.11 Elements of strategic objective setting for the digital business

16. Figure 5.12 An evaluation tool relating information to business value. An organisation’s use of information on each axis can be assessed from 1 (low use of information) to 10 (high use of information) Source: Marchand et al. (1999).

17. How digital business creates business value? • Adding value • Reduce costs • Manage risks • Create new reality

18. How digital business creates business value? • Adding value; Incremental revenue is delivered through providing better-quality products and services to an organization's customers.

19. How digital business creates business value? • Reduce costs; through information we can make business process more efficient

20. How digital business creates business value? • Manage risks; one of the main and well-established uses of information in organizations

21. How digital business creates business value? • Create new reality; information and new technologies can be used to create new ways in which products and services can be developed.

22. Figure 5.12 An evaluation tool relating information to business value. An organisation’s use of information on each axis can be assessed from 1 (low use of information) to 10 (high use of information) Source: Marchand et al. (1999).

24. Figure 5.15 Research Online Purchase Online exampleSource: Google.

25. Figure 5.17 Elements of strategy definition for the digital business

26. Decision 1: Digital business channel priorities • “Getting the right mix of clicks and bricks” • It no longer an option to invest in digital vs traditional, it is the decision to prioritize! • Diversification of channels is important; • Desktop + mobile platforms • Investment in social media platforms (all vs some…etc).

27. Figure 5.19 Strategic options for a company in relation to the importance of the Internet as a channel

28. Decision 2: market and product development strategies • Deciding on which markets to target through digital channels to generate value is a key strategic decision

29. Figure 5.20 Using the Internet to support different growth strategies

30. Decision 3: positioning and differentiation strategy • How to position online services according to competitors; • Product quality • Service quality • Price • Fulfilment time

31. To enhance positioning • Product performance excellence • Product customization or reviews or info. • (appliances online) • Price performance excellence • Amazon offers competitive prices • Transactional excellence • Making the transaction in a better way • Relationship excellence • Creating an exceptional brand experience

33. Decision 4: business, service and revenue models • Reviewing and innovating business models and services is a key aspect of survival. • “only the paranoid will survive” – Andy Grove - Intel

34. Decision 5: marketplace restructuring • Identify opportunities for new marketplace structure; • Disintermediation • Reintermediation • Countermediation

35. Decision 6: supply chain management capabilities • The main digital business strategy decision that need to be reviewed are: • Integrating suppliers • E-procurement • Participation in online marketplaces to reduce costs?

36. Decision 7: internal knowledge management capabilities • Decision 8: organizational resourcing and capabilities

37. Figure 5.21 Elements of strategy implementation for the digital business

38. Failed digital business strategies • Timing errors: • For example, services for download of digital entertainment that were offered before high-speed broadband Internet access was widely available.

39. Failed digital business strategies • Lack of creativity: • Many services copied existing business models, or other online retail services.

40. Failed digital business strategies • Offering free services: • Many services were offered free to gain site visitors and registration, and it then became difficult to encourage payment for marginally better services. This is a difficult balance to get right.

41. Failed digital business strategies • Over-ambition: • To achieve investor funding amongst many competing companies, some entrepreneurs exaggerated the demand for their products and the growth.

42. Digital business strategy implementation success factors • 1 Content. The effective presentation of products or services. • 2 Convenience. The usability of the website. • 3 Control. The extent to which organisations have defined processes that they can manage. • 4 Interaction. The means of relationship building with individual customers.

43. Digital business strategy implementation success factors • 5 Community. The means of relationship building with groups of like-minded individuals or organisations. • 6 Price sensitivity. The sensitivity of a product or service to price competition on the Internet. • 7 Brand image. The ability to build up a credible brand name for e‑commerce. • 8 Commitment. A strong motivation for using the Internet and the will to innovate.

44. Digital business strategy implementation success factors • 9 Partnership. The extent to which an e‑commerce venture uses partnerships (value chain relationships) to leverage Internet presence and expand its business. • 10 Process improvement. The extent to which companies can change and automate business processes. • 11 Integration. The provision of links between underlying IT systems in support of partnership and process improvement.