E-Commerce: Formulation of Strategy

E-Commerce:Formulation of Strategy Jason Chen, Ph.D. Senior Consultant TASKCO.COM.TW JasonChen@taskco.com.tw chen@gonzaga.edu

eBusiness Key Concepts • eBusinessthe strategy of how to automate old business models with the aid of technology to maximize customer value • eCommercethe process of buying and selling over digital media (e.g., Internet) • eCRM (eCustomer Relationship Management)the process of building,sustaining, and improving eBusiness relationships with existing and potential customers through digital media

WHAT HOW eBusiness Processes WHY Customer Relationship Redesign Business Processes (Outside-In) Applying Technology

Why e-Business? • The Information economy will make all organizations reassess their positions with respect to their customers-supplier relationship. • “e-Business is bound to come and unless we are able to cope with the changes in this world, our competitiveness will decline.” • this is a clear testament to the power of the new information-based economy and a warning to all companies that inertia must be overcome and change embraced. By Michiyo Nakamoto, Financial Times, Nov. 23, 1999

New Terminology of Electronic Commerce Which includes: • Electronic advertising • Electronic buying and selling • Electronic distribution • Direct client interaction for Marketing and customer service • Groupware, e-mail,electronic collaboration • Workflow, automated Forms distribution • Secure X.400(e-mail) Business transactions Electronic Business Electronic Commerce Internet Commerce Electronic Data Interchange Web Commerce Electronic Funds Transfer

Figure 1.1 Established, Online,and Consortium Organizations in the Marketspace Established organizations Total Market Online Organizations E-commerce Marketspace E-consortium N

The Key to successful business on the Internet ... • The key to successful business on the Internet is not the formulation of a conceptual strategy but the execution of that strategy - • the content owners must buy into the strategy and have the confidence of senior executives, • often the decisions the content owners make may have serious consequences to the organization and its strategy • Buy-in and open discussions are keys to success Robert Plant, eCommerce: Formulation of Strategy, pp.67, 1999, Prentice Hall

Two Major Elements determines Organization’s Success • Core Competency • A Value-added Business Model • Value, value, value… N

Core Competencies Detailed Customer Knowledge and Focus We will seek to understand, anticipate, and be responsive to our customer’s needs. Large-Scale System Integration We will continuously develop, advance and protect the technical excellence that allows us to integrate effectively the systems we design and produce. Learn, Efficient Design and Production Systems Our design and production systems will be among the best in the world, characterized by efficient use of assets, short time-to market, short flow times, short cycle times, high quality and high inventory turns.

Why e-Commerce Model is beneficial to your Business? • The e-Commerce model is a basic model of competitive strategy, based on the principles of low costs, high volumes, and comprehensive service, combined with a product range unapproachable through traditional channels.

Why New Models? • We need some new models • for how we go about exploring IT for competitive advantage, • for IT infrastructure how we create it and manage it • for how we acquire, manage and deploy the skills that are needed to run that infrastructure

Bonding factors The Seven Dimensions of an e-Commerce Strategy (bonding and leadership factors) Leadership Technology Service Infrastructure Brand Market Organizational Learning N

Table 1.1 Leadership Factors for New Internet- Based Organizations • Leadership • Factor The pillars of Success for Organization Born on the Internet • ---------------------------------------------------------------------------------------------- • Technology • The technology goal must be understood for that organization within its industry and market. • An organization must determine it is going to be an advanced technology leader or follow a technology agenda that relies upon more stable systems (bleeding versus leading edge). • An organization must determine what is the necessary relationship between the company’s technology or product strategy and the operational aspects of that strategy. • The technology employed by an organization must service the customers’ needs and expectations from a technology perspective.

Table 1.1 Leadership Factors for New Internet -Based Organizations (continued) • Leadership • Factor The pillars of Success for Organization Born on the Internet • -------------------------------------------------------------------------------------------------- • Technology • Organizations must ask themselves questions such as “Are we a technology company? Can the technology be used to create barriers to entry? Can technology be used to lock in a customer base?” • Organizations must have clearly defined the to these questions and must work them into their business plan. Market • An organization must determine its target market and whether it is still realistically open to new entrants. • An organization must understand how the market is going to segment and grow over the near and longer term and know whether the organization will be able to move rapidly enough to meet those changing needs.

Table 1.1 Leadership Factors for New Internet -Based Organizations (continued) • Leadership • Factor The pillars of Success for Organization Born on the Internet • ---------------------------------------------------------------------------------------------- • Market • Being born on the Net requires that the organization understand the possible moves from majors established organizations and utilize its own nimbleness to counter them. Service • An organization must know its customers’ expectations regarding service level • The organization must understand what its value proposition is and how service facilities or augments it • An organization must understand its own Internet service value chain, the components of which are • --- Understanding the relationship between attracting customers and service levels

Table 1.1 Leadership Factors for New Internet -Based Organizations (continued) • Leadership • Factor The pillars of Success for Organizations born on the Internet • ----------------------------------------------------------------------------------------------Service • Understanding how an organization creates service value during a transaction for a customer. • Understanding how service plays a role in the customer fulfillment process, where the purchase is dispatched. • Understanding the role of customer service in retaining customers and maintaining site adhesion.

Table 1.1 Leadership Factors for New Internet -Based Organizations (continued) • Leadership • Factor The pillars of Success for Traditional Established Organizations • ------------------------------------------------------------------------------------------------- Brand • An organization must understand whether it has the ability to create a strong brand • An organization must understand the basis of its brand. Is it --- Technology leadership? • --- Service provision? • --- Market positioning?

Table 1.2 Leadership Factors for Established Organization • Leadership • Factor The pillars of Success for Traditional Established Organizations • -------------------------------------------------------------------------------------------------- • Technology • An organization must understand what technology implications are for that organization --Internet,enterprise resource planning, data Warehouse, etc. • Organization must know whether their processes are aligned to an Internet technology-based approach. • An organization must understand how its customers view and use technology within the marketspace and must leverage that knowledge to build an effective infrastructure that facilities an agile and flexible e- commerce strategy.

Table 1.2 Leadership Factors for Established Organization (continued) • Leadership • Factor The pillars of Success for Traditional Established Organizations • ----------------------------------------------------------------------------------------------. Technology • An organization must assess its internal value chain as well as those of its suppliers and build to minimize costs and maximize efficiencies. Market • An organization must understand what the implications of e-commerce and technology are for the marketspace in which the organization is to compete in terms of: • --- Branding • --- Relationship management

Table 1.2 Leadership Factors for Established Organization (continued) • Leadership • Factor The pillars of Success for Traditional Established Organizations • ---------------------------------------------------------------------------------------------- • Market • An organization must determine whether its target market is the same as its traditional bricks-mortar marketspace or if it has moved. • If its core marketspace have moved, is it still realistically open to traditional organizations moving onto the Net? • An organization must understand how the market is going o segment and grow over the near future due to the impact of the internet and must determine whether the organization will be able to move rapidly enough to meet those changing needs.

Table 1.2 Leadership Factors for Established Organization (continued) • Leadership • Factor The pillars of Success for Traditional Established Organizations • --------------------------------------------------------------------------------------------------. Market • Organization must assess the impact of pure Internet-based organizations and use their own traditional core strengths-market knowledge and product knowledge to offset Internet-based companies’ nimibleness. Service • An organization must determine the new service level expectations of the customer. • An organization must understand what the customers’ new value proposition requirements are in terms of cost, service level expectations, and information-based service.

Table 1.2 Leadership Factors for established Organization (continued) • Leadership • Factor The pillars of Success for Traditional Established Organizations • ---------------------------------------------------------------------------------------------- • Service • Organizations must reassess their service value chain. • -- How are we going to acquire customers? • -- How are we going to develop customer relationships through the new medium? • -- How can we best fulfill the customers’ needs -- bricks and mortar,clicks and mortar, or online? • -- How do we support our customers during purchase and through order fulfillment? • -- How do we retain customers between orders?

Table 1.2 Leadership Factors for established Organization (continued) • Leadership • Factor The pillars of Success for Traditional Established Organizations • ---------------------------------------------------------------------------------------------- • Brand • Organizations need to determine how to best leverage their existing brand. • -- Do we have the ability to create a strong dot-com brand? • -- What is the basis of that brand? • -- What are the implications for our brand in terms of the technology we employ, develop, or use? • -- What are the challenges for creating a new dot-com brand? • -- Does the Internet demand an amendment or a completely new service provision? • -- Will new brand positioning change our existing brand?

Table 1.3 Bonding Factors Toward the Development of E-commerce Strategy • Bonding • Factors Issues • -------------------------------------------------------------------------------------------------- • Leadership • Does the CEO have a vision for e-commerce? • Does the CEO have a track record of taking technology change in stride? • Do the senior executives share a technology vision? Also, do they understand its impact upon their functional area and the organization as a whole? • Is the leadership stable or in a continual state of flux?

Table 1.3 Bonding Factors Toward the Development of E-commerce Strategy (continued) • Bonding • Factors Issues • --------------------------------------------------------------------------------------------------Infrastructure • Can the organization’s technology infrastructure support the new model of e-business • Can the organization’s technology infrastructure support the move to mass customization? • What are the implications for the organizational changes needed to be competitive in an e-commerce environment? • Does the organization’s infrastructure interface with the infrastructures of their suppliers and customers in the electronic marketplace?

Table 1.3 Bonding Factors Toward the Development of E-commerce Strategy (continued) • Bonding • Factors Issues • ----------------------------------------------------------------------------------------------. Organizational • Learning • Does the organization support internal learning? -- Scanning the technology horizon for change and then adopting that change where appropriate -- Developing a self-awareness inside the boundaries of the organization to drive practice and process change • Can the learning of the organization with respect to markets, product, technology, processes, etc., be quickly refocused into a new technology-based method of production?

Key Factors for an Organization’s Success • Several key factors are key to determining an organization’s potential for success: • Does the organization possess first-mover advantage in the marketspace? • Does the organization differentitate itself in the marketspace? • Does the organization posses the ability to be flexible and agile in the e-marketspace? N

The Executive should ... • The development and execution of a successful e-commerce strategy is a difficult intellectual and creative task, one that every executive will have to undertake. • Key Steps: • determine the core competencies of your organization • determine the limitation in the new markepspace • assess the mechanisms available to move forward.

Types of marketspace • B2C • B2B • B2G • G2B • B2B2C • B2B2E • The e-consortium

Creating an Integrated e-Commerce Strategy • Four positional factors • Technology • Service • Market • Brand • Three bonding factors • Leadership • Infrastructure • Organizational Learning. Ch.2

Bonding factors Figure 2.1: The Seven Dimensions of an e-Commerce Strategy (bonding and leadership factors) Leadership Technology Service Infrastructure Brand Market Organizational Learning N

Figure 2.1 The Seven Dimensions of ane-Commerce Strategy Leadership Technology Service Infrastructure Brand Market Organizational Learning N

What is the Next ... • Based on the seven-dimension e-C strategy model ... • If you want your company to succeed, the solution is to move to an e-Commerce model ASAP.

Bonding factors Figure 2.1 The Seven Dimensions of ane-Commerce Strategy (bonding and leadership factors) Service Technology Leadership Organizational Learning Infrastructure Brand Market N

What is the Next ... • Based on the seven-dimension e-Commerce strategy model ... • If you want your company to succeed, the solution is to move to an e-Commerce model ASAP.

Creating an Integratede-Commerce Strategy (continued) • Organizations will always be adjusting their strategies to meet the changing environment in which they operate, and the model aims at assisting executives in understanding the importance and weighting that need to be applied to each factor.

Figure 2.2 The Bonds of an e-Commerce Strategy Leadership Leadership Organizational Learning Infrastructure N

Integration of the Four e-Commerce Leadership Propositions • In creating an e-Commerce strategy, it is clearly to align and integrate the four main areas of positional strategic focus: technology, brand, service, and market. • This is a challenging task that must be deeply considered at the outset of strategy formulation since both the dollar and opportunity costs of dramatic strategic change after execution can be high.

Integration of the Four e-Commerce Leadership Propositions (continued) • This is not to say that change is not occurring; change in this arena is inevitable and continuous, with victory coming to those who can adapt fastest and be nimble in the face of change.

Technology Leadership Service Leadership Brand Leadership Market Leadership Figure 2.3 Integration of the Foure-Commerce Leadership Propositions Integrated e-commerce strategy N

Technology Leadership • It involves the early adoption of an emerging technology to achieve a preemptive position. • e-Commerce strategies focused on leadership through technology that are found in all industry sectors.

Louis Gerstner, Chairman & CEO: IBM Branding - it is a very important issue and it will dominate business thinking I suspect for a decade or more. Internet ability to influence, change, or reinforce corporate branding. Brand Leadership Source: IBM Executive Conference on Information Systems, Latin America, Miami, FL, September 1, 1998

Developing a Winning E-strategy • 1. Ensure the project is backed by a senior executive. • 2. Develop a strategy before developing a Web presence. • 3. Develop a strategy by focusing on technology, branding, marketing, and service.

Developing a Winning E-strategy (continued) • 4. Develop an IT infrastructure capable of matching the strategic objectives. • 5. Identify and use knowledge in the organization. • 6. The strategy must add value for customers, and it must change as the requirements of those customers change.

NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES TRADITIONAL COMPETITORS THEFIRM SUPPLIERS CUSTOMERS Porter’s Five Competitive Forces Model Threats Bargaining power N TM -45

Elements of Industry Structure N TM -46 Dr. Chen,The Trends of the Information Systems Technology

Impact of Competitive Forces TM -47 Dr. Chen,The Trends of the Information Systems Technology

Finance and Accounting Production and Manufacturing Marketing and Sales Outbound Logistics Service Activities of Value Chain Primary Activities Inbound Logistics Support Activities Administrative and Other Indirect Value Added TM -48

Production and Manufacturing Sales and Distributiion Engineering Marketing Service Manufacturing Industry Value Chain Product and Service Flow Primary Activities Research and Development Support Activities Administrative and Other Indirect Value Added TM -49

Ownership Issues • E-centric Structure + Content = Success Content alone is not sufficient for success Successes come from a balanced business model that involves each business area content provider contributing to the overall business model. Ch.3

E-Commerce: Formulation of Strategy