Download Adrian Boucher, 2014 - University of Birmingham

MSc International Business (2014)
International e-business:
Lecture 3:
E-commerce Markets:
Revenue Models and Strategies
Web Infrastructure and Sales Channels
Essential Information Flows Among
E-Commerce Companies
Adrian Boucher, 2014
The University of
Birmingham
Learning Objectives
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The University of
Birmingham
Identify the strategic options facing a (possibly, new) business
How the emergence of the Internet / WWW affect and influence
business strategy and choice of Revenue Model
Identify key impacts of www on firm structure and infrastructure
Identify Key impacts of www on industry structures
Consider e-business adoption options: Web functionality
Creating an effective Online Presence: Connecting with Customers
Consider horizontal, vertical and internal factors in e-business
Discuss distinctions between B2C e-business and B2B e-business
Discuss importance of integrated approaches to business and IS
strategies for undertaking online sales (and support)
Importance of streamlining and management of Supply-Chains and
Value-chains
Effects of e-developments on Inter-Organizational Systems (IOS)
Adrian Boucher, 2014
3-2
Reading and Online Activities
The University of
Birmingham
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Chaffey: Chapters 2, 3 , 4 and 5
Schneider, Chapters 3 and 4
Laudon & Traver: Chapters 2 and 4
Chen: Chapters 1, 3, 5 and 7
Farhoomand: Chapters 1 & 2
Jelassi & Enders: Chapters 3 and 4
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http://www.ideasformarketing.com/strategic-options.htm
http://www.managingchange.com/step/strateg.htm
http://www.netmba.com/strategy/value-chain/
http://www.scottish-enterprise.com/
http://ec.europa.eu/enterprise/e-bsn/index_en.html
http://www.nb2bc.co.uk/home/
Adrian Boucher, 2014
3-3
External Impacts upon Companies
The University of
Birmingham
Political
Legal
Economic
Social
Technological
impacts
Legal & political
environment
Economic
environment
Remote Macro
environment
Industry
environment
Customers
Natural
environment
Company
Competitors
Technological
environment
Social
environment
Adrian Boucher, 2014
Commonly-used Framework:PESTEL
3-4
Basic Economics of e-business
The University of
Birmingham
• Some of the technologies of Internet and www offer
significant benefits to Customers and businesses:
• More (and more readily available) information
• Lower search costs (and available 24/73/65)
• Lower production and distribution costs
• Lower costs of procurement (buying) and selling
• Easier identification of new suppliers (BRICs)
• More precise targetting of Customers
• Benefits from virtual communities (Web 2.0)
• Any others…?
Adrian Boucher, 2014
3-5
Supply Curve
Price
S1
The University of
Birmingham
Generally, the higher the
price, the more product
will be brought to market
S1
Quantity
Adrian Boucher, 2014
3-6
Supply and Demand
Price
D
S0
0
The University of
Birmingham
Generally, the lower the price
of a product, the more will
be purchased.
The curves intersect to define
the equilibrium price and
quantity, P0 and Q0
P0
D
S0
0
Q0
Adrian Boucher, 2014
Quantity
3-7
Effect of www on Supply
Price
D
S0
0
P0
P1
D
S0
The University of
Birmingham
More suppliers come to the
market, driving down price
to P1 and expanding quantity
S1 to Q1
Many of these suppliers come
from rapidly developing
countries: Brazil, Russia,
India and China (BRIC).
For the past 10 years, western
countries have experienced
falling prices and low inflation
from this effect.
One of today’s concerns: rising
labour prices In China might
trigger Worldwide inflation.
Not yet perceived:
0
S1
Q0
Adrian Boucher, 2014
Q1
Quantity
3-8
Lagged Demand Effect
D1
Price
D
S0
0
S1
With increased employment
and rising real incomes,
consumer demand increases,
to D1 driving up prices to P2
Effect on Q is possibly
ambiguous, depending
on the relative strengths of
suppliers and consumers.
In this case, supply also
continues to expand.
If this oversupply is allowed
to continue, eventually prices
D1 will have to fall to bring markets
back to equilibrium.
P2
P0
P1
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Birmingham
D
S0
0
S1
Q0
Adrian Boucher, 2014
Q1
Q2
Quantity
3-9
Implications for e-business
The University of
Birmingham
• Business needs to take into account how cost and
demand factors affect its decisions:
• Whether to become an e-business?
• What information costs will they incur?
• What other costs and revenues will affect their
business?
• What are their decision-making costs?
• What Customer costs and benefits can they
influence, etc?
• How will they generate sales revenue?
• All of which impact upon their business strategy
Adrian Boucher, 2014
3-10
Range of Revenue Models
The University of
Birmingham
• Web business revenue-generating models
• Web catalogue [Argos]
• Digital content [iTunes]
• Advertising-supported [Google]
• Advertising-subscription mixed [Newspapers]
• Fee-based [Information Provision: Reuters]
• Same model can work for both sale types
• Business-to-consumer (B2C)
• Business-to-business (B2B)
Adrian Boucher, 2014
3-11
Web Catalogue Models
The University of
Birmingham
• Adapted from mail-order (catalogue) model
• Seller establishes brand image
• Printed information mailed to prospective buyers
• Orders placed by mail or phone
• Expands traditional model
• Replaces or supplements print catalogs
• Orders placed through Web site/Smartphone
• Creates additional sales outlets for existing
companies
• Discount Retailers [Overstock.com]
• Use of Multiple Channels: Physical Stores, Website,
Mailed Catalogues, Newspapers, etc.
Adrian Boucher, 2014
3-12
Combining Market Channels
Adrian Boucher, 2014
The University of
Birmingham
3-13
Web Catalogue Models (2)
The University of
Birmingham
• Adding the Personal Touch
• Many adapted catalogue sales model to Web
• Display clothing photos categorized by type
• Prices, sizes, colours, and tailoring details
• Personal Shopping Agent (learns preferences – suggest)
• Want customers to examine clothing online
• Place orders through Web site
• Virtual Model (try different outfits)
Video Communication: Show products in real-time
• Lands’ End online Web shopping assistance
• Lands’ End Live (1999)
• Online text chat and call-back feature
• Ability to push Web pages to customers’ browser and,
nowadays, Tablet / Smartphone
Adrian Boucher, 2014
3-14
Fee-for-Content Rev Models
The University of
Birmingham
• Firms who own written information or info rights
• Adopt Web as highly efficient distribution
mechanism
• Use Digital Content revenue model
• Sell Subscriptions for information access
• Legal, Academic, Business and Technical content:
• LexisNexis: Variety of Information Services for
Lawyers and Law Enforcement Officials
• Subscriptions and Individual access rights to Online
Academic Journals and publications
• Aggregation Services: Subscription Packages to
Schools, Libraries, etc.
• Dow-Jones: Business-Focussed Publications
• Newspapers, Magazines, etc. [Times Online,
Economist]
Adrian Boucher, 2014
3-15
Fee-for-Content (2)
The University of
Birmingham
• Electronic books
• Market leaders: Amazon.com’s Kindle products,
Barnes & Noble’s Nook products, and Google’s
eBookstore
• Steady sales growth anticipated (esp. future)
• Sales include:
• Books (sold individually)
• Magazines and newspapers subscriptions
• Online Music
• Largest stores: Amazon MP3, Apple’s iTunes,
eMusic, Google Music, Microsoft’s MSN Music, and
Rhapsody
• Digital Rights Management (DRM): Software
intended to stop music download privacy
• Amazon MP3 – first to offer DRM-free MP3 files
Adrian Boucher, 2014
3-16
Fee-for-Content (3)
The University of
Birmingham
• Online video
• Issues hampering sales in previous years
• Large file size
• Fear of online sales impairing other sales types
• Inability to play on variety of devices
• Overcoming the issues
• New technologies improving delivery
• Companies incorporating online distribution into
revenue strategy
• Web browser availability for alternate devices
• Smart phones and tablet devices
• Electronic Books: Audio Books; Podcasts; CDs; other
digital files; Monthly subscriptions for number of
downloads: price – per book; Amazon delivers directly
to Kindle readers
Adrian Boucher, 2014
3-17
Advertising-Supported Revenue Models
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Birmingham
• Use Advertisers’ Fees not Users’ Subscriptions
• Common in Commercial TV: Now used widely online
• Problem: Measuring & Charging Site Visitor Views
• STICKINESS: Keeping Visitors at Site;
• Attracting Repeat Visitors
• Problem: Obtaining Large Advertiser Interest
• Requires Demographic Information Collection
• Need to Categorise Site Visitors: Who? Where?
• Use Specialized Target Audiences: Sports Fans
Adrian Boucher, 2014
3-18
Advertising-Supported Revenue Models (2)
The University of
Birmingham
• Web portals (portal)
• Site used as a launching point to enter the Web
• Usually includes a Web directory or search engine
• Often includes other features
• Web directory
• Listing of hyperlinks to Web pages
• General interest strategy: Yahoo! portal search
engine
• Presents search term-triggered advertising on
each page
• Specific interest strategy: CNET and Kayak:
examples with targeted advertising
• Advertising-supported online classified ad sites
• Employment Sites: Monster.com, etc
Adrian Boucher, 2014
3-19
Advertising-Supported Revenue Models (3)
The University of
Birmingham
• Used vehicle sites
• AutoTrader.com; WeBuyAnyCar.com, etc
• Similar sites, e.g., used musical instruments,
comic books, and used golf equipment
• Advertising-subscription mixed revenue models
• Subscribers pay fee and accept some
advertising
• Less advertising than advertising-supported
sites
• Newspapers/magazines using advertisingsubscription mixed revenue model offer varying
proportions of free content
Adrian Boucher, 2014
3-20
Advertsing-Supported Summary
Adrian Boucher, 2014
The University of
Birmingham
3-21
Fee-for-Transaction Models
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Birmingham
• Service fee charged
• Based on transaction number or size
• Web site offers visitor transaction information
• Personal service formerly provided by a human
agent
• Value chain
• Disintermediation [e.g. Dell]
• Intermediary (human agent) removed
• Reintermediation
• New intermediary (fee-for-transaction Web
site) introduced
Adrian Boucher, 2014
3-22
Disintermediation
Adrian Boucher, 2014
The University of
Birmingham
3-23
Source: Chaffey, 2011
Reintermediation
Adrian Boucher, 2014
Source: Chaffey, 2011
The University of
Birmingham
3-24
Fee-for-Transaction Revenue Models
The University of
(Continued)
Birmingham
• Travel: Travel agency revenue model: receive fee for
facilitating a transaction
• Travel sites generate revenue through:
• Commissions
• Web site advertising fees (advertising-fee revenue
model)
• Popular travel Web sites
• Travelocity (based on Sabre)
• Expedia (Microsoft subsidiary)
• Orbitz (consortium of major U.S airlines)
• Traditional travel agents: squeezed out
• Surviving smaller travel agents specialize in cruises
• Assisted by Web sites, e.g., VacationsToGo.com, with
detailed cruise information or discounted package deals
• Reintermediation strategy: cater to a target audience
(WaveHunters.com)
Adrian Boucher, 2014
3-25
Changing Strategies:
Revenue Models in Transition
The University of
Birmingham
• Companies have to change revenue model
• To meet needs of new and changing Web users
• Some companies created e-commerce Web sites
• Needed many years to grow large enough to
become profitable (CNN and ESPN)
• Some companies changed model or went out of
business
• Due to lengthy unprofitable growth phases
• Many case studies of strategies that evolved from
experience and adaptations to change (Schneider)
Adrian Boucher, 2014
3-26
Revenue Strategy Issues
The University of
Birmingham
• Channel conflict and cannibalization
• Channel conflict (cannibalization): company’s Web site
sales activities interfere with existing sales outlets
• Levis Web site and Maytag
• Web sites no longer sell products
• Sites now provide product and retail distributor
information
• Eddie Bauer [http://www.eddiebauer.com/home.jsp]
• Online purchases returnable at retail stores
• Required compensation and bonus plans adjustments
to support Web site
• Channel cooperation made it successful
Adrian Boucher, 2014
3-27
Revenue Strategy Issues (2)
The University of
Birmingham
• Strategic alliances
• Two or more companies join forces
• Undertake activity over long time period
• Yodlee account aggregation services provider
• Yodlee concentrates on developing the technology and
services
• Banks provide the customers
• Amazon.com
• Joined with Target and many smaller companies/Agents
• Luxury goods
• Difficult to sell online
• Customers want to see product in person or touch
• Overcome by some sites by limiting online offerings
• Supported by: “No Questions Asked” returns policies
• General INDEPENDENT Appraisal Certificates
Adrian Boucher, 2014
3-28
Creating an Effective Presence
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Birmingham
• Organization’s presence
• Public image conveyed to stakeholders
• Usually not important
• Until growth reaches significant size
• Stakeholders
• Customers, suppliers, employees,
stockholders, neighbours, and general public
• Effective Web presence
• Critical even for smallest and newest Web
operating firms
Adrian Boucher, 2014
3-29
Strategic Options for Business
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Birmingham
Three Fundamental Options:
1. Be the cheapest (Cost-Leadership)
1. Really only an option for large businesses
2. Take advantage of significant economies of scale
3. Runs the risk of a price war with competitors
2. Be the best (Differentiation)
1. Requires that you have a unique product
2. Usually requires high R&D expenditure
3. Need continually to innovate to retain position
3. Dominate a niche market position (Niche strategy)
1. Probably most suitable for small businesses
2. Needs exceptionally effective market segmentation
3. Need to develop (and defend) a strong brand
Adrian Boucher, 2014
3-30
Segmentation Issues
Measurable
Substantial
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Birmingham
It should be possible to measure the size of a
defined segment in order to determine its
purchasing power and its peculiar
characteristics
A segment should be large enough to justify
that it is addressed separately
Differentiable
The segments must be exclusive and react
differently to a variety of marketing
approaches
Actionable
It should be possible to develop sales and
marketing approaches to serve specific
segments.
Adrian Boucher, 2014
3-31
Segmentation and Customer Analysis
The University of
Birmingham
Segmentation type
Criteria to be considered
Geographic segmentation
Geographic regions (e.g. continents, countries, states)
Demographic segmentation
Age, gender, income, life style
Psychographic segmentation
Personality type and personal interests (e.g. cashrich, time-poor)
Behavioural segmentation
Purchasing frequency, usage patterns, etc.
Adrian Boucher, 2014
3-32
Target Market Selection
Product specialisation:
e.g. private banking; wealth
management
M1 M2
Many
Full market coverage:
e.g. amazon.com; Tesco.com
M1 M2 M3
M3
P1
P1
P2
P2
P3
P3
Selective specialisation,
(e.g. Bertelsmann)
M1 M2
Number of
market
segments
served
(scale)
P1
P2
Single segment
concentration
(e.g. Ducati, Porsche)
M1
Few
P = Product
M = Market
M3
M2
P3
Market specialisation
(e.g. ING DIRECT)
M3
M1
P1
P1
P2
P2
P3
P3
Few
Number of different products
and services offered (scope)
Source: Jelassi and Enders (2009)
M2
M3
Many
E-Business Strategy Recap
The University of
Birmingham
• Standard Questions for defining Strategy:
• Where are we now? (Situational Analysis)
• What Business are we in?
• What business do we want to be in?
• What business SHOULD we be in?
• Where do we want to go?
• How do we get there?
• Which way is best?
• How will we know when we have arrived?
• Who are our competitors?
• Who are our allies?
• What resources do we have?
• What resources do we need?
Adrian Boucher, 2014
3-34
Business Planning Resources
The University of
Birmingham
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http://forum.digitalenterprise.org/cgi-bin/bulletin/ultimatebb.cgi
http://www.ja.org/studentcenter/entrp/entrp_business_plan_fs.html
http://www.paloalto.com/
http://planmagic.com/
http://www.newarttech.com/eBusiness.htm
http://myphliputil.pearsoncmg.com/student/bp_turban_introec_1/Tut
Intro.html
http://www.bplans.com/
http://www.bplans.org.uk/
http://www.businessplans.org/
http://www.tupson.com/ebusplan.htm
http://ec.europa.eu/information_society/ecowor/ebusiness/index_en.
htm
http://www.info.gov.hk/digital21/eng/strategy2001/strategy_part32.ht
ml
http://www.businesslink4london.com/index.cfm?fuseaction=res.vie
wResource&resID=97&sctn=38&subsctn=99
Reading, C (1994): Strategic Business Planning
McKeever, M (2003): How to Write a Business Plan,
ISBN: 0-87337-863-6 6th Edition, Nov '02
Adrian Boucher, 2014
3-35
Other Strategic Issues
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The University of
Birmingham
Vertical Integration: Extent to which firm owns its upstream
suppliers and downstream buyers
May have significant impacts on costs, security of supply, ability to
differentiate products and services
Also impacts on its relative freedom to engage in strategic activities
Horizontal Integration: Extent of acquisition of firms at the same
level of the value chain; when a company expands its business into
different products that are similar to current lines
Examples:
• Hamburger manufacturer decides to add hot dog manufacture to
its product range
• Dell decides to manufacture LCD TVs because the technologies
are very similar (complementary)
• Media company obtains control of magazine, TV, Satellite TV,
interactive TV, online media, newspapers and books
Adrian Boucher, 2014
3-36
Porter’s value-Chain Analysis
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The University of
Birmingham
Widely-used paradigm (we shall explore this later)
Significant history of successful use as an analytical framework
Intent: use it to put e-business developments into context
Ask appropriate questions / explore alternative assessments of
e-business operations and e-implementation
Different scenarios:
• Not presently in e-business
• Considering entry to e-business
• Just entered e-business
• In e-business, but not yet successful
• Successful e-business adoption
• Path breaker / world-class performer
Adrian Boucher, 2014
3-37
E-business Ladder of adoption
The University of
Birmingham
8 - e-business - full implementation
7 - order progress tracking
6 - online trading: B2B
5 - order or sell online - B2C
4 - marketing website: marketing communication
3 - Internet access
Source: derived from EU
2 - e-Mail
ICT and e-business benchmarking
1 - Personal Computer
Surveys 2001-2006
0 - not on ladder: minimal ICT adoption
Various other ways of organising the “ladder”
Adrian Boucher, 2014
3-38
Factors Affecting Adoption
The University of
Birmingham
Objective: Business Growth (factors possibly in rank order)
What goals does the organization have in mind?
1. Create and maintain a competitive advantage
2. Enhance Customer satisfaction
3. Reduce Operational Costs
4. Improve employee communication and satisfaction
5. Develop new products / services
6. Find new markets for products / services
7. Create distinct and effective distribution channels
8. Improve supply-chain management
9. Develop a strong and enduring brand
10. Become a global player …?
etc.
Adrian Boucher, 2014
3-39
Market Opportunity
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Birmingham
• Refers to a company’s intended marketspace
and the overall potential financial opportunities
available to the firm in that marketspace
• Marketspace – the area of actual or potential
commercial value in which a company intends
to operate
• Realistic market opportunity is defined by
revenue potential in each of market niches in
which company hopes to compete
• Important to include these issues in business
planning and strategy development
Adrian Boucher, 2014
3-40
Value Chain: An Analytical Framework
The University of
Birmingham
Human resource management
Corporate infrastructure
Technology development
product
Procurement
customer
service
Inbound
logistics
Operations
Outbound Marketing
and Sales
logistics
After-sales
service
Porter, M E (1985): Competitive Advantage: Creating and Sustaining Superior Performance.
New York, The Free Press.
Adrian Boucher, 2014
3-41
Primary and Support Activities
The University of
Birmingham
Human resource management
Corporate infrastructure
Support Activities
Technology development
product
Procurement
customer
service
Inbound
logistics
Marketing
Outbound
Primary
Activities
Operations
logistics
Adrian Boucher, 2014
and Sales
After-sales
service
3-42
Primary and Support Activities
The University of
Birmingham
Human resource management
Corporate infrastructure
Intranet
Technology development
product
Procurement
customer
Inbound
logistics
Extranet
Operations
After-sales
Internet
service
service
Outbound Marketing
and Sales
logistics
Refer back to Lecture 2 for definitions of Internet, Intranet and Extranet
Adrian Boucher, 2014
3-43
Internet, Intranet and Extranet
Adrian Boucher, 2014
The University of
Birmingham
3-44
Internal Integration
•
The University of
Birmingham
Integration Strategy:
• May occur at number of different levels
• Often find individual departments operate in isolation
(often termed “information silos”)
• Need for improved inter-departmental communication is crucial to
e-business success
• Often attempted through Integrated Information Systems (IIS)
• Other approaches:
• Enterprise Application Integration (EAI - difficult, but getting easier)
• .NET (Microsoft web-based communication technology)
• Use of Intranets (and Extranets)
• BS2PE Framework (Afuah):
• Business Model (and Revenue Model(s))
• Structure
• Systems
• People
• Environment Structure applied to the organization
Adrian Boucher, 2014
3-45
BS2PE Framework
Competitive
environment
Fiscal and
Monetary
policies
The University of
Birmingham
Judicial and
Legal system
Technological
Change
Business model
Structure
• Functional
• Matrix
• Divisional
• Project
• Task Division
People
• Type
• Role
• Culture
Systems/Processes
• Performance
assessment
• Rewards/sanctions
• Controls
• Information Systems
Performance
Sociological
Adrian Boucher, 2014
Demographic
Factor
conditions
Source: Afuah (2004)
3-46
Structure (of the firm) and Strategy
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The University of
Birmingham
Alfred Chandler (1962) argues that “structure follows strategy”
and many other management experts and researchers have agreed
http://www.blacksacademy.net/content/3661.html
http://www.csuchico.edu/mgmt/strategy/module9/index.htm
Google Search for “structure follows strategy” returned 42,300,000
results (7 Jan 2012).
However, many academics disagree; they contend that “strategy
follows structure”
In other words, if a new strategy is developed (e-business operation)
then a firm necessarily has to consider its operating structure
A search on Google for “strategy follows structure” returned
70,300,000 results (7 Jan 2011)
www.firstconcepts.com/insightsintosuccess/strategystructure.html
bpminsights.blogspot.com/2006/11/structure-follows-strategy.html
In fact, the relationships are complex; structure and strategy are
inextricably entwined. Change one, and it means changing the
other.
Adrian Boucher, 2014
3-47
Organizational Structure
The University of
Birmingham
• Functional Organizational Structure
Span of control
Functional Orga niza ton
Depth of
hierarchy
CE O
Dir ector
Engineering & Design
Manager 1
Er gonomics
Manager 2
Technology
Dir ector
R& D
Manager 1
Blue Sky
Dir ector
Finance
Manager 2
Development
Manager 1
Purchasing
Dir ector
Manufacturing
Manager 2
Sales Ledger
Pr oduction
Manager
Dir ector
Marketing & Sales
Sales Manager
Marketing Manager
Employees organised according to the function they perform.
Adrian Boucher, 2014
3-48
Multi-Divisional Structure (M-form)
The University of
Birmingham
M -Fo rm Organ izato n
CEO
Dire ctor
Divis ion A
Dire ctor
Divis ion B
Dire ctor
Divis ion C
M anager
R&D
M anager
R&D
M anager
R&D
M anager
M anu factur ing
M anager
M anu factur ing
M anager
M anu factur ing
M anager
M ar keting & Sales
M anager
M ar keting & Sales
M anager
M ar keting & Sales
Employees organised by Divisions (rather than functions). May be organised by
type of product, geographical region or by brand. Each Division has P&L responsibility
and operates as a discrete business Unit (SBU). Offers FOCUS and better accountability,
but may mean Divisional Managers have limited in-depth knowledge of the whole business.
Adrian Boucher, 2014
3-49
Matrix Structure
Matrix Organiz aton
The University of
Birmingham
CE O
Dir ector
Pr ogram Management
Dir ector
R& D
Dir ector
Finance
Dir ector
Manufacturing
Dir ector
Marketing & Sales
Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager
Pr oject 1 Pr oject 2 Pr oject 3 Pr oject 1 Pr oject 2 Pr oject 3 Pr oject 1 Pr oject 2 Pr oject 3 Pr oject 1 Pr oject 2 Pr oject 3 Pr oject 1 Pr oject 2 Pr oject 3
Attempts to combine benefits of Functional and M-form of Organization.
Disadvantages: Communication may be patchy; conflicting goals may be set for Managers
Difficult to keep Projects synchronised; may be managed by fully integrated Info Systems.
A variant of this Matrix Form is a Project Structure: Project team is allocated to a Project,
work on it, and Team is reallocated when Project is successfully completed.
Adrian Boucher, 2014
3-50
Network Structure (modern)
The University of
Birmingham
Sometimes described as a Virtual Organisational Structure
Adrian Boucher, 2014
3-51
Network Structure (Recent)
The University of
Birmingham
• Arisen as result of Technological change
• Firm outsources many (or all) value-adding activities and acts
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as mediator or organiser of resources [e.g. Nike]
Production may occur anywhere in the world - often China,
Taiwan, Singapore, India (for IT)
Advantages: no need for high investments in assets
(especially in high-wage economies)
Where rate of change in technology is high, risk is borne by
manufacturers; easy to switch suppliers (especially easy
using e-procurement and web-based project tendering)
Disadvantages: May be difficult to develop competitive
advantage from a distance (becoming easier with e-business)
Contracting out may mean losing cross-communication;
project interactions and internal idea exchanges.
Adrian Boucher, 2014
3-52
Internet and Industry Structure
The University of
Birmingham
Porter, M E (2001): Strategy
and the Internet, Harvard
Business Review
Adrian Boucher, 2014
3-53
Industry Value Chains
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The University of
Birmingham
Set of activities performed in an industry by raw materials suppliers, by
suppliers of energy, manufacturers, transporters, distributors, and
retailers that transform raw inputs into final products and services
Reduces the cost of information and other transactional costs
Adrian Boucher, 2014
3-54
Firm Value Chains
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The University of
Birmingham
Set of activities that a firm engages in to create final products
from raw inputs
Increases operational efficiency
(I.e. Support Activities)
Adrian Boucher, 2014
3-55
Firm Value Webs
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The University of
Birmingham
Networked business ecosystem that uses Internet technology
to coordinate the value chains of business partners within an
industry, or within a group of firms
Coordinates a firm’s suppliers with its own production needs
using an Internet-based supply chain management system
Adrian Boucher, 2014
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Value Network
The University of
Birmingham
Supplier
Competitors
Firm
Complementors
Buyer
Adrian Boucher, 2014
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So why become an e-business?
The University of
Birmingham
• Pro:
improve customer outreach;
reduce costs;
better communications (suppliers / customers);
information sharing;
faster transactions processing;
keeping up with the Jones’s;
opportunity of global market;
increased visibility / accountability
• Con:
may not be relevant to my business;
credit risk; security? Trust? Loss of personal touch
lack of skills; lack of understanding of resources required
low perceived ROI
too much competition already
fear (unwilling to leave “comfort zone”)
Adrian Boucher, 2014
3-58
E-business Development Strategy
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The University of
Birmingham
Requirement 1: Systematic Approach
Business Planning:
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Vision
Strategy
Prepare a Business Plan
Define Target Market
Set immediate, medium - and long-term goals
Decide on the Infrastructure required to deliver vision
• What functionality is required of website and back-office (s/w)?
• What technology / technologies are need to run these (h/w)?
• What Human Resources are required to deliver results?
• Design phase: building website and getting it running
• Marketing phase: advertising site; feedback systems;
high emphasis on CUSTOMER SERVICE (paramount)
• Fulfilment phase
• Maintenance and enhancement phases:
growing the business
Adrian Boucher, 2014
3-59
Generic Approach to Strategy
Position
Strategic logic
Strategic steps
Resources
Simple Rules
Establish position
Leverage resources
Pursue opportunities
• identify attractive market
• locate defensible position
• fortify and defend
• establish a vision
• build resources
• leverage across
markets
• jump into the confusion
• keep moving
• seize opportunities
• finish strongly
Strategic question
Where should we be?
What should we be?
How should we proceed?
Source of advantage
Unique, valuable position
with tightly integrated activity
system
Unique, valuable,
inimitable resources
Key processes and
unique simple rules
Works best in …
Slowly changing, wellstructured markets
Moderately changing,
well-structured markets
Rapidly-changing,
ambiguous markets
Duration of
advantage
Sustained
Sustained
Unpredictable
Risk
Too difficult to alter position
as conditions change
Firm too slow to build
new resources as
conditions change. Longterm dominance
Managers too tentative in
executing promising
opportunities
Performance goal
Profitability
Long-term dominance
growth
Eisenhart and Sull, Harvard Business Review, 2001
Competitive Advantage
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The University of
Birmingham
When firm produces superior product &/or brings product to market
at lower price than competitors
Firms achieve competitive advantage when firms are able to obtain
differential access to factors of production denied to competitors
Asymmetry – when one participant in a market has more resources
than others
Information Asymmetry - where one participant in a business
transaction has more INFORMATION than others [e.g. 2nd hand cars]
Web REDUCES information asymmetries - potential Customers can
retrieve information from websites and use this to negotiate in
transactions (particularly common in car, PC and holiday purchase)
Evidence that purchasers research markets online and use
information offline (car purchase; travel; high-ticket purchase items)
Adrian Boucher, 2014
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Market Strategy
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The University of
Birmingham
Plan detailing how company intends to enter new market and
attract customers
Best business concepts will fail if not properly marketed to
potential customers
Needs properly planned and executed market research
marketing research can be effectively conducted online:
• Web server log analysis
• Use of cookies
• Data collection, storage (warehousing) and analysis
• Data-mining, pattern recognition, demographic analysis
• Monitoring online conversations in chat rooms and social
networking sites (SNS)
• Administration of online surveys and questionnaires (need to
offer inducements to complete)
Adrian Boucher, 2014
3-62
Factors Transforming Strategy
The University of
Birmingham
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Internet / www: infrastructural backbone allowing firms to
coordinate activities inside and outside the organization (go back to
value-chain diagrams: Intranet; Extranet; Internet - all use SAME
infrastructure and protocol: TCP/IP and Browser - simple, easy to
use and cheap! UNIVERSAL, well-understood, OPEN Standard).
Internet allows reduction of Transaction Costs [Coase, 1937]
• Searching for buyers and sellers
• Coordinating various transactional activities
• Negotiating and completing contractual aspects of transactions
• Reducing search costs (for all parties to transactions)
Allows for deconstruction and reconstruction of Value Chain
(business structure)
MAY allow development of NEW business structure [businesses
“born on the web” vs. “businesses that move to the web”]
Adrian Boucher, 2014
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Value Chain Streamlining
The University of
Birmingham
Human resource management
Corporate infrastructure
Technology development
product
margin
Procurement
customer
Inbound
logistics
Operations
Outbound
logistics
Marketing
and Sales
After-sales
service
service
margin
Porter, M E (1985)
Adrian Boucher, 2014
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Value Chain Deconstruction
The University of
Birmingham
Existing value-chain
Unfrozen value-chain
Business Process
Re-engineering of
each link in chain
Adrian Boucher, 2014
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Value-Chain Reconstruction
Re-engineered
deconstructed
value-chain
The University of
Birmingham
Enhanced Customer
Value
Reconstructed value-chain
Adrian Boucher, 2014
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Opportunities and Challenges
The University of
Birmingham
• Use Internet to develop competitive advantage by the ways
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they perform interconnected value-adding activities
Internet impacts not just on individual VC activities
Internet impacts on way VC is configured, and how its
component parts are integrated (especially across different
firms in industry value chain) - IOS
INFORMATION is the glue that holds the VC together
Internet is a powerful tool for ungluing and re-gluing the
chain (especially when linked in with BPR)
It is increasingly seen as important to ensure that VC is a
fully INTEGRATED as possible to deliver Customer value (e.g.
Dell; K-Mart; Cisco; SAP, etc) [Evans and Wurster (2000)]
Firm needs to deliver competitive advantage at least in part of
its VC [E&W]
Adrian Boucher, 2014
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How do we make the Transition?
The University of
Birmingham
• Need to define Objectives carefully
• Need to outline the hardware and software
technologies used to build an e-business
infrastructure within an organisation and with its
partners
• Need to outline the hardware and software
requirements necessary to enable employee
access to the Internet and hosting of
e-commerce services
• Need to think about future growth and
development (Scalability)
Adrian Boucher, 2014
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Management Issues
The University of
Birmingham
• What are the practical risks to the organization of
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failure to manage e-commerce infrastructure
adequately?
How should staff access to the Internet
be managed?
How do we manage security? (Later)
How do we defend our Systems?
What Threats are there for the e-business?
What Opportunities are there?
What Strengths do we have
What Weaknesses do we have?
Adrian Boucher, 2014
3-69
Typical Problems
The University of
Birmingham
• Web site communications too slow.
• Web site not available.
• Bugs on site through pages being unavailable or
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information typed in forms not being executed.
Ordered products not delivered on time.
E-mails not answered.
Customers’ privacy or trust is broken through
security problems such as credit cards being
stolen or addresses sold to other companies.
Website “hacked” or vandalised; “phishing”.
Adrian Boucher, 2014
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e-business Infrastructure
The University of
Birmingham
Adrian Boucher, 2014
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Key Management Issues for Infrastructure
The University of
Birmingham
Main Issue
Detail
What type of e-business
For example, supply-chain
applications do we develop? management (SCM),
e-procurement, secure online
ordering, Customer Relationship
Management (CRM)
Which technologies
do we use?
Adrian Boucher, 2014
For example, e-mail ordering, webbased ordering using EDI (or XML
solutions). The “cloud” or
conventional applications on PCs?
Windows, MacOS or Linux?
3-72
Key Management Issues for Infrastructure
The University of
Birmingham
Main Issue
Detail
How do we achieve Quality of Service (QOS)
in applications
Requirements: business fit, security, speed,
availability and errors
Where do we host applications?
Internal or external sourcing and hosting;
use of “the cloud”
Application Integration?
Integration of e-business solutions with:
legacy systems, partners’ systems, B2B
exchanges, etc
Which access platforms do we support?
Mobile access, Interactive HDTV
(e.g. CGI, Perl, Cold Fusion, ActiveX)
How do we manage content and data quality?
How are content and data updated so that
only one version of “the truth”
How do we manage employee access?
Staff may waste time, accessing non-business
information in firm’s time
How do we secure data?
Content and data may be deleted in error or
deliberately
Adrian Boucher, 2014
3-73
Physical and Network Components
The University of
Birmingham
Adrian Boucher, 2014
3-74
Network Infrastructure
Advances in the Dissemination of
Information
Adrian Boucher, 2014
Source: Chaffey (2011)
The University of
Birmingham
3-75
Netcraft Index of Servers
Adrian Boucher, 2014
The University of
Birmingham
3-76
Network Protection: Firewall
Adrian Boucher, 2014
The University of
Birmingham
3-77
Information Exchange: Client/Server
The University of
Birmingham
Adrian Boucher, 2014
3-78
How Does it Work? TCP/IP
Adrian Boucher, 2014
The University of
Birmingham
3-79
Web Page
Adrian Boucher, 2014
The University of
Birmingham
3-80
HTML of Web Page
Adrian Boucher, 2014
The University of
Birmingham
3-81
XML : What is it?
The University of
Birmingham
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http://www.w3schools.com/xml/default.asp
XML stands for EXtensible Markup Language
XML is a markup language much like HTML
XML was designed to carry data, not to display data
XML tags are not predefined. You may define your own tags
XML is designed to be self-descriptive
XML is a W3C Recommendation
XML is becoming UBIQUITOUS
XML and HTML were designed with different goals:
XML was designed to transport and store data, with focus on
what data is.
• HTML was designed to display data, with focus on how data
looks.
• XML allows websites to communicate in real-time and show
data as it changes in REAL TIME (great for EDI)
Adrian Boucher, 2014
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Media Standards
The University of
Birmingham
• GIF (Graphics Interchange Format)
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A graphics format and compression algorithm best
used for simple graphics
JPEG (Joint Photographics Experts Group)
A graphics format and compression algorithm best
used for photographs
Streaming media. Sound and video that can be
experienced within a web browser before the whole
clip is downloaded e.g. Real Networks .rm format
Video standards include MPEG and .AVI
Sound standards include MP3 and WMA
Adrian Boucher, 2014
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Use of Applications in e-business
The University of
Birmingham
Adrian Boucher, 2014
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Management of Applications
Adrian Boucher, 2014
The University of
Birmingham
3-85
Changing Strategies: Revenue Models
The University of
Birmingham
• Companies need to change Revenue Models:
• To meet needs of new and changing web users
• Create e-commerce website(s)
• Some companies changed model or went bust
• Lengthy unprofitable growth phases
• Issues:
• Channel conflict – web sales affect existing
sales sites, upsets distributors, retailers, etc
• Channel elimination – DISINTERMEDIATION
• e.g. Dell Computer
Adrian Boucher, 2014
3-86
Changing Strategies (2)
The University of
Birmingham
• Strategic Alliances:
• Two or more companies join forces – undertake activities
over long time e.g. amazon.com – joined with Target,
many smaller companies and independent agents
(Affiliates)
• Luxury Goods:
• Difficult to sell online – Customers want to see product
and touch, wear
• Overcome by limiting online offerings – Chanel,
Tiffany, Calvin Klein
• Overstock Strategies: Physical Stores replaced with
online overstock sales – greater reach, frequent updates,
lower prices, etc. Use of SNS (social marketing, WOM)
Adrian Boucher, 2014
3-87
Create Effective Presence
The University of
Birmingham
• Organization’s PRESENCE: public image
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conveyed to stakeholders, important once achieve
significant size and market “presence”
STAKEHOLDERS: Customers, suppliers, allies,
employees, shareholders, community
EFFECTIVE web presence: Critical even for the
smallest and newest online businesses
Business Physical space: FOCUS – very specific
objectives; must satisfy business needs; “deliver”
Online Business Site: Intentionally create
distinctive presence; GOOD DESIGN ESSENTIAL
Adrian Boucher, 2014
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Web Objectives and Strategies
Adrian Boucher, 2014
The University of
Birmingham
3-89
Website Usability
The University of
Birmingham
• Current Web presences
• Few businesses accomplish all goals
• Most fail to provide visitors sufficient interactive
contact opportunities
• Improving Web presence
• Accessible to more people
• Easier to use
• Encourage visitors’ trust
• Foster feelings of loyalty toward the
organization
• “Overdeliver”: DELIGHT the Customer
Adrian Boucher, 2014
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Meeting Visitors’ Needs
The University of
Birmingham
• Successful Web businesses:
• Realize every visitor is a potential customer (partner)
• Varied motivations of Web site visitors
• Why visitors arrive at Web sites
• Learning about company products or services
• Buying products or services
• Obtaining warranty, service, and repair policy
information
• Obtaining general company information
• Obtaining financial information
• Identifying people
• Obtaining contact information
• Following a link into the site while searching for
information about a related product, service, or topic
• Challenge to meet all motivations
• Visitors arrive with different needs, experience, and
expectation levels
Adrian Boucher, 2014
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Meeting Visitors’ Needs (2)
The University of
Birmingham
• Making Web sites accessible
• Build interface flexibility options
• Text-only version
• W3C Accessibility Initiative site offers useful links
regarding disabilities
• Selection of smaller graphic images
• Choice of streaming media connection type
• User-specified information attributes
• Controversial Web site design issues
• Adobe Flash software use
• Some tasks lend themselves to animated Web
pages
• Offer multiple information formats
• Consider goals in Web site construction
Adrian Boucher, 2014
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Business Sites Requirements
Adrian Boucher, 2014
The University of
Birmingham
3-93
Trust and Loyalty
The University of
Birmingham
• ABSOLUTELY CRITICAL
• Creates relationship value
• Sustained good service leads to trust in seller
• Delivery, order handling, help selecting product, and
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after-sale support
Repeated satisfactory service builds customer loyalty
Excellent Service gets communicated widely (WOM)
Unfortunately, so does poor service
Customer service in electronic commerce sites
• Weaknesses
• Lack of integration between call centres and Web sites
• Poor e-mail responsiveness
Adrian Boucher, 2014
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Usability Testing
The University of
Birmingham
• Widely-Rrecognised importance of usability testing
• Usability testing: owner testing/evaluation of site to
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ensure site’s ease of use by visitors
Web Design is CRITICAL to SUCCESS
Avoids Web site frustration (difficulty and confusion)
• Customers leave site without buying anything
Simple site usability changes
• Include telephone contact information
• Staff a call centre
Learn about visitor needs by conducting focus groups
Usability testing cost
• Low compared to Web site design costs
Adrian Boucher, 2014
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Customer-Centric Design
The University of
Birmingham
• Important part of successful electronic business
operation
• Focus on meeting all site visitors’ needs
• Customer-centric approach
• Putting customer at centre of all site designs
• Follow guidelines and recommendations
• Make visitors’ Web experiences more
efficient, effective, memorable
• Give special considerations for mobile
devices – increasingly common and growing
in importance (with 4G)
• Provide substantial “content for your click”
Adrian Boucher, 2014
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Web Communication
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The University of
Birmingham
Communication modes
• Personal contact (prospecting) model
• Individually search for, qualify, and contact potential
customers
• Mass media
• Deliver messages by broadcasting
• Addressable media
• Advertising efforts directed to known addressee
Internet medium
• Occupies central space in medium choice continuum
Modes:
• Mass media: one-to-many communication model
• Seller is active; buyer is passive
• Personal contact: one-to-one communication model
• Web: one-to-one, many-to-one, and many-to-many
communication models
• Buyer as active participant in determining length, depth, and
scope of search
Adrian Boucher, 2014
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Section Summary (1)
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The University of
Birmingham
Strategic Choices
• Cost-Leadership
• Differentiation
• Niche Player
Organizational Structure: “Structure follows Strategy”
(Chandler, 1962) vs. “Strategy follows Structure”
• Forms of Organizational Structure: Virtual Organization;
Platform Company (increasingly common – outsourcing)
Business Models:
• B2C (relatively simple)
• B2B (much more complex)
Value Creation: Key to Competitive Advantage
Value Chain and Supply Chain - useful frameworks for
analysis and Performance Improvement
Adrian Boucher, 2014
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Section Summary (2)
The University of
Birmingham
• Introduced some aspects of Internet and www
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infrastructure (NB Internet and Web are NOT the
same; www developed in 1993; Internet dates from
1960s)
Considered some of the issues that require
management in migrating to e-business
Looked at some Management issues in e-business
Brief overview of how the web works (more online)
Use of Standards – Internet / www use TCP/IP
which are interoperable and inexpensive
Importance of understanding how www differs
from offline communication and sales.
Adrian Boucher, 2014
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