Strategy and EBusiness

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Strategy and E-Business Dr. Ronan McIvor 2007.
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The Internet and Corporate Strategy

• Essential questions
• Who will capture the economic benefits that the
  Internet creates?
• Will all the value end up going to customers?
• Will companies be able to share the value?
• How will the Internet impact industry structure?
• Will it increase or reduce the profitability?
• How will it impact business strategy?
• Will the Internet support or erode the ability of
  companies to gain sustainable competitive
  advantage?

Adapted from Porter, 2001
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Why should organisations use the Internet?

• Large companies in particular already computers,
  networks and bandwidth
• Potential cost savings
• Network economic effects
• Many business transactions already conducted at a
  distance
• Opportunities for close alliances.

Coltman et al., 2001
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Reach

• Access and connection
• the number of customers a business can connect
  with
• the number of products it can offer to those
  customers.
• Unconstrained by physical limitations - Reach
  explodes !
• Example Navigation function (catalogue)
  separated from physical function (inventory).

Evans and Wurster, 1999
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Implications of Reach

• Unstable business boundaries
• Suppliers - bypass retailers and build
  relationship with end consumer
• Large suppliers - lose control of navigation and
  sources of differentiation
• Must achieve the reach that the buyer values.

Evans and Wurster, 1999
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Richness

• Two dimensions
• Depth and detail of information that the business
  can give the customer
• Depth and detail of information that it collects
  about the customer

Evans and Wurster, 1999
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Richness

• Rich Customer Information
• Opportunity for rich customer information
• Example - browsing behaviour, purchase history
  demographics etc.
• Integrate information from a variety of sources
• Potential barriers
• Privacy constraints
• Consumer can search for and organise information.

Evans and Wurster, 1999
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Affiliation

• Affiliation - whose interests the business
  represents
• Navigators - opportunity to affiliate with
  customers
• Consumer given greater variety and
  sophistication
• Rich information from wide-reaching sources at
  negligible costs
• Meta Navigators - use technologies that compare
  multiple electronic retailers
• Supplier industries - greatest difficulty with
  controlling navigation.

Evans and Wurster, 1999
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How is e-business different?

• Reduction in physical boundaries and distance
• Serve larger customer base more efficiently
• Target specific customer groups
• The Internet is an interactive marketing medium
• More detailed information on customer
  transactions and
• Improved transaction efficiency.

Kim et al., 2004
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Communications Types
C5
C1
O
Content
M
M
C4
Content
C4
Internet Medium
Content
M
M
M
Content
M
C2
O
C3
O
O
Many-to-many communications via the Internet
medium
O - Organisation M - Communicating Message C -
Customers
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Contrast with Conventional Marketing
a many-to-many mediated communications model in
which consumers can interact with the medium,
firms can provide content to the medium and, in
the most radical departure from traditional
marketing environments, consumers can provide
commercially oriented content to the
medium. Hoffman Novak, 1997
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What hasnt changed

• The myth of lower cost and price
• Firms must have viable business models
• Implications for physical activities in the value
  chain
• Internet firms do not always offer lower prices
• Security and privacy concerns and
• The Internet only changes the customer interface
  (Porter, 2001).

Kim et al., 2004
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How the Internet Influences Industry Structure
Porter, 2001
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Evolution of Strategy Thinking

• 70s early 80s - industry structure considered
  to be primary determinant of profit e.g. Porter
  (1980)
• Late 80s 90s - emphasis on resources internal
  to firm as principal driver of profit and
  strategic advantage e.g. Barney (1986) Prahalad
  Hamel (1990)
• Recently - shift from focus on tangible resources
  to intangible resources as a source of strategic
  advantage e.g. knowledge, core competence and
  learning.

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Implications of the Internet

• Rapid change in technology
• More powerful and sophisticated customer
• Blurring of industry boundaries - i.e. industry
  convergence
• Reaction to change a source of strategic
  advantage
• Worst case - impact of Internet challenges the
  value of strategy thinking such as industry
  analysis etc.

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Sources of Value Creation in E-Business
Amit and Zott, 2001
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Value Creation in the Air Transport Offering
McIvor et al., 2002
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Implications of the Internet for the Business
Network

• Value chains will fragment into multiple
  businesses
• Some businesses will benefit from network
  economies of scale
• New opportunities will arise for purely physical
  businesses
• Value proposition underlying brand identity will
  change
• New branding opportunities for third parties that
  neither produce a product or deliver a primary
  service
• Shifts in bargaining power
• Customer switching costs will be reduced
• Incumbents - victims of their obsolete physical
  infrastructures and their own psychology.

Evans and Wurster, 1997
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Misconceptions associated with the Internet

• Overestimating first-mover advantage
• Unintentionally diluting fit in the pursuit of
  reach
• Unintentionally sacrificing focus in the desire
  to offer customer solutions
• Ignoring Internet-sector differences
• Relying unguardedly on partner leverage
• Going global prematurely and
• Treating technology as strategy.

Rangan and Adner, 2001
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Advantages and Challenges for Clicks-and-Bricks
Firms

• Advantages
• Brand recognition, reputation and credibility
• Can offer product returns via physical
  storefronts
• Higher performance via combining online and
  offline activities
• Cost reduction e.g. online order processing and
  bulk deliveries to local inventory locations and
• In many cases, the Internet is a source of
  product and service information.
• Challenges
• Difficulties of integrating online and physical
  activities and
• Old economy firms have difficulties with
  Internet strategies.

Kim et al., 2004