E-Business Strategy: Topic 1: e-Business Introduction
In 1999 and the beginning of 2000, billions of dollars of venture capital were poured into enterprises promising to create a new economic future using e-business models. By the end of 2000, the majority of capital that had been sunk into the 'new economy' in 1999 had vanished.
The dot-com bubble (or sometimes IT bubble or Internet bubble) was a speculative bubble covering roughly 1999–2000 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52, rising from about 1500 the year before) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields, and then dropping to c1000. It is currently about 1700.
The dot-com model was inherently flawed: a vast number of companies all had the same business plan of monopolizing their respective sectors through network effects, and it was clear that even if the plan were sound, there could only be one network-effects winner in each sector, and therefore that most companies with this business plan would fail.
Some major failures:
1998–2000 Pets.com IPO* $82.5M No fundamental reason for consumers to buy pet supplies online. Delivery times too long compared with buying at local store. Had to subsidise shipment to stay competitive. Collapsed 9 months after IPO.
1998–2000 Boo.com Public $160M. UK online fashion retailer. Slow, complicated website. Failed to allow for complexities of multi-country tax systems, pricing and languages. Fell badly short of sales targets. Closed.
1998–2001 Go.com Private A Disney portal destination site. $790M Quirky, but never really popular. Investment written off. Still exists but only feeds from selected Disney sources.
But... at the same time Google has built a US$80 billion business in ten years and has done so with no advertising. Red Hat was barely started in this period; in 1998 it had ~35 staff, and an income of a $10M. Now it has 3,700 staff and is a billion dollar company.
Although strategy concerns itself with high-level decision-making, we will be focusing on how to ensure that recommendations and decisions are realistic and actionable, rather than mere 'fine theory'.
Defining e-business strategy
1. Business: The operational activities and processes that occur in an attempt to achieve an organisation's goals.
2. e- (electronic) Computer-mediated. That is, we are talking about business activities and processes that are conducted or facilitated by computer technologies.
3. Strategy. A plan of action or policy designed to achieve a major or overall aim.
In the 1990s, enterprise resource planning (ERP) was at the forefront of many e-business strategies. ERPs were the first management information systems to computerise a diverse set of business functions in an integrated way. In the late 1990s, customer relationship management (CRM) became the e-business strategy of choice.
Supply chain management (SCM) is another area where software and service vendors have made big promises. Results for enterprises are mixed, and many solutions are still experiencing growing pains, although not all solutions are problematic. For example, RFID (radio-frequency identification [tags]) is a rapidly growing application in SCM, helping organisations easily identify products and shipments.
e-Business strategy in practice
A framework for decision-making and action—the e-business strategy framework. The framework has four fundamental stages as shown
Stage 1. Strategic planning
Strategic planning involves contextual high-level analysis that may make use of management tools such as Porter's Five Forces, SWOT, PEST, Scenario, Gap, Scouting, Problem Inventory and other analyses. A fundamental difference from 'regular' business strategy is that electronic technology capabilities are often a key driver of the need or opportunity for strategy.
Stage 2. Systems design
Strategic objectives are translated into practical project designs and plans. Electronic technology capabilities are matched with the objectives. Costs, timeframes and resource requirements are determined, and the results assessed against the strategic requirements. Key criteria include involving stakeholders to generate buy-in, and payoff and risk analysis, before implementation can be authorised.
Stage 3. Implementation
The specific plan developed in Stage 2 is executed. Key issues here are that you continue to involve stakeholders and to aim for early wins rather than a nothing-to-everything 'big bang' deployment of every bell and whistle simultaneously. It is also imperative to ensure that people involved in using the system have adequate training before it goes live.
Stage 4. Performance management
The project needs to be assessed against the original project plans for specification, time and budget compliance. Most importantly, you must measure the business performance of the strategic initiative in action
Delivering value is the key goal of e-business—or any business for that matter. Value creation can occur anywhere along the value chain. .... Michael E. Porter's value chain model, first published in 1985. The model sparked a radical change in management thinking when it was released and has been used extensively in business ever since.
Saarinen et al. (2006) make a strong case for properly managing business in such a multi-channel world, where supply chains are now mediated by a growing number of delivery channels and methods. They suggest that building a successful multi-channel e-business requires: customer focus and utility, maturity of technology and services, developing the business model, networking and outsourcing.
Improved service levels, Increased access to information, Mass customisation, Increased process transparency, Increased job flexibility, Reduced transaction processing, Easier administration, Knowledge management, Skill improvement, Reduced transaction costs, Greater integration with supply chain, Improved processing, Improved returns, Greater transparency of information, Reduced customer acquisition costs, Increased customer retention, Increased customer value over time, Improved system flows, Better research.
There are undoubtedly many risks associated with e-business. Consider the broad categories of risks with regards to the four-stage e-business strategy framework:
1. No strategy or wrong strategy
Any enterprise has risks associated with ignoring e-business opportunities and staying with old traditional methods of doing business. There are also risks in actually moving to a new or updated e-business platform. The strategy may be off course for various reasons. It may fail to take into account the latest competitive activities of others. Strategies must fill a real need or desire held by customers and other stakeholders, and it may be necessary to conduct market research to determine the potential level of support before making an investment.
2. Poor translation of strategy into design
There are significant risks in the translation of e-business strategy into system designs that can be implemented in practice. Larger projects with extended timelines can mean that an initial design becomes obsolete before it is deployed. Some designs must attempt to bridge the gap between archaic legacy systems and new leading edge systems, with the potential for a complex and unreliable fit. Others may appear technically neat and clever, but fail to deliver well on the value expected in the strategy statement.
3. Poor implementation
Many projects are implemented by personnel who have not undertaken such a project before. Partly by definition, e-business initiatives tend to be new. The more leading edge (i.e. unproven) the technology is, the greater the risk—and the potential rewards.
4. Failing to measure performance
It has been said that you shouldn't do what you can't measure. Any e-business initiative needs at least two major forms of measurement. Measuring the project itself—according to the project triangle of time, budget and specifications and measuring the quantitative and qualitative business outcomes expected of the initiative.
Implications for managers
Most make the mistake of confusing e-business with e-commerce, and further muddy the waters by assuming the Internet is the sole tool for its implementation. e-Business is a much broader concept than this. It encompasses any computer-mediated initiatives designed to deliver value to one or more stakeholders.
1) Business strategy overarches e-business strategy, although they are strongly interlinked because technology can alter existing or create new operating models and therefore influence-business strategy.
2) e-Business strategy is not just about new technology. Other factors, especially wider business networks can play a far more powerful role in strategy than the technology alone.
3) Integration is key. The majority of e-business initiatives will be deployed using newer technologies but will be connected to legacy back office systems.
4) Consider a wide range of stakeholders for any initiative.
5) For any approved strategy other than the simplest, plan to implement the solution in stages.
As strategist Michael Porter noted in discussing the effect of the Internet on strategy (Porter, 2001), "When seen with fresh eyes, it becomes clear that the Internet is not necessarily a blessing. It tends to alter industry structures in ways that dampen overall profitability, and it has a leveling effect on business practices, reducing the ability of any company to establish an operational advantage that can be sustained".
Nota bene: Perhaps Michael Porter is anti-Internet because it reduces the prospect of monopolistic advantage.