E-Business Strategy Topic 2: e-Business in practice
e-Commerce is a type or component of e-business activity. To recap, e-commerce is the use of electronic systems for buying, marketing and selling of goods and services. e-Business, on the other hand, encompasses all the plans, policies and actions designed to achieve major organisational goals through computer mediation - which these days often, though not always, uses the Internet in some way.
The expected benefits of such initiatives may include both tangible and intangible outcomes. Tangible benefits usually reduce to—directly or indirectly—either or both (a) an increase in revenues, and (b) a reduction in costs. Tangible benefits can usually be measured in quantitative numeric performance terms. Intangible benefits can have a number of surrogate measures, some of which can be translated into revenue and cost indicators, while others cannot.
Four sources of value
There are four strategic sources of value in e-business (Amit & Zott 2001). All strategies are based on one or more of these sources.
Novelty, Efficiency, Lock-In and Complementaries
Efficiency includes an organisation's ability to reduce operational costs (e.g. transaction costs), as well as to provide greater speed, relevance and accuracy (e.g. making searches by customers faster, easier and more useful).
Complementaries occur when offering a bundle of products together provides more value than the total value of each of the separate products. Complementary offerings may be vertical (e.g. after-sales service, digital photo printing for a digital camera) or horizontal (e.g. memory card, extra battery and carry case for a digital camera).
Value is enhanced when customer repeat purchasing is maximised. Repeat purchasing can be increased by not only making attractive product offerings, but also by attempting to lock in the customer, minimising the likelihood that customers will migrate to competitors.
Nota bene: Lockin is an anti-productive damaged goods, that reduces wealth. Instead build loyalty, trust, personalistion, and in general helpfullness etc.
There can be substantial first-mover advantages for e-business innovators. First movers can gain strong publicity, as well as generate a critical mass of suppliers and customers before others do.
When considering sources of value, managers need to assess building blocks. Anderson et al. (2006) outline the building blocks of a successful customer value proposition. Firstly, an enterprise needs points of parity—elements that are essentially the same as the competitors'. These are necessary, but not sufficient, customer behaviour (i.e. purchase) drivers. Secondly, an enterprise needs to offer points of difference—elements that make the firm's offering superior to competitors'. Thirdly, there are points of contention—elements about which the firm and its customers disagree regarding functionality and performance, relative to competitors'. The strategy for the enterprise is to maintain points of parity, develop and emphasise points of difference, and resolve points of contention.
Knowledge management (KM) is central to the operation of any enterprise. Capturing, storing, organising, and delivering enterprise knowledge brings many benefits, and e-business initiatives can both reduce costs and greatly increase effectiveness. Key value propositions are Reducing knowledge costs and Improve effectiveness
Empirical evidence clearly shows that use of Porter's (1985) value chain model in strategic planning adds significant value to an enterprise. However, unlike the conventional value chain model, in the e-business value chain model there is no effective difference between inbound and outbound logistics, because one is integrated with the other in practice (Koh & Nam 2005). For this reason, rather than considering e-procurement, supply chain management (e-SCM) and demand chain management (e-DCM) separately, we discuss them as an integrated set of systems and activities.
Key value propositions are Reduce purchasing costs, Improve supplier performance, Minimise logistics costs, Increase value to customers and business
e-Marketing and e-sales—central components of e-commerce—are key organisational activities. They help bring revenues into the organisation (whereas most other business activities take monetary value out of the organisation). Marketing and sales projects are often the first to be e-implemented in many organisations for this reason. Key value propositions are Attract new customers, Retain customers and gain larger wallet share, Reduce marketing costs.
Customer relationship management (CRM) is the cross-functional management of ongoing relationships with individual customers in an integrated and knowledgeable way to maximise the profitability of each customer. Because of the cross-functional and knowledge-intensive nature of CRM, it lends itself very well to e-business initiatives. Key value propositions are Increase service and other revenues, Reduce costs of service, Offer better service
Mobile business, or m-business, provides added value for personnel, customers, products and vehicles on the move. Rather than representing a separate business function, m-business brings immediacy and flexibility to existing business processes. Key value propositions are Improve support functions, Increase sales performance, Enhance logistics efficiency. There are many opportunities to improve organisational performance through human resource management (HRM)-based e-business initiatives. Recruiting, training and retaining high-performing personnel are key areas that help underpin improved organisational performance. Key value propositions are Better support to management throughout the business, Improved organisational collaboration and learning , Reduced administrative costs, A happier workforce
While the number and type of risks can sometimes seem almost countless in practice, Deise et al. (2000) reduce the complexity to fifteen common e-business risks along three main dimensions: strategic risk, financial risk and operational risk. All e-business risks carry some combination of these three dimensions.
Implications for managers
Effective managers keep themselves up to date with the wider range of initiatives that are being used by organisations to deliver enhanced value.
Identifying the broad kinds of e-business initiatives that can help increase value at one or more points of the value chain.
Using the four strategic sources of value—efficiency, complementarities, lock-in and novelty—to help formulate the most powerful e-business strategies for the enterprise.
Maximising value though leveraging its special characteristics in a highly networked world.
Identifying the relevant key value propositions for each functional area of the enterprise, and selecting appropriate e-business initiatives to meet the value objectives.
Understanding and managing the key business risks that are likely to arise in strategy, finance and operations.