Competitive Advantage in the Digital Economy0

8/3/2019 Competitive Advantage in the Digital Economy0

http://slidepdf.com/reader/full/competitive-advantage-in-the-digital-economy0 1/62

Competitive Advantage in thedigital economy



The internet is emerging as acritical backbone of commerce.

The potential functionality of theweb is broad and varied

Content

Customer service

Seamless service

Developing „communities‟

The internet is an enabling

technology



The value of eCommerce

Improvements in efficiency

In the B2C market cost reduction is dramatic:

Business cost of atypical banking

transaction

Business cost of atravel reservation

Business cost of abrokerage transaction

Branch: $1.07 Travel

Agent

$10.00

Full-service

Broker$150.00

ATM: $0.27

Discountbroker $69.00

Internet $0.01 Online $2.00

Onlinebroker $10.00



The value of eCommerce

B2B segment – opportunities toreduce costs and increase profits. Immediate return on investment –

reduced cycles times and channel costs Significant new revenue sources –

ability to expand quickly into newmarkets – overseas - niche

Preferred vendor status, achievedthrough ease of interaction & B2Bprocess integration



Transforming the value chain

eEconomy is redefining valuecreation across the spectrum.

The Enterprise: value creationbegins at this level

Strategy: an e-enlightened strategy

Technology: Internet enabled

Process: virtualised or “e” processes.

People: an “e” enabled workforce



Value creation

The extended enterprise:

Value creation also extends outside of the enterprise to relationships withcustomers and suppliers

The extended enterprise will find newopportunities in:

Product/service innovation

More powerful & efficient channels

Customer relationships



Industry, markets, economictransformation

As extended enterprises cooperateand collaborate, the traditionalboundaries are blurring.

eCommerce is reshaping allindustries and markets – the entireeconomy.



What does this mean fororganisations?

Organisations need to look beyondtheir traditional boundaries.

Need to consider collaborationwithin and across industries.

Move from a single company/singleindustry mindset to multi-company

collaboration across industries



Competitive Advantage

Establishing a profitable andsustainable position against theforces that determine industrycompetition.

Has become more difficult tosustain an advantage for an

extended period.



Porter’s Competitive Forces model

and strategies

Well known model for analysingcompetitiveness.

Used to develop strategies forcompanies to increase theircompetitive edge.

Demonstrates how I.T. can enhance

the competitiveness of corporations.





Porter’s Five Forces

The structural attractiveness of anindustry is determined by thesefive underlying forces of competition.

Analysing the forces illuminates anindustry‟s fundamental

attractiveness. The strength of the five forces will

differ between industries.



Porters Five Forces

http://video.google.com/videosearch?hl=en&rlz=1W1SNYK_en&q=porters+competitive+forces+model&um=1&ie=UTF-8&ei=xZvHSbW_J-TGjAfw9oiGCw&sa=X&oi=video_result_group&resnum=4&ct=title#

http://video.google.com/videosearch?hl=en&rlz=1W1SNYK_en&q=porters+competitive+forces+model&um=1&ie=UTF-8&ei=xZvHSbW_J-TGjAfw9oiGCw&sa=X&oi=video_result_group&resnum=4&ct=title

















Threat of Substitute products

By making the overall industrymore efficient, the internet canexpand the size of the market.

Negative: it also creates newsubstitutes



Bargaining power of channels &

end users

Eliminates powerful channels orimproves bargaining power overtraditional channels.

Shifts bargaining power to endconsumers.

Reduces switching costs.



Barriers to entry

Reduces barriers to entry such asthe need for sales force, access tochannels, and physical assets – anything that internet technologyeliminates or makes easier to doreduces barriers to entry.

Internet applications are difficult tokeep proprietary from new entrants.

A flood of new entrants has come

into many industries.



Bargaining power of suppliers

Procurement over the internet tendsto raise the bargaining power oversuppliers – but it can also givesuppliers access to more customers.

The internet provides a channel forsuppliers to reach end users

reducing the leverage of interveningusers.



Rivalry among existing competitors

Reduces differences amongcompetitors as offerings are difficultto keep proprietary.

Migrates competition to price.

Increases the numbers of competitors by widening the

geographic market.



Strategies to sustain a position

against these forces

Cost Leadership – online retailing

Lowest cost

Difficult to sustain – price wars

Budget Travel, Ryanair Differentiation

Be unique

Quality – Rosenbluth International, a travel agent

http://www.rvacations.com/ Focus

Narrow scope segment and achieve either costleadership or differentiation – opportunity forcustomisation

http://www.rvacations.com/

http://www.rvacations.com/



Additional strategies

Growth: acquire market share, web basedselling can support this

Alliances: Work with business partners –

synergy and opportunities for growth.Particularly popular in ecommerceventures.

Innovation: New products & services and

new ways to produce them: involve thecustomer (Web 2.0 – participation) alsoreverse electronic auctions.



Additional strategies

Improve internal efficiencies

Reduce costs and improve quality.Web-based systems improve

administrative efficiency twenty tothirty fold.

Customer oriented approaches &

CRM Make the customer happy – Web-based

systems are particularly effective – personalised, one-to-one relationships.



Strategies

These strategies are usuallyinterrelated e.g. Innovations areachieved through alliances, orthrough getting closer to thecustomer.

Cost leadership may increase

customer satisfaction and lead togrowth.



Defending against the Five Forces

Intranets: internal efficiencies

Extranets: a private network that securelyshares part of an organization's information

or operations with suppliers, vendors,partners, customers or other businesses.

Shrink processing and order time as wellas costs – increase profitability and the

desire for suppliers to work together – reduce bargaining power of suppliers.

Provide customers with freesoftware & other computer services:

Reduce customers bargaining power



Defending against the Five Forces

Frequent flyer/buyer programs inairlines, hotels, restaurants etc.

Increase loyalty – switching costs

Intense competition from Rivals – use web to get closer to thecustomer



Value Chain Analysis

Part of the larger stream of activities, whichPorter calls a value system.

Analyse internal operations to increase

efficiency, effectiveness andcompetitiveness.

Identify how IT can provide support – addvalue

Can be used for an individual company oran industry.

Value systems seek to span multiplegroups and organisations to create benefits

for BOTH intermediaries and end-customers



Porter’s (2001) Value Chain

IT can

create or enhance product features:customisation

Increase switching costs: increaseloyalty

Contribute to internal efficiency

Organisational efficiency – businesspartnerships creating synergy andinnovation.

Can create new business models –

reverse auctions, „fee for service‟ instead of traditional commissions



Tourism Supply Chain

Management

Ref: Xinyan Zhang, Haiyan Song,George Q. Huang (2009)

Available on webcourses



Supply Chain Management &

Tourism

Highly competitive environment hasforced tourism firms to look for ways toenhance their competitive advantage.

Considerable growth in theimplementation of new informationtechnologies and the development of

new commercial formats such aseTourism.

Also - effective tourism supply chainmanagement (TSCM).



TSCM

Can be referred to as a set of approachesutilized to efficiently manage the operationsof the tourism supply chain (TSC) within a

specific tourism destination to meet theneeds of tourists from the targeted sourcemarket(s) and accomplish the businessobjectives of different enterprises withinthe TSC.

The TSCM philosophy requires movingaway from arms-length relationshipstoward coordination across organizationsthroughout a TSC.



TSCM

Tourism – an amalgamation of products and services.

Often viewed as value added chains of different service components that formservice networks.

Therefore, identifying ways to manage

these networks is vital, especially fortourism firms that are keen tomaintain a competitive advantage overtheir equally efficient rivals



TSCM

Moving away from just looking atpromotional and marketingactivities – distribution side.

To focusing on the supply side -supply networks involving inter-firmrelationships and product

development. Collaboration, co-operation and co-

opetition



Why focus on the Supply Chain?

Extent of competitiveness has seen a moveaway from focusing on the individualorganisation.

To focusing on the network of enterprisesthat are engaged in different functions,ranging from the supply of raw materialsthrough the production and delivery of endproducts to target customers.

Can also focus on the destination

http://www.amadeus.com/us/x194133.html





Defining the supply chain

A simple three stage approach

strategic,

tactical, and

operational



Strategic level

decisions concerning long-termissues such as:

Demand planning,

strategic alliances,http://www.britishairways.com/travel/airline-alliances/public/en_gb

new product development,

outsourcing,

supplier selection,

pricing, and

network configuration decisions.

http://www.britishairways.com/travel/airline-alliances/public/en_gb








Tactical Level

Involves medium-term decisionssuch as:

inventory control,

production/distribution coordination

material handling, and

equipment selection.



Operational Level

Concerns weekly or daily eventssuch as:

vehicle scheduling,

routing,

workforce allocation, and

process planning.



Typical tourism value chain

A traditional tourism value chainconsists of broadly four components:

1. the tourism supplier,

2. tour operator,

3. travel agent and

4. customer,

which are in a single linked chain.

IT has influenced this – opportunitiesto shorten the chain



Tourism Supply Chain

Tourism supply chains involve manycomponents - not justaccommodation, transport andexcursions, but also bars andrestaurants, handicrafts, foodproduction, waste disposal, and the

infrastructure that supports tourismin destinations.



COLLABORATIV

OPERATIVRELATIONSH



TSCM

Supply chains operate throughbusiness-to-business relationships,and supply chain managementdelivers

sustainability,

performance improvements alongside

financial performance,by working to improve the businessoperations of each supplier in the supplychain.



TSCM

These all form a part of the holidayproduct that is expected by tourists

Just as no tour operator wouldprovide 1-star transport to takecustomers to a 5-star holiday hotel,the sustainability of a holiday, like

quality, depends on theperformance of all the links in thetourism supply chain.



E-value chain

Define service direction

Define value elements (essentialcomponents)

Opportunities for value creation -synergies



Internal e-value supply chain

Define concept for web sitedevelopment

Design web-based tourist decisionmaking process

Design e-travel data flow withinweb site and organization

Information management with webdatabase system.



External e-supply chain

Define e-travel alliances/networks

Define joint e-travel activities

Define commission/price Information sharing with web

database system

Networking based on secure system



E-value - networks

Forming networks that coordinate much of their business through the virtual marketplace.

Interdependence between tourism firms within

a destination. Based on complementary product, e.g.,

activities, accommodation, transport and food,

Clients are referred from one organisation to

another to provide a comprehensive touristexperience



Opodo, formed in November 2001,is an online airline collaborationcreated by Air France, Aer Lingus,

Alitalia, Austrian Airlines, BA,Lufthansa, Finnair, Iberia and KLM.

Orbitz, is a collaboration

between American, Continental,Delta, Northwest and Unitedairlines.



Though the collaborators are directlycompeting against one another, byforming a multi-company alliance

they are able to maintain a greateronline presence in the face of otheronline opposition. They also have thebrand power that emanates from acollaborative marketing approach.



lastminute.com in January 2002 establisheda joint venture with Kinki Nippon Tourist,Nippon Travel Agency and MitsubishiCorporation/MC Capital Fund to launch the

brand in Japan. Similarly, in March 2002 Travelocity forged

a collaboration with 17 Japanese airlines, tolaunch tabini.com in Japan.

A collaborative approach also allowed thereverse auction e-mediary, Priceline.com,to access the Hong Kong market.



Chain effects

Easy approach and search forinformation

Cutomisation e-travel arrangement

Real - time quotation

Real - time confirmation

Real - time secure payment

Internal/External tracking/controlling



eTravel Success factors

Speed (Real-time/Interactive)

Integration Customisation

Tracking capability



E-Value

SMEs that exclude themselves fromthese linkages can end updisadvantaged as such inter-firm

connections often results in marketvisibility and strategic leverage.



Benefits

Reduce competition andgenerate barriers to entry

New market opportunities

Increased speed of marketentry

More efficient distributionand transactionalprocesses

Technological synergies Shared risk

Resource sharing

Costs

Partner conflicts andcompromises

Lack of trust

Over-dependence onpartners

Cultural differences

Loss of a degree of independent control

Partner domination Industry inertia

Channel cannibalisation

Managing a diversity of partners



Future Approaches

Networks of partners



Virtual Clustering

There is increasing evidence that theperformance of existing enterprises issignificantly improved by clustering.

By networking and sharing knowledge,small firms are able to compete for andaccess specialised resources andinformation systems as well as internalisecompetencies and assets that typically areinternalised by large firms with economiesof scale

Clustering can provide competitiveadvantages and benefits to small firms that

would not be available without clustering



Virtual Clustering

Clusters and networks are interdependent,whereby small business network structuresunderpin the growth and sustainability of

clusters. Horizontal Cluster: Same sector e.g. Hotels

Vertical cluster: supply chain members suchas suppliers, consumers and related services.

Diagonal: concentration of complementary orsymbiotic activities, whereby each firm addsvalue to the other (even though their productsmay be quite different), thus creating a valuechain.



Virtual Clustering

Virtual clusters – geographiclocation is of no relevance.

Technology provides a base forcollaboration and co-operation

Opportunity for developingcompetitive advantage



E-Value

Diagonal integration and value adding ismade possible through ICT-based

marketing and destination portals. e-marketplaces can perform a number

of functionalities, ranging fromprocurement to customer relations and

knowledge management, to supplychain and value chain management.



Challenges

Embracing ICT and technology isstill a complex process for SMEs.

A technology-driven initiative mayleave some operators with no senseof belonging and no perceivedsense of value in (virtual) clustering

(Braun, 2004, 2002). Trust is critical



Challenges

According to Porter‟s (2001) view of competitive advantage, the vitalityand competitiveness of destinations

is essentially linked to thecompetitiveness of individual firms.

Individual tourism SMEs often lack

the required skill base and do nothave a strategic grasp of whole-of-destination value creation



Challenges

While connectivity has the potential toincrease regionally based tourism SMEs‟ visibility in the market place, small tourism

enterprises have been facing difficultiesembracing ICT and e-commerce.

The uptake of technology has not been apriority for many small tourism firms.

Micro and small tourism enterprisesgenerally consider themselves outside thetourism value chain, despite the fact thatmost of their customers are tourists



eValue

New technologies have influenced the supplychain -the web is considered an important newdistribution channel,

Due to prevailing GDS make-up and the slowuptake of ICT, many small tourism operatorshave continued to rely on traditional supplychains for market exposure.

Considering that SME isolation from GDSeffectively deters their access to broader travelmarkets,

It is vital therefore that more effective andcomprehensive linkages are considered.



References

Turban, E. et. al (2004) ElectronicCommerce a ManagerialPerspective, London, Prentice Hall.

Turban, E. (2002) InformationTechnology for Management, New

York, J. Wiley. The Imporatnce of Value Chains for

Tourism SME‟s (Braun,2005) – on

Documents

Competitive Advantage in the Digital Economy0