E-Business Strategy, Models and Processes - Ch02 Ch03 Ch04

Chapter 2e-Business Strategy

www.wiley.com/go/ebusiness 2

Program

What is an e-business strategy?Strategic positioningThree levels of e-business strategyThe changing competitive agendaThe strategic planning processStrategic alignmentConsequences: theoretical foundationsImplementation


What is e-business strategy?

“The set of plans and objectives by which applications of internal and external electronically mediated communication contribute to the corporate strategy”


Two Forms of Strategy

Achieving higher-level goals– A strategy is developed in order to achieve a goal like

implementing an organizational change, of a large software package

A strategy related to plans concerning the long term position of the firm– A strategic planning that has to do with the external

positioning of the firm in its competitive environment


Relationship between e-business and other organization strategies

E-businessstrategy

Corporatestrategy

ISstrategy

Functionalstrategies


Strategic positioning

A company must start with the right goals;A company’s strategy must enable it to deliver a value proposition, or set of benefits, different from those that its competitors offer;Company strategy needs to be reflected in a distinctive value chain;Robust company strategies involve trade-offs;Company strategy defines how all the elements of what a company does fit together;Company strategy involves continuity of direction.


Three Levels of e-BusinessStrategy

The supply chain or industry value chain level;

The line of business or (strategic) Business Unitlevel;

The corporate of enterprise level for each firm that encompasses a collection of business units.


The supply chain or industry value chain level

This analyses gives an impetus to insight in upstream and downstream data and information flows.Important issues – Who are the direct customers?– What is the value proposal to those customers?– Who are the suppliers?– How does the firm add value to those suppliers?– Etc…..


The line of business or (strategic) Business Unit level (1)

This is the level where the competitive strategy in a particular market for a particular product and so the strategic positioning is developed


The Line of Business or (Strategic) Business Unit level (2)

Four generic strategies for achieving a profitable business:Differentiation; a strategy that refers to all the ways producers can make their products unique and distinguish them from those of competitors;Cost; this strategy that means that a company primarily competes with low costs;Scope; a strategy to compete in market world-wide, rather than merely in local, regional or national markets;Focus; a strategy to compete within a narrow market segment or product segment.


The corporate or enterprise level for each firm that encompasses a

collection of business unitsThis level addresses the problem of synergy through a firm-

wide available common IT infrastructure.Commonality of E-business is basically needed for two

reasons:From an efficiency point of view; having different applications for the same functionality in different lines of business is needlessly costly;From an effectiveness point of view; there is a need for cross line of Business communication and share-ability of data.


Changing competitive agenda

In every business agenda change is a top level priority– From a supplier driven economy to a consumer driven

economy– From mass production and mass distribution to

customization and customer-driven planning– From a producer focus to a consumer focus


Types of Strategic Systems

Systems that link the company with customers and suppliers and change the nature of the relationship;Systems that lead to more effective integration of internal processes of the organization;Systems that enable the organizations to bring new or improved information based products and services to the market;Systems that provide the executives with high quality information to support the development and implementation of strategy.


The strategic planning process

Most strategic planning methodologies are based on:– Situation; where a company is right now and how did it

get there;

– Target; where does a company want to be;

– Path; how can it get there.


The strategic planning process

Management statementof organization

Implementation & control of plans

Planning strategies & objectives of organization

Analysis of external & internal information


Forms of Strategy

Intentedstrategy

Well considered strategy Realisedstrategy

Unrealisedstrategy

Emergentstrategy


Strategic alignment

Alignment between business and IT is not only feasible to design and build a technically sophisticated (inter-organizational) infrastructure for e-Business, but also to formulate business strategies that complement and support this infrastructure.


IT supporting e-businessstrategic objectives

Enterprisestrategy

Business functions

Application architecture

e-Businessinfrastructure

Sourcing /staffing

Financing


The Consequences of e-Business

When analyzing the business effects of E-business consider the next approaches:

– The theory of competitive strategy;

– The resource based view;

– The theory of transaction costs;


Theory of competitive strategyPorters five forces model of competition:

The bargainingpower of customers

The competition amongexisting firms in industry

The bargaining power of suppliers

The threat of new substituteproducts or services

The barriers to entry for new competitors


The resource-based view

The resource-based view considers internal resources and competencies and sources of potential competitive advantage, instead of looking at the environment and making strategy plan accordingly.


Transaction Cost Economics

Transaction cost economics theory provides a theoretical framework for discussion of market structures and addresses the question why necessary resources are obtained ether true the market of through internal production. Two key issues concerning firms are:– Which activities should a firm keep within its

boundaries and activities should it outsource?– In which should a firm manage its relationship with its

customers, suppliers and other business partners?


Implementation of e-BusinessStrategies

Top down and bottom upProgram Management– Organization– Policies– Plans– Communication– Alignment

Change Agentry

Chapter 3Business Models


Program

IntroductionPressures forcing business changesBusiness models-definitionsBusiness models-classification


Introduction

The vertical bureaucratic structure in a firm is built on the assumption that concentrating similar activities within functions, and thus separating activities which are not similar,would result in economies of scale.The internet and related technologies reduce coordination costs and transaction costs.Traditional business models focused on creating value at the line-of-business level while the new business models focus on the customers and creating value at the relationship level across products and channels.


Pressures Forcing Business Changes

The unprecedented challenges which businesses are facing nowadays makes competition fiercer and more global. Customers become increasingly demanding because of competing products and service offerings.The increasingly competition leads companies to rethink their position in the market place fundamentally.To have success in today’s market, business networking strategies are required to provide high quality, cost-efficient products reflecting the customers need. This is made possible by the development of modern information technology.


Business Strategy Vs.Business Model

In a company’s e-business plan the business model takes a central position which consolidates its purpose and goals to outline all kinds of aspects relating to e-business including: marketing plan, competition, sales strategy, operations plan, management plan and financial plan.The business model must effectively address aspects such as: value proposition, revenue model, market opportunity, competitive advantage, market strategy, organizational development and management [Ghosh 98].


Business Models – types of definitions

Definitions that relate to participants in a joint business venture.Definitions that relate to the processes and structure of a business organization.Definitions that relate to how business models are seen from the perspective of a marketplace.


First Type of Definition

This definition may describe business models as follows:A business model describes how the enterprise produces, sells and delivers products and services,thus showing how it delivers value to the customers and how it creates wealth [Margretta 2002]. A business model addresses a simple equation (profit = revenue – costs) [Elliot 2002]. .


Second Type of Definition

This definition describes business models as follows:An architecture for the product, service and information flows, including a description of the various business actors and their roles.A description of the potential benefits for the various actors.A description of the sources of revenues.


Third Type of Definition

Is the company involved in business-to-business activities, business-to-customer activities or both?Which position does the company have in the value chain between customers and suppliers?Which is its value proposition, and which are its target customers?Which are the specific revenue models that will generate its various income streams?How is it represented: by physical shops (‘bricks’) or online, in the virtual world (çlicks’); or even by a mixture of these two (‘bricks and clicks’)?

According to this definition business models can be analyzedfrom various perspectives [Chaffey 2002]:


Business Strategy Vs.Business Model

Business strategies specify how a business model can be applied to differentiate a company from its competitors [Elliot, 1999].Marketing model was introduced to encompass both the business model and the strategy [Timmers 1998]


The Important Elements When Taking the Internal Aspects of a

Business Into Account: The product or service that a company delivers to its customers.The sources of revenue.The activities to deliver products or services and realize strategic objectives.The organization a company has established to realize its objectives.


Conclusion: This Book’s Definition

The internal aspects of a business venture;The type of relationships of the enterprise with its external business environment and its effective knowledge regarding these relationships;How a company’s information assets, e.g., information systems and effective business processes typically grouped in the customer relationship management (CRM), supply chain management (SCM) and core business operations domains, are embedded in the business venture.

A business model is a descriptive representation of the planned activities of a business (sometimes referred to as business processes) that involves three integral components, which specify:


Traditional organisational structureVSNew organisational structure

Business Models –Classification


Traditional Organisational Structure

Vertical and hierarchicalFunction-basedProduct-basedGeography-basedMatrix-basedHigh coordination costs (costs of sending, storing and retrieving information)Seller- or product-driven, aiming to generate value at the of line-of -business level


New Organisational Structure

Hierarchical, procedural and other new coordination mechanisms wich leads to network based business models.Team-based structure.Customer focused: value is generated at the relations level, across products and channels.Creation of internet based business models (5 Business models Classifications)


5 Business Models Classifications

Internet-enabledValue-webE-business enabledMarket participant Cyber-intermediary


Internet Enabled Business Model

10 different types of business models that are facilitated by the internet Based on analysis of Porter’s value chainInternet enabled models are classified according to the degree of innovation and functional integration involved.1st dimension – Innovation: Ranges from basically applying the internet to replace a more traditionally way of doing business to more innovative business models.2nd dimension – Functional Integration: Ranges from business models that encompass one function, such an e-shop, to a business model that fully integrates multiple functions


Internet Enabled Business modelsP. Timmers (1998) continued


Internet Enabled Business modelsP. Timmers (1998)

E-shop

E-procurement

E-auction

E-mall

Third party marketplace

Virtual communities

Value chain service provider

Value chain integrator

Collaboration platform

Information brokerage, trust

and other services

Trust services



E-shop: Website used by a company to give/get information for marketing purposes E-procurement: Process that involves purchasing goods and services through the web.E-mall: Collections of E-shops under 1 umbrella (special service or product types, brands etc.).E-auctions: Internet bidding mechanisms that can be applied to both B2B and B2C contexts.Third party marketplaces: Virtual marketplaces where potential suppliers and buyers interact and transact.



Virtual Community: Offers people with a common interest, such as a profession or expertise, facilities to share information; thus they add value for their members and so become important for marketing purposes.Collaboration platforms: Enable companies and individuals to work together by providing an environment and a set of collaboration tools.Value chain integrators: Focus onintegrating multiple steps of the value chain.Value chain service providers: Specialized in providing specificfunctions such as electronic payments.Information brokers: New, emerging information service providersworking for both consumers and businesses; They provide information and help parties generate trust in one another.


Value-web Business Model



Value-web business model: A conception of an emerging form form of a fluid and flexible organization.Value-web brokers: Having the central value web function of coordinator, integrator and interface.Consisting of several key building blocks:– Markets– Hierarchies– Networks– Information Technology– New-old business models



Markets: Purpose of markets is to bring together buyers and sellers and automate business transactions.Hierarchies:Traditional and inflexible bureaucratic structure.Networks: These arise because companies move away from the “old” ways of doing business(customer value created by 1 single organization) to the new ways of doing business (customer value created by a network of organizations). A network consists of nodes and relationships and cannot function without any missing part.Information Technology: Evolution of which the future is difficult to predict.New-old business models: They still may have value.


VirtualOrganization

model

VirtualOrganization

model

Tele-workingmodel

Tele-workingmodel

Process outsourcing

model

Process outsourcing

model

Collaborativeproduct development

model


model

Value-chainintegration

model


model

lower

higher

Degree of Degree of integrationintegration

VirtualOrganization

model

VirtualOrganization

model

Tele-workingmodel

Tele-workingmodel

Process outsourcing

model

Process outsourcing

model


model


model


model


model

lower

higher

lower

higher

Degree of Degree of integrationintegration

The Family of e-Business Enabled Business Models


Market Participant Business Models

Two roles key: producers & distributorsProducers (design and produce products and services)– Manufacturers of physical products– Less physical products (such as services provisioning, education and

consultancy)Distributors (consists of focused distributors and portals)– Retailers (who sell inventory of which they have assumed control online)– Market places (without having physical control over the inventory sold)– Aggregators (who provide information on products or services sold by

others in the channel)– Exchanges (who may or may not complete sales online/assume control

over inventory)– Infomediaries ( a type of aggregator that brings together the sellers and

buyers of information-based products)


ProducersProducers DistributorsDistributors

FocusseddistributorsFocussed

distributors PortalsPortals

MarketplacesMarketplaces AggregatorsAggregatorsExchangesExchanges

RetailersRetailers InfomediariesInfomediaries

HorizontalHorizontal

VerticalVertical

AffinityAffinity

InternetInternetProducersProducers DistributorsDistributors

FocusseddistributorsFocussed

distributors PortalsPortals

MarketplacesMarketplaces AggregatorsAggregatorsExchangesExchanges MarketplacesMarketplaces AggregatorsAggregatorsExchangesExchanges

RetailersRetailers InfomediariesInfomediariesRetailersRetailers InfomediariesInfomediaries

HorizontalHorizontal

VerticalVertical

AffinityAffinity

InternetInternetInternetInternet

The Market Participants Business Model


Role of a Portal

Employee

E-Business Portals

Customer

Partner

Content

Content

Content


Definition of a Portal

Portals are web sites targeted at specific audiences and communities, providing:– content aggregation/delivery of information relevant to

the audience– collaboration and community services– services/applications access for target audiences


Portal Include Three Types:

Horizontal Portals: Originally created to provide search engine services, these portals focus on the entirety of the Internet, not specified audiences, from various industriesVertical Portals: Often referred to as Vortals, these sites focus on targeted areas of interest, such as healthcare or financial services. Affinity Portals: Provide highly specific information, much like vertical portals but focused on specific interest groups or market segments.


Cybermediaries Business Model

Cybermediaries: New Network-Based IntermediariesEleven business models are proposed based on this assumptionEach business model is characterized by its functions



Directories: Directory service intermediaries help consumers find producers by categorizing Web sites and providing structured menus to faciliate navigation. Search Services: In contrast to the directories, search sites (e.g. Lycosand Infoseek) provide users with the capabilities for conducting keyword searches of extensive databases of Web sites/pages. Malls: The term virtual mall or internet mall is often used to refer to any site that has more than two commercial sites linked to it. Virtual Resellers: The malls described above provide cyber-infrastructure, but they do not own inventory or sell products directly. Web Site Evaluators: Consumers may be directed to a producer's site via a new type of site that offers some form of evaluation, which may help to reduce some of the risk to consumers.



Publishers Publisher Web sites are "traffic generators" that offer content of interest to consumers (e.g. Information Week or Wired Magazine). Auditors Auditors are not direct intermediaries, but serve the same functions as audience measurement services in traditional media.Forums, Fan Clubs, and User Groups Sites such as these are also not necessarily direct intermediaries, but can play a large role in facilitating customer-producer feedback and supporting market research. Financial Intermediaries Any form of electronic commerce will require some means of making or authorizing payments from buyer to seller. Spot Market Makers The emergency of such a service isn’t surprising considering the speed with which e-networks can distribute information. Barter Networks – Buyers and sellers exchange goods rather than pay for them with money. Intelligent Agents Intelligent agents are often discussed as the answer to user problems with navigation in the chaos of the Internet.

Chapter 4E-Business Relationships


Program

Modeling business activitiesBusiness Processese-Business relationships

Modeling Business Activities


The (Business Unit) Value Chain

Distinction between what we do and howFrom function to processesTraditional value chain: manufacturing– Problematic for services, insurance, banking etc.

Alternative models suggestedMajor objective: – Identify critical processes, information exchange with

suppliers and customers– Effectiveness of information flows through processes


Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Inbound Logistics Operations Outbound

LogisticsMarketing and sales Service

Supportactivities

Primaryactivities

Profitmargin

Firm Infrastructure



Procurement



Supportactivities

Primaryactivities

Firm Infrastructure



Procurement



Firm Infrastructure



Procurement


LogisticsMarketing and sales ServiceInbound

Logistics Operations Outbound Logistics

Marketing and sales Service

Supportactivities

Primaryactivities

Supportactivities

Primaryactivities

Profitmargin


The (internal) value chain

IT has the potential to:To improve efficiency and effectivenessTo fundamentally change the activityTo alter the relationship between activities

Supporting Activities

Operational Activities


Value chain : Business Loans

Value chain : Business Checking and Savings

Value chain : Individual Checking and savings

Value chain : New savings Product Development

Marketing Sales Finance Investments New ProductDevelopment

Service

Management









Marketing Sales Finance Investments New ProductDevelopment

ServiceMarketing Sales Finance Investments New ProductDevelopment

Service

Management


Value Chain Analysis

1. Defining the strategic business unit, 2. Identifying critical activities, 3. Defining products, and 4. Determining the value of an activity.


Unbundling the Value Chain


The Industry Value Chain or the Value System

Basic rawmaterial Assembly Wholesale Retail ConsumerManufacturing


Four types of info flows:Transaction: orders, bills…Customer demandSupplier informationKnowledge flows

Basic rawmaterial

Assembly Wholesale Retail ConsumerManufacturing

Demand

Supply

Supply Chain

Business Processes


Business Process Management

The focus on the final customer as opposed to the focus on vertical functional activities has lead in the 90’s to an increased interest for processes and their management.A (business) process view implies an horizontal view on a business organization and looks at processes as sets of interdependent activities designed and structured to produce a specific output for a customer or a market.A process is an ordering of activities with a beginning and an end; It has inputs (in terms of resources, materials and information) and a specified output. Processes can be measured, and different performance measures apply, like cost, quality, time and customer satisfaction.


New Product Development

Research &

Development

Marketing Manufacturing

The Process view de-emphasizes the functional structure

Most companies can be broken down into fewer than 20 processes [Davenport]


Typical Processes in a Manufacturing Firm [Davenport]

Product developmentCustomer acquisitionManufacturingOrder managementAfter-sales serviceHuman resource management


Value Chain

Business process

Subprocess

Activity

Simple Activity Compound Activity

Step Step

Value Chain

Business process

Subprocess

Activity

Simple Activity Compound Activity

Step Step


Characteristics of Business Processes

EnvironmentCustomer and initiated by a customer orderProcessingCommunicationInventories or queuesDecision pointsDelivery of a product


Work-

flow

WF

Mngtm

: Decision point

: Inventory or Queue

: Processing step

: Coordination of decision points

: Transfer of activity

: transfer of workflow decision

Environment

Business ProcessC

ust

om

er

ord

er


Types of Business Processes

Workflows where information processing supports a physical processWorkflows where information processing is the process itselfThe degree of repetition and the level of expertise or knowledge required to execute the processThe level of anticipation of the stimulus that triggers the process.


01/06/2004 Pieter Ribbers 31

Four Basic Forms(Mintzberg)

Simple StructureMachine Bureaucracy

Simple

AdhocracyProfessional BureaucracyComplex

DynamicStableEnvironments

Divisions: each division may have a different structure


Its Impact on Business ProcessesCAPABILITYCAPABILITY ORGANIZATIONAL IMPACT / BENEFITORGANIZATIONAL IMPACT / BENEFIT

TRANSACTIONAL UNSTRUCTURED PROCESS INTO ROUTINIZED TRANSACTIONS

GEOGRAPHICAL ELECTRONIC TRANSFER MAKES PROCESSES INDEPENDENT OF GEOGRAPHY

AUTOMATIONAL REPLACES/REDUCES HUMAN LABOR

ANALYTICAL USES COMPLEX ANALYTICAL METHODS

INFORMATIONAL BRINGS GREAT AMOUNTS OF DETAILED INFORMATION INTO PROCESS

SEQUENTIAL ENABLES CHANGES IN SEQUENCE OF TASKS; POSSIBLE TO RUN SIMULTANEOUSLY

KNOWLEDGE CAN CAPTURE, DISSEMINATE KNOWLEDGE, EXPERTISEMANAGEMENT TO IMPROVE PROCESS

TRACKING ALLOWS DETAILED TRACKING OF TASK STATUS, INPUTS, OUTPUTS

DISINTERMEDIATION CAN CONNECT PARTIES DIRECTLY, NO LONGER REQUIRING INTERMEDIARY

Source: Davenport & Short Source: Davenport & Short ““The New Industrial EngineeringThe New Industrial Engineering””(1990)(1990)


Degree of CollaborationLow High

Deg

ree

of M

edia

tion

Low

High

CC

C

AA

BBAA

AA AA

BB

BB BB

CC CC

CC

A B

: The final step in the process

: participating functions

: Collaborative activities

:input/output relationship

E-Business Relationships


Strategic planning

Tacticalplanning

Operationalplanning

Strategic planning

Tacticalplanning

Operationalplanning

Enterprise-A Enterprise-B

Strategic planning

Tacticalplanning

Operationalplanning

Strategic planning

Tacticalplanning

Operationalplanning

Strategic planning

Tacticalplanning

Operationalplanning

Strategic planning

Tacticalplanning

Operationalplanning

Strategic planning

Tacticalplanning

Operationalplanning

Strategic planning

Tacticalplanning

Operationalplanning

Enterprise-A Enterprise-B

Types of e-BusinessRelationships


B2B vs. B2C

Economic value per individual company, and per transactionBuying processesProducts may be highly customer specificModern logistic conceptsBuying expertisePricing IT-infrastructure


Types of temporal interbusiness relationships

SpotmarketLonger termPartnership

Documents

E-Business Strategy, Models and Processes - Ch02 Ch03 Ch04