eBusiness: Strategies, Frameworks, Business Models, Networking, Security, ePayment, eProcurement, SCM, ERP, CRM, Case Study: Channel Conflicts

IKS – Skript 4. Semester 2000 Thomas Kramer

Competitive strategy is an enterprise's plan for achieving sustainable competitive advantage over, or reducing the edge of, its adversaries. In Porter's view, the performance of individual corporations is determined by the extent to which they cope with, and manipulate, the five key 'forces' which make up the industry structure:

the bargaining power of suppliers;

Enterprises, through their strategies, can influence the five forces and the industry structure, at least to some extent.

Under Porter's framework, enterprises have four generic strategies available to them whereby they can attain above-average performance. They are:

cost leadership;

By performing these activities, enterprises create value for their customers. The ultimate value an enterprise creates is measured by the amount customers are willing to pay for its product or services. A firm is profitable if this value exceeds the collective cost of performing all of the required activities. To gain competitive advantage over its rivals, a firm must either provide comparable value to the customer, but perform activities more efficiently than its competitors (lower cost), or perform activities in a unique way that creates greater buyer value and commands a premium price (differentiation).

Of especial importance is 'product differentiation':

This is the degree to which buyers perceive products from alternative suppliers to be different, or

-

as it is expressed by economic theory, the degree to which buyers perceive imperfections in product substitutability. The buyers of

- differentiated products may have to pay a price when satisfying their preference for something special, in return for greater added-value.

Value Chain Analysis (Example: Cisco Systems)

By co-ordinating linked activities, an enterprise should be able to reduce transaction costs, gather better information for control purposes, and substitute less costly operations in one activity for more costly ones elsewhere. Co-ordinating linked activities is also an important way to reduce the combined time required to perform them. Hence co-ordination is increasingly important to competitive advantage.

Porter's enterprise's value chain can be used as a framework for identifying opportunities for competitive advantage.

Competitive advantage in either cost or differentiation is a function of this chain. IT is spreading through the value chain, transforming the way value activities are performed and the nature of the linkages among them. It enables an enterprise to better coordinate its activities and thus gives it greater flexibility in deciding its breadth of activities.

Where and how can IS contribute?

- close contacts / frequent updates to reps / more knowledge to front-office

Direct Business Relationships

With the direct business-to-customer relationship (e-channel), the company will lose the knowledge of the market and the

The stores/agencies (standard channel) don’t benefit from the direct channel and therefore won’t cooperate with the company in the future.

Indirect Business Relationships

Like boo.com you have a virtual portal (virtual wholesale) in which you have one interface to different channels conflicts with agencies occur, since…

IKS – Skript 4. Semester 2000 Thomas Kramer

CRM (Customer Relationship Management) An integrated information system

that is used to plan, schedule and control the presales and postsales activities in an organization

Generic Strategies

In a nutshell:

Overall Cost Leadership

Reduction in production and clerical staff

Improve efficiency of manufacturing Permit reduction in inventory, accounts receivable, etc. Product Differentiation

IT as differentiable feature of the product

IT shortens production, delivery or customization lead time.

IT offers special or unusual customer service

Market Niche

IT helps to identify special market niches

IT helps to customize product/service to market niches

In detail:

(1) Differentiation

The first 'strategic thrust', differentiation, was discussed earlier.

(2) Cost

Strategic cost thrusts are measures intended to:

- reduce the enterprise's cost-profile, by reducing or avoiding specific costs;

- help suppliers, distribution channels, or customers reduce or avoid costs, so that the enterprise receives preferential treatment or other benefits; or

- increase the cost-profiles of its competitors.

- Economies of scale enable relatively large enterprises to acquire, produce, process, store, ship, or sell products at lower cost per unit than relatively small ones. Important factors in gaining economies of scale include: specialization;

o automation;

o bargaining power;

o experience; and o failures of proportionality.

o At some point, however, diseconomies may set in, due to, for example, increasing bureaucratic inefficiencies, transport charges or lack of local labour.

- Economies of Scope is another form of cost saving. Rather than arising from an expansion in the size of the primary operation, these derive from extension into additional operations which can share the infrastructure costs. Mechanisms include common factors of production, by-products, reusability, and expertise.

IKS – Skript 4. Semester 2000 Thomas Kramer

(3) Innovation

- Innovation is the adoption of the new products or processes.

- Product innovation involves the creation of new products, or of new features in existing products, in order to satisfy customer needs or wants which were previously unmet.

- Process innovation, on the other hand, improves the efficiency or effectiveness of a process involved in the production or delivery of a product. It generally addresses one or more of the links in an enterprise or industry value-chain. It may involve technological change, organisational change, or often both. An innovation thrust can be aggressive, or employed defensively to imitate or neutralise a competitor's innovation.

(4) Growth

There are several ways in which an enterprise can grow:

- product growth, which may involve:

'length', i.e. new products of the same kind as existing ones (e.g. a PC o supplier may add laptops and handhelds to its desktop lines); 'depth', i.e. variants to existing products (e.g. additional options which can be o selected by customers when buying a desktop); and 'width', i.e. new products which complement existing ones (e.g. modems, o printers and accessories).

- functional growth, by performing additional business functions. Often this is through 'vertical integration' along the industry value-chain, which may provide benefits from direct control over supply, distribution or service, such as cost reduction, quality assurance or reliability. Sometimes the new functions are support services, such as the gathering and delivery of industry statistics;

- geographic growth, by acquiring from additional locations, or selling into additional locations;

- lateral growth, by applying excess capacity, by-products or expertise, in order to address new marketplaces.

- Growth of any kind tends to be associated with the economies of scale or scope mentioned earlier.

(5) Alliance

By an alliance, Wiseman means a combination of two or more groups or individuals, whether intra- or supra- to the enterprise, which works together to achieve a common objective. Four types of alliance are identified:

- product integration;

- product development;

- product extension; and

- product distribution.

Reference Models: ‘Embrace and Extend’

Look at the script!!!

6. The IT advantage?

A special case was the phenomenon of 'second-mover advantage', where the first-mover actually

A distinction came to be drawn between 'sustainable' and 'contestable' competitive advantage.

Another matter that creates difficulties has been the marked tendency to discuss competitive

IKS – Skript 4. Semester 2000 Thomas Kramer

no significant strategic advantage will arise, e.g. because:

the technology is not sufficiently mature; or

-

the area is not conducive to the available technology;

-

second-mover advantages will exist; or

-

the organisation's resources and/or focus are committed to other projects or

-

programs, and could not be diverted, or could not be diverted with sufficient

advantage.

7. Critics on the frameworks

Information Products

-

Aggregators

-

Auctions

-

Exchanges

-

IKS – Skript 4. Semester 2000 Thomas Kramer

Product:

- Physical (Cars, T-Shirts)

- Information :

Non-interactive infiormation :

o

Advantages:

+ indestructable + reproducibility (easy to copy copy cost = 0) + low distribution cost (internet downloading) + transmutable (customized appearance)

Disadvantages:

- costly to produce (but cheap to reproduce)

- costs are sunk cost that cannot be recovered

- cost based priciing doesn’t work (use product / price differentiation instead Versioning, Bundling, …)

Trend:

- To integrate telecom, media and information technology (Digitalisation of products, networks, devices [TV, mobile phones, …])

Aggregators:

Disintermediation

IKS – Skript 4. Semester 2000 Thomas Kramer

Dynamics

Buyer- or seller driven model

No prerequisite that buyers and sellers know each other Typically characterized by fragmented supplier or buyer market

Price

Pre-negotiation determines final static price

Market Impact

Reduce fragmentation Create a more level playing field for smaller players

Value

Buyer: Lower search cost, order entry across suppliers,

An auction's mechanism can be inference-proof: When an auction is designed properly, neither the buyer nor the seller will have an incentive to lie or hide their strategies.

Dynamics

Seller-driven model

No prerequisite that buyers and sellers know each other Typically characterized by fragmented supplier or buyer market

Price

Highest bid determines final price, often lower than list

Market Impact

Increase inventory turns

Establish after-markets Test product price points

Value

Buyer: Products purchased at lower than list price

Seller: Venue to sell surplus and test price points; faster

The reverse auction business model

Dynamics

Buyer-driven model

No prerequisite that buyers and sellers know each other Typically characterized by fragmented seller market

Price

Lowest bid determines final price

Market Impact

Get lowest price

Value

Buyer: Get products at low price Seller: Faster inventory turnover; generate additional business

Examples

Free Markets, GE Trading Process Network

IKS – Skript 4. Semester 2000 Thomas Kramer

It fulfills buy-and-sell needs for a small group of industry players with preexisting business relationships

Dynamics

Industry-driven model

Industry players known to each other but trade anonymously Typically characterized by concentrated market

Price

Market-wide bid-ask determines final price

Market Impact

Promote market liquidity

Combinations

Digital:

Binary information sent over channel as binary signals (e.g. high/low voltages)

Capacity:

Bandwidth

Circuits:

Private (no access to internet), private virtual, public Circuit switched (= one line is purposed for only one packet)

IKS – Skript 4. Semester 2000 Thomas Kramer

Measure: bps (bits per second)

Routers | Computer, that looks for a free channel for transmission and selects the best | route to transfer the data from its sender to its receiver Gateways | Connects networks of different types

12. Components & Networks:

LAN: Local Area Network Local area only

WAN: Wide Area Network Connects comps of different geographical locations

Internet: “with everyone”

Intranet: “inside the organization” Extranet: “with business partners”

Protocols:

TCP/IP

- IPX/SPX

- (SNA – standard)

-

Main Network Topologies:

BUS o STAR o RING o