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

Theme 1: Strategy and Applications

1. There are 2 approaches to apply e-business:
- Portfolio oriented methods:
- € IT follows strategy (reactive)
- Directed towards aligning the IS function with the company's strategy
- IS function as a business expense
- Top-Down Approach

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- Impact oriented methods:
- € IT (partly) determines strategy (interdependent)
- IT integral part of the strategy formulation process (dynamic alignment)
- IS function as a business investment
- Bottom-Up Approach

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2. EDI (E lectronic D ata I nterchange):
- The electronic communication of business transactions, such as orders, confirmations and invoices, between organizations.
- Third parties provide EDI services that enable organizations with different equipment to connect.
- Although interactive access may be a part of it, EDI implies direct computer-to- computer transactions into vendors' databases and ordering systems.

3. What will the future of competitive companies in terms of EDI systems be like:
- Everyone tries to overtake its competitors by using ICT / EDI to add more value than others

4. The use of frameworks:

€ IT should lead to a competitive advantage by contributing to corporate strategy

€ They recognized that where one corporation achieved a significant competitive advantage, it quickly became incumbent on its competitors to neutralize that advantage, and hence to avoid competitive disadvantages

5. The 5 frameworks:
- Competitive Analysis Model

The aim is to benefit from Information Systems if it:

- Builds barriers to entry?
- Builds in switching costs to lock in customers?
- Changes the basis of competition?
- Changes the balance of power in supply relationships?
- Uses IS to differentiate or create new products?

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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;
- the bargaining power of buyer;
- the threat of new entrants;
- the threat of substitute products; and
- rivalry among existing firms.

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;
- differentiation;
- cost focus; and
- focused differentiation

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?

- Market Research - On-line surveys provide direct information at minimal cost
- Product Development - capitalizing on worldwide distributed knowledge
- Recruitment - access to internal + external job market
- EDI - Reduce costs + get better grip on suppliers
- Sales - close contacts / frequent updates to reps / more knowledge to front-office
- Customer Service – Online product support

€ How sustainable is the competitive advantage?

Direct Business Relationships

- With the direct business-to-customer relationship (e-channel), the company will lose the knowledge of the market and the stores because they are superfluous now.

€ Conflict

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

€ Conflict

Indirect Business Relationships

- Like boo.com you have a virtual portal (virtual wholesale) in which you have one interface to different channels
- With the increase in “going online”:

€ conflicts with agencies occur, since…

… different market are targeted

… acceptance by the customers increases

- Customer Life Cycle (Example: MSN Home Advisor)

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1. Requirements
-establishing needs
-information gathering
-advice

2. Acquisition
-negotiation
-transaction
-financing
-delivery

3. Ownership
-customer service
-maintenance/repair
-updates

4. Retirement
-trade in, resell, dispose
-upgrade

5. CRM

CRM (C ustomer R elationship M anagement) 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;
- automation;
- bargaining power;
- experience; and
- failures of proportionality.

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.

(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 supplier may add laptops and handhelds to its desktop lines);
- 'depth', i.e. variants to existing products (e.g. additional options which can be selected by customers when buying a desktop); and
- 'width', i.e. new products which complement existing ones (e.g. modems, 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 incurs a disadvantage. This may arise variously because the pioneer increases the knowledge available about the application (hence driving the risks down); establishes a level of volume (and hence overcomes resistance and drives average costs down); and/or becomes locked into a system which quickly becomes obsolescent (and hence is subject to being overtaken by a well-informed and unencumbered second-mover).

€ A distinction came to be drawn between 'sustainable' and 'contestable' competitive advantage. The thesis was that many kinds of advantage which can possibly be derived from innovative use of IT result only in ephemeral advantage, which is quickly neutralisable by second- and later- movers. A distinction needs to be made between the sustainability of the original advantage, and of any derived advantage (such as increased market share).

€ Another matter that creates difficulties has been the marked tendency to discuss competitive strategy predominantly in terms of leadership, or 'first-mover' status. The sufficiency of this approach is overdue for careful examination. It is entirely tenable for an organisation to intentionally defer aggressive moves, and instead consciously seek 'second-mover' or 'late- adopter' status. Circumstances in which senior executives may judge this to be the appropriate strategy include where:

€ 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

Organisations seek to gain significant advantages by employing SIS (strategic information system) to alter the internal structure or the entire industry structure. Several frameworks exist which are intended to assist understanding of the use of SIS based on the industry organisation, value chain, and strategic thrusts. Organisations seek competitive advantages over other rivals along the whole industry value chain. Generic strategies have been proposed.

W eaknesses:

- Despite the usefulness of these frameworks applied to the search for competitive advantages, these frameworks are market-oriented, and are not suitable to explain SIS developed in other non-market-oriented industries, such as government.
- Another deficiency of these frameworks is the concentration on competitive advantage to the exclusion of other perspectives. As a result of industry-wide adoption of SIS, the questions of sustainability of competitive advantage and of competitive necessity arise. This in turn leads to cooperative arrangements, including alliances, and at a more abstract level, collaboration.

IT has become a significant factor in the operation and planning of information-based enterprises. Strategic information systems theory has done much to enable the description, explanation and prediction of behaviour. There remain significant weaknesses which need to be addressed.

Theme 2: Business Models

8. Examples for e-commerce relationships:

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9. Type of business models:

- Information Products
- Aggregators
- Auctions
- Exchanges

Information Products:

Product:

- Physical (Cars, T-Shirts)
- Information :
- Non-interactive infiormation :
- Dynamic:Video, Music
- Static: Text, Picture
- Interactive Information (Games, Chat)

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:

€ they aggregate products, services and customers

€ they are a one-stop shopping venue:

- Horizantal Portals (broad focus: e.g. Yahoo)
- Vertical Portals (focus on industry: e.g. Chemdex)

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Further Examples: € shop bots / assistents (like evenbetter.com, mysimon.com, etc.)

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Auctions:

- An auction is a one-to-many negotiation, between one seller and many buyers.
- An auction negotiates a mutually acceptable solution for the buyer and the seller
- An auction reduces the negotiation to a single variable: price.
- 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.

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The reverse auction business model

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Exchange:

- Industry spot market for commodity like products.
- It fulfills buy-and-sell needs for a small group of industry players with preexisting business relationships

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The exchange business model

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Theme 3: ICT Architecture

€ Why care ?

€The average firm spends / invests 50% of its capital in ICT !!!!

10. Signaling and Transmission modes:

Sender € Encoder € Modulate €€€€€€€€€€€€ De-modulate € Decoder € Receiver

Transmission:

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11. Components & Networks:

Bandwidth:

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