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More and more companies are focused on learning more about e-business. Many
firms embark on e-business because their competitors are practicing it or their
customers want it. Often very little strategic planning is done before beginning
this venture. As with any project or strategic initiative, firms need to ensure
their e-business initiative is aligned with their corporate strategy—and
that it does not conflict with the current goals, objectives, and values of
Why Do You Need an E-Business Strategy Model?
Many existing models do not work well for businesses that have a mix of traditional
and e-business components. These types of hybrid businesses are often referred
to as bricks-and-clicks, or mouse-and-mortar companies. The Internet and the
growth of e-business are changing the rules of distribution, sales, industry
boundaries, relationships, and competencies, providing small and medium-sized
businesses the same opportunities previously available only to large corporations.
In addition to the new opportunities, e-business also poses new challenges.
Channel competition, brand erosion, and life cycle compression require strategies
that have yet to be developed.
Why E-Business Strategies Fail
The main reason why management tools fail is owing to a lack of alignment
with the corporate strategy. These management tools are often adopted in isolated
regions of the company, with little regard to the intended strategic direction
of the organization. For example, if your corporate strategy focuses on driving
customers into your successful retail store chain, it doesn’t make sense
to sell your products online at a discount. If the products you produce usually
get to your customers through a successful channel market, you would be undercutting
the channel by selling online.
Businesses that have failed to align their activities with their strategy
have experienced severe consequences, such as reduced profitability, loss of
competitive advantage, and even bankruptcy.
A number of strategy models have been developed to help analyze organizational
and business issues in a company, and to determine an effective strategic plan.
Competitive Analysis Model
Source: Michael E. Porter
How Competitive Forces Shape Strategy
The Model examines the influence of five specific forces on competition:
1.Barriers to entry
If the barriers to enter the industry are low, threat to existing competitors
that new firms will enter the market is increased. These new competitors will
fight for a share of the market and often acquire substantial resources from
2. Power of suppliers
Suppliers want to charge the highest possible prices for their products, leading
to a power struggle between firms and suppliers. The advantage is held by the
side with less to lose when the relationship is terminated. For example, a
supplier that sells a unique product to many customers holds a strong position.
On the other hand, a supplier that produces most of its output for a single
customer is in a weak position, especially if there are substitute products
available from other suppliers.
3. Power of buyers
Similar to the power of suppliers, buyers can be powerful if they can dictate
prices. This can occur when there are many suppliers and only a few buyers.
4. Availability of substitutes
Companies must assess the potential threat posed by substitute products and
be aware that these threats do not always come from traditional competitors.
For example, postal services compete with couriers and even fax machines.
5. Industry rivalry
All of the above converge in the fifth force, rivalry. As a result, firms
may choose to compete aggressively, coexist, or cooperate in a close alliance.
The direction that a firm chooses depends on the relative strengths and weaknesses
of the factors involved. For example, it is often the threat of substitutes
that leads to the formation of strategic alliances.
While this approach gives an analysis of the current industry, it does not
address new entrants that may come into the market with different assumptions
about the industry and market orientations.
A SWOT analysis evaluates the strengths and weaknesses of the organization
and the opportunities and threats to the organization in the industry. It is
often used as a basis for strategic planning.
Strengths and weaknesses are internal components of an organization and can
be difficult to identify. Often, organizations themselves simply do not understand
their own strengths or weaknesses.
Opportunities and Threats are external. Organizations must find opportunities
to leverage an advantage over the competition and identify potential threats
to their own business. Identifying threats can be a problem, as they often
come without warning.
SWOT analysis is a useful technique but the questions used during the analysis
phase must be carefully structured to ensure that the resultant strategy is
based on sound information. This model, too, does not address opportunities
and threats that are based upon a new set of business assumptions that involve
technology and the Internet.
Resource Based View
The Resource Based View (RBV) of a company builds on the above strategies
but takes a wide view of all the resources available. RBV recognizes that companies
are not all alike —they have different experiences, skills, and cultures.
A company will succeed if it has the necessary resources. These may be physical
items, such as buildings, telephones, or computers. Or they may be intangible
items, such as ability, knowledge, and/or intellect.
Developing a Strategic Plan
A strategic plan aligns an organization's goals, values and activities, to
create a sustainable competitive advantage. It focuses on the long-range goals
of the business and defines how the goals will be reached. Strategic plans
include the definition of missions, visions and objectives, which provide the
basic direction and focus of the organization.
When developing a strategic plan, you first need to answer these questions:
What business are you in?
What should be the geographical scope of your operations?
What are your research and development goals?
How should products be sourced?
Where are your organization's weaknesses?
Where are your organization's strengths?
Bridging the Gap between Traditional and Pure-Play Models
An increasing number of businesses are finding that in order to optimize their
business offering, they can no longer rely solely on traditional business models,
or on the existing pure-play strategies. These businesses have become hybrid
companies that borrow strategies from both model types.
A “Pure-Play” E-Business Model dictates that a business’ primary
mode of operation is via the Internet. This includes matters of order processing
and remediation. In the e-business world, pure-play companies are decreasing,
as they discover that the Internet alone cannot effectively sustain every level
of their business delivery. For example, Amazon.com began with a pure-play
model, but because this model did not effectively support the company’s
buying and distribution process, Amazon eventually opened its own bricks-and
clicks distribution centers to increase efficiency.
A Business Web is an elaborate network of suppliers, distributors and customers
that conduct business via the Internet and other electronic media. A business
web is the generic model for wealth creation in the digital economy and is
quickly replacing traditional corporate models of the industrial economy.
The industrial economy was characterized by mega corporations that were directly
involved in every aspect of the business process, from product creation and
sales, to product distribution. Business webs challenge every aspect of this
traditional approach to business. They are rapidly emerging as the new corporate
form, characterized by businesses coming together to create value for customers,
and wealth for shareholders.
The Core Business Model was developed to overcome the limitations of the traditional
and pure-play models, to bridge the gap between them, and to develop a sustainable
competitive advantage in the Internet economy.
The Core Business Model Strategy
Classic business models do not fully address the unique advantages and challenges
presented by the Internet. The Core
Business Model (CBM) is a new business model specifically designed
to assist companies in developing their e-business strategy.
The Core Business Model exploits existing assets (both tangible and intangible)
to maximize productivity, or they are leveraged into new opportunities through
carefully planned deployment using technology.
The model asks what intangible assets a firm holds in several key areas,
The firm’s understanding of its customer requirements
How it makes/acquires products or services
Selling its products or services
Delivering the products or services
Collecting money from customers
And providing after sales support ( if applicable)
These key areas make up the core business process of most companies with
varying degrees of activity in each of the areas.
The main advantage of the Core Business Model is its ability to provide a
cross functional view of the elements that comprise your business, and assess
the Internet-enablement potential of each.
The Core Business Model makes the following assumptions about a business:
It will remain in its current lines of business
It wants to lever existing investments
Information delivery is important
It wants to produce a model for sales channel coexistence
Best practices associated with web-enabling each step of the business
process will be examined along with some specific requirements of each step.
Understand Customer Requirements
Companies can gain a better understanding of their customers' requirements
by creating interactive web sites where customers can offer advice on product
or service design and delivery. Techniques such as online surveys are quick
and easy ways to obtain feedback directly from customers.
Make or Acquire Products or Services
Some companies have implemented their own online procurement system to manage
the purchase of everything from pencils to computers. Rather than completing
paper requisitions for office supplies, employees choose items from a web catalogue,
which is electronically sent to approved vendors. This method allows the company
to capitalize on volume purchases and to find the best deals available. Of
course, you don’t have to invest in your own system to achieve savings.
The Internet provides access to a wide range of products and services, as well
as the means to compare prices.
Sell Products or Services
As with any business, to sell a product or service on the web, you need an
edge. The 24 hour a day, 7 day a week access provided by the Internet is not
enough. You need to provide additional services or added value, such as comprehensive
Some types of goods are ideal for selling over the Internet; others are less
suitable. For example, Amazon.com aims to make book buying fast and easy. Most
people buy books based on the information contained on the jacket, or after
reading a book review. Or, they may simply like the previous work of the author.
Because all of this information can be displayed effectively on an e-business
site, selling books over the web works well. Other products offer a greater
challenge. How would you sell made-to-measure suits, for example?
People buy goods over the Internet if there is an advantage, such as convenience,
cost, or speed. But they still need to know what they're buying. This is one
important reason why the combination of an online and traditional retail outlet
works well. Customers can view information online and then visit the retail
store, or they can check out the goods on display in the store and then buy
Deliver Products or Services
Dell Computer Corporation provides an excellent system for customers to check
the status of their orders. The Dell system provides an increased level of
support while reducing the costs. Using the Internet, customers check the status
of their orders by specifying order and verification information. Like all
Internet-based services, the system is available 24 hours a day.
Single or multiple orders can be tracked to obtain information, such as:
Estimated shipping date
Carrier shipping status
In order for a company to find a suitable online payment system that effectively
meets its business needs and the needs of its customers, there are a number
of things to consider, including technical issues, cost, security and tax implications.
Currently, the two most popular methods of online payment for consumers are
credit card payments, and micropayments. Even though credit card payment is
the ruling method of payment on the Internet today, it is not suited for every
kind of online transaction.
Credit card payment transactions are best suited for high value payments,
which are generally over $10. Customers submit their order, along with their
credit card details, to the seller. Before the seller fulfills the order, the
customer's credit details are sent to a trusted third party (typically the
credit card company), who verifies the transaction, and charges the seller
a processing fee.
From the customer's point of view, there are valid concerns about the security
of credit card purchasing over the Internet. Not all credit card payment systems
offer an acceptable level of security. In a secure credit card transaction,
a credit card company serves as a trusted third party, and the buyer and seller
are authenticated by personal identification numbers sent through a secure
web connection. If a trusted third party isn't used, the credit card information
is sent directly from the buyer to the seller in an encrypted and signed form.
Unless the level of encryption is sufficiently high, uninvolved parties can
gain access to the credit card information.
Provide After-Sales Support
Customer support is instrumental to the long-term success of any business.
Often firms focus on customer acquisition, which costs substantially more than
customer retention. Because of this, the tactic of replacing dissatisfied clients
with new ones does not support long-term growth. It's important to keep in
mind that people who do business over the Internet are inclined to expect service
24 hours a day. In addition, they expect to get at least the same quality,
speed, and effectiveness of service that they would if they walked into a store,
or placed an order over the phone.
Regardless of the type of e-business, effective customer service is marked
by certain characteristics. For example, an after-sales support system should
strive to solve customer problems, while anticipating difficulties before they
arise. Effective customer support also provides customers with quick responses
to their concerns, and gives them the ability to track the status of product
External & Internal Assets
In the Core Business Model, the steps within the business process need to
be leveraged with respect to the external and internal assets
of the company. Internal assets include not only tangible resources, but also
intangible resources such as an employee's skills and knowledge. External assets
include all other resources available to your company. For example, a co-branding
relationship you have with another company is an external asset.
In the Core Business Model, these assets are exploited to provide additional
products or services, enhance efficiency, or build customer loyalty through
the careful use of the Internet. A key aspect of the Core Business Model is
that existing assets are leveraged, not damaged, by web-enabling your business.
Stakeholders in your company can include anyone who has an interest in the
success of the business. This may include customers, shareholders, and employees.
In the Core Business Model, the interface between stakeholders and the company,
along each step of the business process, is examined to focus on the advantages
technology can offer. For example, the Internet might be used to facilitate
communication between the company and its customers, shareholders, and employees.
The Core Business Model also addresses the interface between stakeholders
and your company's assets. For example, communication with potential employees
or business partners might be facilitated using web technology. By posting
desired employment traits or partnership criteria on your web site, you could
facilitate a dialogue with valuable resources that you might otherwise never
In every phase of your business process, the potential use of primarily Internet
technology is analyzed. However, the analysis should also include other potential
enablers, such as:
Virtual private networks (VPN)
Personal digital assistants (PDA)
Telephony systems such as interactive voice response (IVR)
The distinction between different types of technology, however, is becoming
blurred. For example, cell phones now provide access to the web. With the growth
in the convergence of technologies, these distinctions will continue to dissolve.
It is important to develop a strategic plan that includes Internet related goals
or objectives. Having strategic goals or objectives that clearly define your
organization’s Internet or web enablement goals will ensure that they do
not conflict with the existing strategy. The Core Business Model assists firms
to implement the Internet strategy while still meeting the current practices
of the firm.