Chapter Fourteen: E-Commerce Strategy and Global EC 1 ONLINE FILE W14.1 Words of Wisdom About the Importance of Planning Plans are nothing; planning is everything. 4 Dwight D. Eisenhower Long-range planning works best in the short term.
4 Doug Evelyn A good plan today is better than a perfect plan tomorrow. 4 George S. Patton The best way to prepare for the future is to create it.
4 Management guru Peter Drucker Men don 9t plan to fail, they fail to plan. 4 William J. Siegel Every moment spent planning saves three or four in execution.
4 Crawford Greenwalt The preparation of an annual plan is in itself the end, not the resulting bound volume. 4 Andrew Grove, founder and long-time CEO of Intel Corporation Hope is not a strategy. 4 General Thomas McInerney I am just preparing my impromptu remarks.
4 Winston Churchill 2 Part 6: EC Strategy and Implementation Online File W14.2 PEST Analysis The PEST Analysis is a framework that some strategy consultants use to scan the external macroenvironment in which a firm operates. PEST is an acronym for the following four factors: × Political factors × Economic factors × Social factors × Technological factors PEST factors ... more. less.
play an important role in the value creation opportunities of a strategy. However, they are usually beyond the control of the corporation and must normally be considered as either uncontrollable threats or opportunities.<br><br> Macroeconomical factors can differ per continent, country, or even region, so normally a PEST analysis is performed per country. Completing a PEST analysis can be done via workshops using brainstorming techniques. Usage of PEST analysis can vary from business and strategic planning, marketing planning, business and product development, to research reports.<br><br> Sometimes extended forms of PEST analysis are used with additional factors such as social and demographic, technological, economic, environmental (natural), political, legal, and ethical factors. Also, geographic factors may be relevant. For further details see Valuebasedmanagement.net (2006).<br><br> REFERENCES FOR ONLINE FILE W14.2 Mindtools.com. cPEST Analysis: Understanding Big Picture Forces of Change. d2007. mindtools.com/pages/ article/newTMC_09.htm (accessed February 2007).<br><br> Valuebasedmanagement.net. cPEST Analysis. d 2006. valuebasedmanagement.net/methods_PEST_analysis.<br><br> html (accessed November 2006). ONLINE FILE W14.3 LONELY PLANET TRAVELS FROM PLACE TO SPACE The Problem Scan the luggage of independent travelers anywhere in the world and you will find that most of them have something in common 4they depend on a Lonely Planet guidebook to tell them how to get to their destination, where to sleep, the best places to eat, and what to see and do, all at a price they can afford. The Lonely Planet (LP) library includes more than 500 book titles as well as maps, travel videos, and a television series.<br><br> LP 9s primary assets are its global brand name; the dedication of its writers and editorial staff; its vast library of text, maps, photos, and images; and the community of global travelers who buy LP products and contribute to the company 9s knowledge base. LP faces many of the dilemmas that confront businesses that have been successful in the physical marketplace and are now migrating to the electronic marketplace. These opportunities and threats are especially challenging for companies in the information industry, those that sell news- papers, music, magazines, pictures, software, and books.<br><br> How can LP apply electronic technologies to its vast library of travel information to reinvent the travel guide? How can LP sell its content electronically and not create channel conflict with its traditional outlets, the bookstores? What changes should LP make in the way it collects information, stores it, and uses it to publish travel guides?<br><br> The Solution LP 9s EC strategy must consider the combination of business models that make up LP 9s current value proposition and revenue model. These models include the following: × Content provider. LP creates branded and unbranded travel content that is distributed through a number of distributors, including bookstores, travel sites (e.g., Travelocity), and publishers of in-flight magazines.<br><br> ( continued ) Chapter Fourteen: E-Commerce Strategy and Global EC 3 ONLINE FILE W14.3 ( continued ) Although a significant portion of this content carries the LP brand, only rarely does LP have a relationship with the purchaser or reader; instead, the bookstore, travel site, or publisher owns that relationship. × Virtual community. The LP brand and Web site create a virtual community of independent travelers that LP man- agement recognizes as a key asset.<br><br> This community, when traveling or preparing to travel, has information and com- munication needs that LP can use in formulating its online strategy. × Direct to consumer. LP traditionally has sold its products through bookstores and other intermediaries.<br><br> The Internet enables LP to add the direct-to-consumer business model to its e-strategy. However, LP must be cautious with this approach because of the opportunities and threats presented. In moving online, LP has launched the following initiatives: × Lonely Planet Online ( lonelyplanet.com ) includes an online store (LP shop), access to brief destination overviews (WorldGuide, Theme Guides), free updates to currently published guides (Upgrades), various forms of travel news (Scoop, Postcards), a traveler 9s bulletin board (Thorn Tree), and links to related sites (SubWWWay).<br><br> Collectively, these features represent the primary implementation of LP 9s direct-to-consumer business model. All products sold online are priced at the recommended retail price so as not to undercut bookstore sales and alienate what is still the company 9s most important sales outlet. A key to leverag- ing the virtual community business model is Thorn Tree, an electronic bulletin board for travelers to share up-to-the- minute travel information with other travelers or provide feedback to LP.<br><br> × CitySync ( citysync.com ) is branded cthe personal digital guide to urban adventure. d It allows owners of handheld computers to load their devices with LP city guides; in these electronic versions, the information is searchable, hyperlinked, and can be annotated and sorted by the traveler. CitySync can be purchased and downloaded from the LP Web site (i.e., direct-to-consumer model) or bought on a CD-ROM from retail outlets (i.e., content provider model). × Knowledge Bank is an internal knowledge management project that aims to transfer all LP 9s intellectual property into a standardized and centralized digital database.<br><br> The Knowledge Bank will enable LP to more easily maintain and update current information, to tailor information for specific products (i.e., content provider), and to eliminate duplicate research and storage. The Results According to Electronic Publishing Manager Rob Flynn, LP seeks nothing less than to use the Internet to creinvent the travel guide. d So far, its steps toward this strategic vision have been cautious and in line with its core competencies in gathering and distributing travel-related information. When it has stepped outside its core competencies, it has done so with strategic partners.<br><br> Perhaps the most successful of LP 9s initiatives thus far is its award-winning Web site, which offers a successful sales and information distribution channel to its customer base. The site also is the most visible presence of its virtual com- munity. LP now must consider how to successfully use this strategic asset, and its 2 million visitors per month, to gen- erate revenue and further promote its branded products but at the same time avoid channel conflict and allay anxiety.<br><br> Another asset with huge strategic potential is the Knowledge Bank. Not only does it promise increased internal efficiencies in information handling, it also offers numerous long-term business possibilities, including the ability to license and syndicate content to outside organizations. It also will be key to the strategic vision of reinventing the travel guide, such as personalized travel guides that allow travelers to make selective choices about the information they need.<br><br> REFERENCES FOR ONLINE FILE W14.3 Weill, P., and M. R. Vitale.<br><br> Place to Space: Migrating to eBusiness Models . Boston: Harvard Business School Press, 2001. lonelyplanet.com (accessed November 2006).<br><br> 4 Part 6: EC Strategy and Implementation ONLINE FILE W14.4 BRICK-AND-CLICK STRATEGY AT SEARS, ROEBUCK AND COMPANY Sears, Roebuck and Company began in 1888 as a mail-order catalog business, the first of its kind in the United States. In its initial years, Sears faced many of the same challenges that contemporary born-on-the-Net businesses face, such as shoppers skeptical of a new way of shopping and the lack of a physical presence. In 1925, Sears opened its first retail store, and the company rapidly became an icon in the U.S.<br><br> retail industry. By the early 1990s, competition from discount stores, such as K-Mart and Wal-Mart, had severely eroded Sears 9s market share. Diversification into financial services and real estate did little for the bottom line, and the company was approaching bankruptcy.<br><br> In response, Sears initiated a number of cost-cutting initiatives, some of which were, in hindsight, counterintuitive to the creation of an e-commerce presence. For example, in 1993 Sears closed its catalog operations, shedding the distribution, fulfillment, and direct-marketing capabilities that are fundamental building blocks of a successful e-tailer. In 1996, Sears sold its stake in Prodigy, one of the first online Internet services.<br><br> Also in 1996, Sears launched its online presence with an information-only Web site. By the following year, Sears had become convinced that there was potential in online shop- ping and piloted a program to sell Craftsman tools online. Following a classic move-to-the-Net strategy, Sears chose Craftsman tools because the product line had a widely recog- nized, high-quality brand name.<br><br> Selling apparel and appli- ances, more dominant offerings in its retail product mix, was considered too problematic. Despite initial success in hard goods and gift items, classic move-to-the-Net problems began to appear in Sears 9s strategy. Skeptics pointed out that catalog and home shop- ping had been popular at first, too, but then faltered.<br><br> There also was considerable concern about cannibalization. Some executives saw the Internet as a threat that would draw cus- tomers away from the retail stores. In 1999, CEO Arthur C.<br><br> Martinez made an organizational commitment to Sears 9s becoming a brick-and-click organiza- tion. A senior manager in charge of online ventures was appointed and an internal Web team was created. PartsDirect, with 4.2 million parts and accessories, was added to the Web site, followed by major appliances, in which Sears had a huge market share.<br><br> Here, Sears 9s physical retail experience worked to its advantage because it had the logistics, delivery, installation, and repair capabilities already in place. Sears launched a number of initiatives to advance its move-to-the-Net strategy. Strategic partnerships were made with Sun Microsystems to promote the Internet-connected home, with IBM to launch a Web site promoting home deco- rating, with home improvement guru Bob Vila to create a Web site for home improvement solutions, and with America Online for joint promotion activities.<br><br> A new Web site was launched, and new features such as online delivery schedul- ing and online bill payment were added. Sears began to see its Web site as a way to encourage customers to make in-store purchases. It introduced in-store pick-up of products sold online and installed in-store kiosks that enabled customers to do product research online.<br><br> In the B2B area, Sears joined with others to launch an e-marketplace named GlobalNetXchange. Finally, to relieve concerns about cannibalization, Sears began offering a commission to its retail stores on all online sales, based on the zip code of the online order. In May 2002, Sears bought Lands 9 End, effectively reentering the mail-order catalog business via one of America 9s largest and most successful online apparel companies.<br><br> Despite Sears 9s best efforts, its move-to-the-Net strategy has not had a significantly positive impact on the bottom line. All of Sears 9s competitors have made the same moves to online retailing. The global e-marketplace, GlobalNetXchange, has produced mixed results.<br><br> Finally, rapid technological growth has produced a somewhat fragmented set of information systems. Sears 9s EC strategy continues to evolve as it faces ques- tions such as: What is the best way to attract customers and sell a mixed product line over the Internet? How should B2B EC initiatives be extended or enhanced?<br><br> How can Lands 9 End 9s capabilities be used for Sears 9s continuing evolution into an e-business? After its merger with K-Mart under the name of Sears Holding, Sears expanded and improved sears.com by adding many new lines of merchandise, including tires, shoes, and health and wellness products. In 2006, under a new senior vice president of direct (e)commerce, Sears opened an e-commerce center in downtown Chicago with 100 IT workers.<br><br> Questions 1. What decisions favored Sears 9s move-to-the-Net strat- egy? What decisions did not support the strategy?<br><br> 2. How is Sears 9s EC strategy in line with its bricks-and- mortar history? 3.<br><br> What solution did Sears implement to reduce employees 9 fear of cannibalization of the retail store channel? ONLINE FILE W14.5 BANKDIRECT: NEW ZEALAND 9S VIRTUAL BANK For four decades, ASB Bank (formerly Auckland Savings Bank) has had a reputation as a technologically savvy bank that knows how to use information technology for competitive advantage. In the mid-1960s, ASB Bank was a first mover into real-time processing of banking transactions.<br><br> In the 1970s, ASB Bank replaced its account-oriented database software with a customer-oriented data model. This enabled ASB Bank to be New Zealand 9s first bank to introduce a comprehensive customer-account product in 1986, a competitive advantage that took other banks more than two years to counter. Despite this reputation, ASB Bank 9s launch of its virtual bank, BankDirect ( bankdirect.co.nz ), in 1997 took the Australasian banking world by surprise.<br><br> Initiated by CEO (and former CIO) Ralph Norris as a Skunk Works project several months earlier, BankDirect was launched as a flexible, innova- tive bank in an increasingly competitive banking market. Norris 9s IT background contributed to the BankDirect vision. As a virtual bank, BankDirect has no bank tellers and no bank facilities.<br><br> Instead, the bank uses the Internet, a telephone call center, ATMs, and mobile mortgage managers to conduct busi- ness. The target market is the online customer who is willing to forgo face-to-face bank transactions and receive cost sav- ings and innovative services in return. For example, BankDirect consistently offers one of the lowest interest rates for home loans.<br><br> Despite the lack of face-to-face contact, an October 2002 survey by the Consumers Institute of New Zealand ranked BankDirect third in customer satisfaction, ahead of all cBig 5 d New Zealand banks, including ASB Bank. BankDirect remains ASB Bank 9s cvirtual bank brand. d It competes directly against ASB Bank 9s Fastnet and Fastphone services. However, any ASB Bank customers who have been lost to BankDirect have been more than compensated for by the BankDirect customers who have switched from one of ASB Bank 9s competitors.<br><br> By launching a separate company and a new brand to fill an obvious gap in the banking market, ASB Bank has been able to increase its customer base and further enhance its reputation as New Zealand 9s leading technology bank. Questions 1. Why did ASB Bank launch BankDirect as a separate company rather than within ASB Bank itself?<br><br> 2. Describe BankDirect 9s value proposition to its customers. 3.<br><br> How has ASB Bank benefited from creating a separate online company as its virtual bank brand? Chapter Fourteen: E-Commerce Strategy and Global EC 5 REFERENCES FOR ONLINE FILE W14.4 Ranganathan, C., et al. cE-Business Transformation at the Crossroads: Sears 9 Dilemma. d Journal of Information Technology ,Vol.19,No.2 (June 2004),pp.117+.<br><br> Internet Retailer News . cSears Opens an E-Commerce Operation in Downtown Chicago. d December 7, 2006, internetretailer.com/dailyNews.asp?id=20753 (accessed February 2007). REFERENCES FOR ONLINE FILE W14.5 asbbank.co.nz (accessed April 2006).<br><br> bankdirect.co.nz (accessed April 2006). consumers.co.nz (accessed April 2006). 6 Part 6: EC Strategy and Implementation Online File W14.6 Application Portfolio Analysis for a Toy Distributor A toy distributor is considering three potential EC applications for implementation: (A) create an e-marketplace, (B) direct sa le (sell-side), and (C) MRO procurement.<br><br> Following Tjan 9s (2001) Internet portfolio map process, the senior management and other interested stakeholders at the distributor have assessed viability (top table) and fit (bottom table) on various criteria. Thes e are averaged and plotted on the portfolio map, as is shown by the black arrows for application A. The results (center) are: invest in the MRO procurement; redesign the e-marketplace so it will become viable; and sell the direct sell application to someone else because it does not pay to reengineer the company.<br><br> Viability Metric (on 1 3100 scale) EC Application Market-Value Potential Time to Positive Cash Flow Personnel Requirement Funding Requirement Average E-Marketplace (A) 85 70 20 20 49 Sell-side (B) 70 70 60 50 63 MRO Procurement (C) 80 60 80 90 80 Fit Metric (on 1 3100 scale) EC Application Alignment with Core Capabilities Alignment with Other Company 9s Initiatives Fit with Organizational Structure Fit with Company 9s Culture and Values Ease of Technical Implementation E-Marketplace (A) 90 60 90 70 80 Sell-side (B) 10 30 30 40 60 MRO Procurement (C) 90 60 90 80 80 Average, Overall Fit 78 35 84 high 100 Sell , spin off low Sell-side B MRO Procurement E-Marketplace C A 0 78 100 high 0 Viability Fit Kill Invest Redesign 49 Chapter Fourteen: E-Commerce Strategy and Global EC 7 ONLINE FILE W14.7 IBM 9S E-BUSINESS STRATEGY IBM has been a huge presence in the computer industry since its inception in the 1940s. In the face of increased competi- tion over the years, IBM has revamped its business strategy continually. Even more important, though, is IBM 9s need to capture new business opportunities and technologies, such as EC, and to develop a business strategy for that purpose.<br><br> Since 1999, IBM 9s declared strategy has been to transform itself into an e-business in order to provide business value to the corporation and its shareholders. To ensure successful implementation of its e-business strategy, IBM formed an independent division called Enterprise Web Management that has the following four goals: 1. To lead IBM 9s strategy to transform itself into an e-business and to act as a catalyst to help facilitate that transformation.<br><br> 2. To help IBM 9s business units become more effective in their use of the Internet, both internally and with their customers. 3.<br><br> To establish a strategy for the corporate Internet site. This includes a definition of how it should look, feel, and be navigated 4in short, to create the online environment most conducive to customers doing business with IBM. 4.<br><br> To leverage the wealth of e-business information accumulated in case studies to highlight the potential of e-business to customers. Like many other companies, IBM first used the Internet as a static digital brochure, basically a tool for posting infor- mation. IBM is now moving toward comprehensive e-business, carrying out business transactions of all kinds over the Internet, intranets, and extranets between IBM and its suppliers, among members of its Business Partner Network, among its employees, and so on.<br><br> IBM wants to become truly e-business-oriented and to focus on how it can use powerful networking technology to fulfill the diverse needs of its customers and partners. One of the major issues in moving to e-business was the redesign of many of its core business processes on the Internet 4including sales, procurement, customer care, and knowledge management. Implementing EC frequently requires such a redesign.<br><br> IBM adopted a strategy of streamlining its core business processes by simplifying its internal business processes (using BPR), eliminating redundant IT applications (reduced from 16,000 to 8,000), simplifying IT infrastructure (reducing the number of data centers from 131 to 16), intro- ducing standardization, creating one global network (instead of 31), and more. The company targeted EC projects at those areas in which IBM could earn the biggest ROI. It focused its activi- ties initially around eight key initiatives: 1.<br><br> Selling more goods over the Web 4 e-commerce 2. Providing customer support online, from technical sup- port to marketing backup 4 e-care for customers 3. Support for IBM 9s business partners over the Web 4 e-care for business partners 4.<br><br> Dedicated services providing faster, better information for IT analysts and consultants, financial analysts, media, and stakeholders 4 e-care for influencers 5. Improving the effectiveness of cIBMers d by making needed information and services available to them 4 e-care for employees 6. Working closely with customers and suppliers to improve the tendering process and to better administer the huge number of transactions involved 4 e-procurement 7.<br><br> Using the Internet to better communicate IBM 9s market- ing stance 4 e-marketing communications 8. Creating a visible and usable portal by modifying the old Web site 4 enterprise portal The company later added two more initiatives: 9. Using Lotus Notes and Domino, the company created many knowledge management applications 4 knowledge management 10.<br><br> Moving close to 50 percent of all training to the Web by 2003 4 e-learning Some of these initiatives have already borne fruit. For example, the e-procurement system that spans IBM globally saved the company more than $6 billion from 1999 to 2002, REFERENCE FOR ONLINE FILE W14.6 Tjan, A. K.<br><br> cFinally, a Way to Put Your Internet Portfolio in Order. d Harvard Business Review (February 2001). ( continued ) 8 Part 6: EC Strategy and Implementation REFERENCES FOR ONLINE FILE W14.7 Bonnett,K.R. An IBM Guide to Doing Business on the Internet.<br><br> New York:McGraw-Hill,2000. ConsumerOnline. consumers.co.nz (accessed April 2003).<br><br> IBM. cThe Future of Government. d ibm.com/e-business/ doc/content/casestudy/46406.html (accessed February 2007). ONLINE FILE W14.7 ( continued ) reducing maverick (unplanned) buying from 33 percent to 2 percent.<br><br> Online sales were close to $20 billion in 2002. However, there is more to e-business than just how many dollars per day IBM sells or saves on the Web. In the procurement area, for example, IBM is invoicing electroni- cally to reduce the millions of paper invoices it sends out and to enable fast, competitive tendering from its suppliers.<br><br> IBM has evaluated every step of the procurement process to determine where the use of the Web can add value. This has resulted in the identification of more than 20 initiatives 4 including collaboration with suppliers, online purchasing, and knowledge-management-based applications 4in which the company is already reducing cost and improving purchasing. (For more information, see Bonnett 2000.) A new corporate culture has been created: People are sharing and collaborating and are happier in doing their jobs.<br><br> Questions 1. Why it was necessary to simplify business processes before doing EC? 2.<br><br> Relate this case to strategy initiation, formulation, and implementation. 3. Review Section 14.7.<br><br> Which factors contributed to IBM 9s success? 4. Do you think that IBM is becoming an e-business?<br><br> Why or why not? Chapter Fourteen: E-Commerce Strategy and Global EC 9 REFERENCES FOR ONLINE FILE W14.8 Hedlund, T., E. Airio, H.<br><br> Keskustalo, R. Lehtokangas, A. Pirkola, and K.<br><br> Järvelin. cDictionary-Based Cross Language Information Retrieval: Learning Experiences from CLEF 2000 32002. d Information Retrieval , Vol. 7, No.<br><br> 1 32 (January 3April 2004). Sullivan, D. cMachine Translation: Is It Good Enough? d e-Business Advisor .<br><br> June 2001. Online File W14.8 Automatic Translation of Web Pages Many vendors offer automatic Web translation applications. However, not all automatic translations are equally good, so some evaluation of these products is needed.<br><br> According to Sullivan (2001), the best way to assess machine translation is to use the following three criteria: (1) intelligibility 4how well a reader can get the gist of a translated document, (2) accuracy 4how many errors occur during a translation, and (3) speed 4how many words per second are translated. Because the quality of auto- matic translation has not always been as good as human translation, many experts advocate the use of the computer as a pro- ductivity booster, with human translation as a double-check. However, as time passes, automatic translation is becoming better (Sullivan 2001).<br><br> There are three Web page translation methods: (1) dictionary-based translation, (2) machine translation, and (3) methods using what in linguistic jargon is called parallel corpora. Direct dictionary-based translation is the simplest method. However, it suffers from some problems, among which are: (1) the problem of inflection (a translation problem due to difference between written and spoken words), (2) translation ambiguity, (3) how to handle compound words and phrases, and (4) how to translate proper names and other untranslatable words (Hedlund et al.<br><br> 2004). Some popular translation products are: × WorldPoint ( worldpoint.com ) offers a WorldPoint Passport multilingual software tool that allows Web developers to create a Web site in one language and deploy it in several other languages. × AltaVista offers the free Babel Fish Translation ( world.altavista.com ) that translates Web pages, e-mail, and text.<br><br> Babel Fish supports 19 language pairs. It is linked to Newstran.com ( newstran.com ), which translates online newspapers to English. × Alis Technologies and Netscape developed AutoTranslate, which is offered in the Netscape browser.<br><br> Available in the cview d menu (click on ctranslate d), users can translate a Web page to a desired language (out of 10 available languages). × Google offers a service ( google.com/language_tools ) that automatically translates the content of Web pages published in French, German, Italian, Spanish, Portuguese, and more to English. All you have to do is click on the cTranslate this Page d but - ton that appears after a title in a foreign language.<br><br> × Uniscape.com (now trades.com ) offers software that does multilingual translation for companies that want to provide trans- lated Web pages from their URLs. Product documentation, Web sites, marketing materials, and software interfaces can be local- ized in many languages quickly and cost effectively. The company 9s site ( translationzone.com ) also is a portal for translation professionals worldwide and offers resources to help translators expand their customer base.<br><br> Professional translators can pur- chase the latest releases of TRADOS software ( trados.com ) as well as create online professional profiles, through which they can market themselves to potential clients. The portal currently has more than 12,000 registered users. × Rikai.com ( rikai.com ) is an online character translator that allows users to translate Japanese Web pages.<br><br>