Assess how the characteristics of the digital media and the Internet together with strategic decisions taken by its management team have supported

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1 Assess how the characteristics of the digital media and the Internet together with strategic decisions taken by its management team have supported ebays continued growth. Review the whole ebay business or the core business (The Marketplace). It is best to divide this question into two parts. 1. How the characteristics of digital media have supported ebay s growth. A suitable framework for reviewing the unique aspects of digital media is Table 1.2, an interpretation of the differences between the old and digital media. Also if this chapter is used later in a course, the section at the start of Chapter 8, p The characteristics of interactive marketing communications may be useful. The particular characteristics of digital media compared to traditional media that are important to ebay are straightforward: Change from a one-to-many communication model to one-to-one or many-to-many communication model The ability to create usergenerated content listing products is also related to the one-to-one aspect is also important From Push to Pull ebay offerings are often visible within search engines 3. From monologue to dialogue (a two-way information exchange for enquiries about products facilitated by ) 4. Ratings for sellers are important to generate trust (although there are methods of falsifying these). 5. Community the sense that users are part of a community and additionally are bypassing traditional retail channels will be important from some users. 2. How strategic decisions have supported growth. As with other cases based on SEC filings i.e. United States Securities And Exchange Commission submission, this case is useful for showing how growth is dependent not only on exploiting the right opportunities, but also about managing risks successfully. Students may structure strategic decisions in different ways according to the level of course they are following, but since case is early on in book, they could be advised to simply look for success factors. Alternatively, if they have completed Chapters 5 on Strategy and Chapter 8 on the Marketing mix (p366), then these provide alternative frameworks. Strategic success factors students may mention include the following: Branding a distinctive brand the earlier brand name was perhaps less appropriate although more direct. First mover advantage gaining a critical mass through the foresight of the owner. Security and fraud realising that this is important to its reputation so investing in managing this and controlling PR related to this, ebay has developed Trust and Safety Programs to manage this. Partnerships and acquisitions, which fit relate well to the service, i.e. PayPal and Skype Communication of customer value proposition the case describes how ebay explains this. Revenue model the market has judged that this gives a good balance for sellers, purchasers and ebay. Setting fees at the right level has enabled ebay to scale for some time. Process Efficiency the case describes how ebay measures and then seeks to improve the key areas of Acquisition, Activation and Activity. 1

2 Growth strategies these are covered in Chapter 4 and include market development (geographic) and product development (new categories for consumers and businesses). Technology scalability not referred to in the article, but ebay has been successful in deploying technology that has supported the companies rapid growth. E-business is just a new label there is no distinction between the role of e- business and traditional Information Systems management. Summary of arguments for are as follows: The tools are the same hardware, software and communications technology are not new witness use of EDI (Chapter 3) IS strategies have always looked at portfolio of applications across the business and links with third parties and how they can be utilized for competitive advantage (Chapter 4) Control of e-business usually resides with the IT department Only the largest companies tend to have specific responsibilities and departments for e-business typically part of IS function Summary of arguments against are as follows: The emphasis is different away from technology to how information can support business The expenditure on e-business has exceeded traditional IS expenditure New organizational structures and new processes have been introduced (see Chapter 4) E-business is seen as a board-level issue with board-level responsibility Confusion centres over the distinction between e-commerce and e-business implied by different interpretations of Figure 1.2. The implication is that if e- business and e-commerce are interpreted as referring to selling over the Internet then opportunities may be missed for: Supporting the whole buying process online including pre-sales and post-sales. Using the Internet for procurement (buy-side e-commerce). Using web enabled technologies to support internal process efficiencies. E-commerce is generally understood to be a subset of e-business. E- commerce refers to financial and non-financial transactions between organizations. These transactions are often considered in the context of a supplier organization distributing and selling its product to consumers. E- business includes transactions from a buy-side and sell-side e-commerce perspective and also the use of communications technology to improve internal process efficiencies. Buy-side e-commerce refers to electronic transactions concerned with the purchase and inbound logistics of goods such as a supermarket coordinating purchases from its suppliers. Sell-side e-commerce concerns transactions related to the sale and distribution of goods such as a supermarket selling direct to its customers. Security fears fraudulent use of credit cards. Privacy fears personal data held by companies or criminals. Cost of access devices and online costs. Lack of perceived need. Suggest how a organization can evaluate the impact of the Internet on its business. Is it a passing fad or does it have a significant impact? 2

3 Situation analysis should concentrate on the micro-environment (Figure 2.1) including demand for online services from customers. Services should be considered across the buying cycle from pre-purchase (supplier and product selection), purchase and post-purchase support. Demand levels can be assessed by reviewing figures of percentage of customers with access and those who are prepared to use it for information gathering and purchase. Competitor activity can also be benchmarked. Macro-environment SLEPT factors should also be reviewed, but they are not the main thrust of the question. Assessment of whether the impact is transitory or permanent can be assessed through developing projections of the online revenue and promotion contribution (Chapter 8, p350) Similar benefits and barriers exist for the adoption of sell-side e-commerce for both B2B and B2C organizations. Discuss. More research is available for B2C, so it is best to start with benefits and barriers for this and then look at similarities for B2B. Main benefits can be checked using the 6Cs: Cost reduction less use of physical resources and staff. New Capability e.g. to sell into an overseas market. Improved communication internal and external. Control better visibility/information for managers of trading relationships. Customer service more detailed information, faster response can be provided 24 hours, and 7 days a week. Competitive advantage any of the above factors may provide this, but it is likely to be short lived. A case study approach using a particular company e.g. Cisco, easyjet to highlight these factors would be an improvement. Barriers include: lack of recognition of need, cost of access, security and privacy. Consumer opinion surveys such as those published by Which? ( can be used to support these. Differences between B2B and B2C can be compared by reviewing the level of use of e-commerce for a sector that is common for each, e.g. office stationery. Generally B2B usage is greater because companies can make greater savings through economy of scale and the risk is perceived as lower since it is not the purchaser s own money that is at risk. Outline the internal changes a company may need to make when introducing e-business. Strategy new strategic responses are required Structure new structures and responsibilities may be required Systems new information systems and new processes will be required Style less likely to change, but some organizational styles are more responsive to change Staff new responsibilities Skills new skills Structure how will the e-business change be managed? Is a separate division required or can the change be matrix managed (Chapter 10)? Systems do new operating procedures or business processes need to be introduced? Can existing IS be used to implement change or will new systems be required? Style is the current, possibly conservative, style of the company consistent with the way the company wants to project its image? Will decisions be made 3

4 fast enough? Will risks be taken to trial new business models and new technology? Staff is the appropriate mix of staff available? Skills are the correct skills available internally? What training is required? Do we need to outsource some services? Superordinate goals this refers to the higher goals of the company that may be encapsulated in the mission statement. In modern parlance, do the senior managers get the significance of the Internet and will they act? A possible criticism of the 7S model is that it is internally focused. How well the company forms and leverages partnerships with suppliers and customers is now seen as a key element of strategy. Related to this is how well the company responds to the industry restructuring that has occurred as part of e- commerce. Can it take advantage of disintermediation and reintermediation within the industry (Chapter 2)? Summarize the operation of a B2B reverse auction from both the buyer s and seller s perspective. Buyer s perspective: The buying company posts an invitation to bid for the product they want to purchase. According to the article: The process works by the purchaser spelling out precisely what is needed, advertising the requirement and then drawing up an approved list of those who can meet it. Potentially, Mr Dempsey says, that opens up the market to small and medium-sized companies that might not normally see the government as a customer. The parameters of the auction are then set, the suppliers trained and battle commences. Usually auctions are set to last 30 minutes but are extended for 10 minutes each time a bid comes in during the last five minutes. An average auction runs for about 90 minutes, although some have lasted for several hours. As well as the obvious ability to achieve lower prices through competition with a greater number of suppliers who the purchaser may have been previously unaware of, it also enables a more rapid procurement cycle. Seller s perspective: The seller bids to supply at a particular price. They then monitor the prices posted by competitors and reduce their prices as appropriate. Identify overlap between the different business models identified by Timmers (1999). Can you group the different business models into different types of services? Do you think these business models operate in isolation? An immediate distinction can be made between the operation of individual companies (e-shop) using the web to sell direct to the customer and deal with suppliers (e-procurement) and intermediary services such as e-auctions and third-party marketplaces that make up most of the remaining services. For some business models such as virtual communities and e-auctions it could be argued that these services could be provided by intermediaries or businesses, but they are often best provided by neutral intermediaries. Overlap can be identified between e-auctions, e-malls, third-party marketplaces and business communities since they all facilitate the exchange of products between sellers and buyers. It can be argued that the business model is similar, but the mechanism for exchange is different. It can also be argued that some of the business models referred to are simply instances of the mechanism of 4

5 exchange, for example, e-auctions as distinct from fixed-price sales (e-shop). Auctions could potentially occur for the e-shop and third-party marketplace as well as e-auction. Summarize the revenue models which are used for each site by looking at the information for advertisers and affiliates. E-consultancy ( Online revenue models include annual subscription and pay per view access to articles. The site has limited advertising on a fixed monthly term basis. Traditional revenue models include training courses and conferences related to e-business. Net Imperative ( This makes more use of online advertising than Ee-consultancy, e.g. Google AdSense for publishers programme. It does not have a subscription. It runs showcase events for which it charges suppliers to promote their services. Marketing Sherpa ( This mainly offers a pay per view model for articles and reports. Surprisingly, it has limited advertising, so as not to annoy site visitors. Some of its reports are syndicated from other online sources, so this is a commission-based model. Revenue model Online subscription - Continuous revenue stream Difficult to get visitors to commit to an ongoing agreement Pay per view Instant fulfilment likely to appeal if article or reports meets someone s immediate need. Reports often more specialized and more immediate than books. Difficult to provide sufficiently compelling unique content that is not already freely available on the web. Advertising Relatively easy to setup, particularly if an established programme like Google AdSense where no advertisers have to be recruited. Advertisers have to be recruited and payments managed. If this fails, then online ad inventory may be unsold and so wasted. Affiliate Individual transactions can be significant value. Difficult to recruit affiliates and work best with high volume consumer markets rather than business markets. Revenue only generated if sale is made. A cost per click arrangement is better for publisher. 1. E-shop marketing of a company or shop via web. 2. E-procurement electronic tendering and procurement of goods and services. 3. E-malls a collection of e-shops such as Barclays Square ( 4. E-auctions these can be both for B2C and B2B as is the case with ebay. 5. Virtual communities these can be B2C communities such as Xoom ( or B2B communities such as Vertical Net ( these are important for their potential in e-marketing and are described in the Focus on Online Communities section in Chapter 9. 5

6 6. Collaboration platforms these enable collaboration between businesses or individuals e.g. E-groups ( now part of Yahoo! ( services. 7. Third-party marketplaces Marketplaces are described in the Focus On section of Chapter Value-chain integrators offer a range of services across the value chain. 9. Value-chain service providers specialize in providing functions for a specific part of the value chain such as the logistics company UPS ( 10. Information brokerage providing information for consumers and businesses, often to assist in making the buying decision or for business operations or leisure. 11. Trust and other services examples of trust services include Which Web Trader ( or TRUSTE ( that authenticate the quality of service provided by companies trading on the web. Discuss the extent to which SOA will reduce reliance on a single provider of enterprise software and increase flexibility in deploying new applications and functionality. A service-oriented architecture is a collection of services that communicate with each other as part of a distributed systems architecture comprising different services. Through using web standards like XML, data and functionality can be exchanged between different applications from different providers. The case study gives the example of an office worker booking a holiday and then this request being communicated to another application like an enterprise resource planning system. The main tenet of the question is whether it will make it easier to have multi hardware and software vendor solutions. This depends on how widely SOA is deployed. As the article suggests, it is a widely adopted, open standard, so in theory it should do this. However, there may be increased costs of developing a system that integrates different solutions, and it may still be more cost-effective to adopt a single solution such as those mentioned in the article such as SAP of CA for the majority of application functionality. Software from other vendors is then best used for specialist functionality. There will also always be switching costs associated with moving from one functionality provider to another. Similarly, adopting new business processes via software will always require some tailoring and managing of associated change. It will never be as simple as flicking a switch! Enterprise software is not as straightforward as Plug and Play hardware on a Windows PC. Tens of thousands of functions are required, even for a simple application, and it is very difficult to standardize these. That said, for some applications, which can be standardized such as procurement, the article shows that SOA can assist. It gives the example of `a single company or spanning several business partners: a customer placing an order in one system could automatically trigger production requests in another and an invoice in a third'. SOA is really an evolution of previous standards that have aimed at being hardware platform and software platform neutral. In this sense it will not increase flexibility since it is not significantly different to previous approaches, rather, as some interviewees in the article claim, it is a re-branding of existing technologies. Although the article mentions the increase in hardware, software and support costs that were partly caused by 6

7 migration to client/server architecture, this does not mean that SOA will suffer a similar fate since it already uses a similar model. However, some would argue that it may have increased memory and storage requirements than existing solutions. Using the framework of the marketing mix, appraise the marketing tactics of Boo.com in the areas of Product, Pricing, Place, Promotion, Process, People and Physical Evidence. The marketing mix is covered in Chapter 5, so this part of the question should only be set if this concept has been covered previously. These are aspects of how Boo.com applied the mix that students may comment on: Product Premium brands were used leading to premium prices. Unclear on mix between sportswear and high street fashion. Scope relatively narrow, so limiting target audience. Price. As mentioned in the case, there were issues of pricing in different region. No mentions of discounting are made consistent with the brands premium positioning. However, competitive selective promotions are today commonly used by many e-retail brands. Place. Boo.com had a worldwide distribution that was good for achieving reach, but added to the cost-base of the company so impacting on promotion. A global launch of a new brand was ambitious and can be contrasted with the more conservative approach from the likes of Amazon and ebay. Promotion. To build the Boo brand and drive visitors was reliant on online advertising that gave rise to a high cost per customer acquisition that ultimately led to the brand s failure. The use of PR was more effective and is one of the successes of Boo. The magazine appears overambitious and did not pay for itself through sales generated. At the time their promotion through online marketing techniques such as search engine advertising and affiliate marketing techniques was limited in its possibilities. Today, these are more effective for companies. Process, People and Physical evidence. It is well known that the technology was too advanced for a time when the vast majority was accessing the web over dial-up modems. This led to a clunky experience that resulted in the low conversion rates referred to in the article. It also seems likely that the cost of providing customer service was not factored into the business model. Define the main elements of an e-business strategy. The answer should start with definition of e-business, distinguishing it from e- commerce (see Chapter 1). You should then look at elements of strategy using traditional strategy process models such as those of Johnson and Scholes and Lynch described on pp You can then look at elements of strategy process as indicated by Fig 5.4 on p210 and details in subsequent figures in Chapter 5 (e.g. Fig 5.5, p198; fig 5.11, p212; fig 5.14, p219 and fig 5.19, p232). All strategy models should: Be based on assessment of internal and external environment Have clearly defined SMART objectives backed up by vision Have strategies, tactics and implementation that select the best techniques to achieve these strategies 7

8 Have monitoring and control that assess whether the objectives are being achieved and a feedback loop to ensure corrective action occurs. For e-business in particular, the strategy objectives should define the balance of online and offline trading with customers, suppliers and distributors. The tactics should look at how investment in information systems and revising business processes should occur to hit these targets. What benefits does Tesco s information exchange offer to the retailer and its suppliers? Benefits to Tesco: Reduced lead times seven to three days Shifts management of supplying product to supplier; Reduces inventory Improves product availability Gives more power over suppliers Benefits to suppliers: Can monitor demand in real time and then have more time to react to ensure product is delivered to customers Can analyze sales by store or TV region, which is important for promotions (St Ivel has reduced these costs by 30%) Gives a catalyst to change their processes (although only two have done so) Arguably strengthens their relationship with Tesco (soft lock-in). In the end business all comes down to supply chain vs supply chain. Discuss. This question prompts discussion of the significance of SCM in the context of other aspects of management, in particular corporate strategy and marketing. Marketers argue that the marketing concept and customer-led strategy as suggested by Figure 6.4 (b) is the most appropriate choice since this involves assessing demand through market research and then devising products and communications to satisfy demand. To marketers efficiency of the supply chain may help financial performance of the business, but does not create new customers. Supply chain managers argue that increasing the overall efficiency of the supply chain can be used to deliver customer value by enabling faster, more personalized new product development and on-time delivery of quality products to customers. These factors are all likely to increase customer satisfaction and so loyalty. Perhaps a more valid statement is that it comes down to value chain vs value chain since this emphasizes delivery of value to customers in different segments. Concepts that should be included are as follows: Push vs supply models Vertical integration vs disintegration vs virtual integration Partnership management and value networks Procurement and fulfilment strategies Upstream supply chain: Disintermediation offers the opportunity to buy direct from the supplier with reduced costs and shorter cycle times. Reintermediation offers the chance to use business-to-business exchanges to source products at lower costs. 8

9 Downstream supply chain: Disintermediation offers the opportunity to sell direct to the customer with lower cost of sales and improved lead time for customers. Reintermediation offers the opportunity to compete in new marketplaces through B2B exchanges The coordination of all supply activities of an organization from its suppliers and partners to its customers. Logistics large overlap according to definition from Institute of Logistics and Transport: Logistics is the time-related positioning of resource, or the strategic management of the total supply chain. The supply chain is a sequence of events intended to satisfy a customer. It can include procurement, manufacture, distribution and waste disposal, together with associated transport, storage and information technology. Value chain concept has similar components such as inbound and outbound logistics, production and sales and marketing. Different orientation which is how to deliver customer value. Plus separate identification of secondary activities such as HR and IS. Value networks interactions between different value chains of a range of organizations. A change in supply chain thinking, and also in marketing communications thinking is the move from push models of selling to pull models or combined push-pull approaches. The push model is illustrated by a manufacture who perhaps develops an innovative product and then identifies a suitable target market. A distribution channel is then created to push the product to the market. This situation is shown in Figure 6.3 (a) where it can be characterized by the statement This is a great product, now who shall we sell it to? or the quip about the original model T Ford you can have any colour, so long as it is black. The typical motivation for a push approach is to optimize the production process for cost and efficiency. Information systems are used to increase the efficiency of information flow by: delivering more information (e.g. sales data in Tesco TIE system) analysing information (e.g. alerting a large order) delivering it more rapidly (e.g. reduced lead times in e-procurement) 4. What are the key strategic options in supply chain management? How to restructure supply chain (vertical integration/disintegration/virtual integration) How to restructure (disintermediation, reintermediation, countermediation) How to restructure relationships in a value network New procurement models e.g. auctions and B2B exchanges Outline how the electronic medium requires different tactics for effective marketing communications. The 6Is is a suitable framework to answer this question: Interactivity (online communities, opt-in promotions, profiling) Intelligence (analysis of customer buyer behaviour through log-files, etc.) Individualization (personalization, mass-customization, one-to-one marketing) Integration (integration inbound and outbound communications) Industry restructuring (disintermediation, reintermediation, value networks) Independence of location (the role of place) 9