Questions. Implementation - Part 1. Implementation. Delivery of the Offering to Target Customers. What is Online Implementation?

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1 Questions - Part 1 CPS 181s Oct 18, 2001 What is online implementation? Why does implementation matter? What is the deliver system? What are the categories of offline innovation? What is the offline innovation process? What is the new logic behind e-commerce innovation? What are the e-commerce innovation processes? Two broad categories of infrastructure The delivery system The innovation process Delivery of the Offering to Target Customers People Systems Assets Processes Supply chains Clear point of view on innovation Related to offerings Infrastructure itself into the organization What is Online? A framework for implementation Online implementation process Delivery of the offering Extent of offerings and infrastructure Configuration of structure, systems, processes that form organization Supply chain > B2C > B2B > C2B > C2C Change Driven By Evolution of technology New competitors Changes in customer preferences (and demographics) New collaborators 1

2 Two Integral Components of Deliver the promised customer experience Turn strategic intent / concepts into results Build the infrastructure to deliver on the brand promise Two Components of Delivery System Innovation Process Innovate / Renew the customer experience Maintain fit between Marketspace evolution and the company s delivery system and product offering Source: Monitor Analysis Marketspace Evolution and Need for Continuous Innovation BRAND PROMISE Branding Marketing Communications Customer Interface Why Does Matter? Strategy Appropriate Inappropriate Success Roulette All All that can be be done to to Good execution can assure success has been mitigate poor strategy, Good done forcing management to to success or or Same good execution can hasten failure Achieve strategic goals Adjust product offering and delivery system to rapidly changing Marketspace DELIVERY SYSTEM Deliver on the promised experience IMPLEMENTATION INNOVATION PROCESS Renew/Innovate the customer experience Poor Trouble Poor execution hampers good strategy -- Management may never become aware of of strategic soundness because of of execution inadequacies Failure Difficult to to diagnose -- bad strategy masked by by poor execution More difficult to to fix fix -- two things are are wrong Source: Monitor Analysis Source: Modified version of materials in The Marketing Edge by Thomas V. Bonoma New York: The Free Press. Challenges for Online Firms Increased speed and intensity means punishment more severely and quickly Higher visibility to errors through media and service reports Lower switching costs through Internet click and wider variety More dynamic competitive through easier entry barrier More fluid organizational boundaries because partnering causes greater complexity More dynamic market because of speed of change and response More complex linkages the more complexities and the higher probability that decisions will be slowed Challenges of On-Line Essential challenges of On-line Customer Driven Organization Driven Lower switching More complex barriers = increased linkages = increased importance of of good complexity of of implementation implementation More visibility of of errors = stronger competitive implications of of errors More fluid fluid More organizational dynamic market boundaries = = increased increased complexity complexity of of of implementation of implementation Organization Driven Customer Driven 2

3 The Effects of Poor For e-commerce, fulfillment is the top complaint ebay s network shutdown largest online trading community network shutdown caused 20% decrease in stock and loss of significant revenues lost of listing fees for items offered during the outage due to outraged customers caused loss of confidence Buy.com Pricing and Fulfillment Sells at low or no margins with a model to advertise to customer base Outsources most of its infrastructure (customer support, fulfillment) Developed poor reputation of backordering products due to lack of delivery control Law suits for intentionally mispricing products Significant stock price decrease Point-Counterpoint: From Built to Last to Built to Rebuild Built to Last: The Offline World Name of the game is to consistently outplan the competition elaborate strategic planning process important for long term success Organizational growth is based on organic growth with selective use of acquisitions to fill pockets of deficiencies (slow post-merger integration-processes) Scaling up requires years of building up physical assets and brand equity Growth is constrained by the limited number of available market opportunities Most successful companies are not founded on Great Idea Built to Rebuild (Fast): The On-line World No time for elaborate planning ( Be fast or be last ) frequent experimentation and adaptability, as well as locking in alliances earlier than competitors keys for success Acquiring competencies, assets and customer-base far more important than organic growth definition of the organization more flexible and hence, same goes for design of organizational architecture Scaling up takes months and is based on informationassets Growth is constrained by the company s ability to capitalize on the overload of opportunities out there (people, infrastructure) Most successful companies are based on great ideas What is the Delivery System? A framework for the delivery system Must deliver total customer experience that the brand communication has promised Must correctly execute transaction initiated through the customer interface Delivery system is most detailed and concrete expression of the company s value proposition Sources: Brooks, Frederick P Built to Last. New York: Harper Business. Business Smart Way to Start, 10 Principles of the New Economy (March). The Five Components of the Delivery System People Systems Assets Processes Resource allocation process Human-resource management process Manufacturing and distribution processes Payment/billing processing Customer support/handling processes Supply chains The Delivery System Needs to Support and Reinforce the Resource System Supply Chains DELIVERY SYSTEM People Systems Assets Processes MAPPING THE RESOURCE SYSTEM Source:Christensen, Clayton M Meeting the Challenge of Disruptive Change. Harvard Business Review 78, no. 2 (March-April). 3

4 Business-to-Consumer (B2C) Supply Chains Online retailers do not need to have physical inventory Provides flexibility in designing supply chains More complex than offline Many web deliveries are time-sensitive and small package Different from periodically fulfilling standard orders No predictable routes and volumes Fulfillment is weakest link Returns cost four to five times offline Four Primary Supply-Chain Models Stock-it-yourself Often company is brick and mortar as well If own warehouses, then loose flexibility of shaping asset easily Outsource warehousing FedEx or UPS to stockpile and ship orders Allows some to focus on only marketing, assembly of resources, and model or product If own warehouses, then loose flexibility of shaping asset easily) Drop shipping Depend on manufactures or distributors to ship Often benefits mail-order companies who already have the shipping expertise Fulfillment intermediates Take care of all backend operations Order processing, updating customers, cancellations, product returns Minimizes risk as companies do not have to commit permanently to one type of fulfillment chain Four Types of Supply Chains Found In Marketspace B2C - Business to Consumer Stock it it Yourself. Outsource Warehousing Drop Ship Fulfillment intermediaries C2C - Consumer to Consumer Much like like a vertical hub, hub, many sites sites (i.e., (i.e., ebay) have have created a customer-to-customer sales Provides a forum for for buyers and and sellers to to meet meet Buyers and and sellers trade trade directly (eliminating an an intermediary) A global marketplace with with a large large and and interested trading company B2B - Business to Business Customer Centric Vertical Hubs C2B - Consumer to Business C2B C2B include auction services like like Priceline.com. Individual consumers place bids bids with with businesses and and businesses decide whether to to sell. sell. Also Also include consumers group buying like like Mercata.com. Mercata.com is is a trading community where the the more more people that that purchase a product, the the lower the the price price is. is. Mercata allows consumers from from around the the world to to achieve group scale economies. Business-to-Business (B2B) Supply Chains Sellers become more competitive Established in over a decade of enterprise-level expenditures Often EDI to VPN, finally to the Internet itself Five main reasons why buyer push on systems on suppliers Lower costs than offline Improved transaction speed and control Old way, high security of the systems, as proprietary and supervised by the buyer Created strong switching barrier for participating suppliers Good reliability of capacity to process transaction volume as the buyer was the key driver behind capacity management Business-to-Business (B2B) Supply Chains Consumer-to-Business (C2B) Supply Chain Internet increased attractiveness Improved security Increased transaction-handling capacity Open standards allow for broader supplier based Lower input prices Reduce inventory Reduced transaction costs Faster delivery Better customer service Organize customers to gain buying power Creates a transaction with a large amount of merchandise with a low transaction cost 4

5 Consumer-to-Consumer (C2C) Supply Chain ebay serves as platform for community of buyers and sellers to interact Income from sliding scale of transaction fees Changing Role of IT Microsoft Front Page 1. Create lock-in by separating front end and back end of the customer experience - makes web servers a commodity 2. Ensure appropriate scalability 3. Enable fast tactical and strategic adjustments to an evolving market through plug-ins 4. Enable user-driven customization to serve niches costeffectively include bots to customize functions by third parties Online and Offline Integration Hybrid companies Combine online and offline systems Includes customer interface, fulfillment, or both Product mix very different Offline impulse Online must be worth shipping costs Single-Organization Hybrid Advantages Tightly coupled online/offline platforms benefit customers and firms People recruiting advantage Taxes if one operate at a lost and the other at a gain, provides significant tax advantages Valuation participation in online sales may enhance overall company value Systems ability to deliver value depends upon back-office structure and the IT that supports it Disadvantages Coordination and cooperation processes of single back-end process requires considerable coordination between online and offline People recruiting New Economy people to an Old Economy organization is difficult Allocations competition for resources of funding, staffing, mind share with senior management Duel-Organization Hybrid Where to Play On-Line and Off-Line Advantages Coordination processes integration works better for many companies License to cannibalize easier to cannibalize methods and people from organization as a whole, if separated, harder to do if operate in same structure People some New Economy worker prefer work in a online Taxes online sales are exempt from taxes, if operate together, both are taxed Valuation investors may prefer to see separate online structure Disadvantages Avoids customer confusion Consistent integration of online and offline customer service Managing a consistent brand CUSTOMER INTERFACE FULFILLMENT SYSTEMS Egghead ON-LINE OFF-LINE Yahoo! BN.com Amazon.com McDonalds 5