Digital Strategies
The beginning of the end Today - Internet & Strategy Tuesday 29th - Management and ethics Wednesday (30th) - Seminar presentations Next Wednesday (7th)- Seminar presentations Thursday (8th) - Project Management & Outsourcing Monday (12th) - Things we missed (if any) Thursday 15th - Last lecture, summing up & administratrivia
Today s lecture Partially based on Michael Porter s Strategy and the Internet, Harvard Business Review, Vol. 79., No. 3, March 2001 On Internet, Strategy and Marketing
What is the Internet? An industry? E-business strategy? New economy? Dot.com/Web2.0 revolution? Social institution?
In a Sense All of the Above
In a Sense All of the Above
In a Sense All of the Above
In a Sense All of the Above
In a Sense All of the Above
In a Sense All of the Above
In a Sense All of the Above
In a Sense All of the Above
Internet, According to Porter An enabling technology A powerful set of tools that can be used wisely or unwisely Almost any industry, almost any strategy
Economic value and the internet Uses of the Internet (digital marketplaces, selling mobile phones, trading antiques) Internet technologies (search engines, website tools, real-time information)
Competitive forces
Internet and Industry Structure Some new industries (on-line auctions, digital marketplaces) Reconfigured old industries (distance learning, production distribution, oneto-one marketing, employment markets)
Competitive forces Intensity of rivalry among competitors barriers to entry threat of substitutes products or services bargaining power of suppliers bargaining power of buyers
Competitive forces Varies from industry to industry Each industry is affected by internet in different ways Industry and customer analysis still useful
Bargaining Power of Suppliers E-procurement increases power over suppliers Provides channel for supplier to reach end-users, increased competition Equalizes access to markets, may affect standardization of procurement, distribution Reduces barriers to entry for suppliers,
Bargaining Power of Suppliers
Bargaining Power of Suppliers E-procurement increases power over suppliers Provides channel for supplier to reach end-users, increased competition Equalizes access to markets, may affect standardization of procurement, distribution Reduces barriers to entry for suppliers,
Bargaining Power of Suppliers E-procurement increases power over suppliers Provides channel for supplier to reach end-users, increased competition Equalizes access to markets, may affect standardization of procurement, distribution Reduces barriers to entry for suppliers,
Bargaining Power of Buyers Potentially shifts power to end consumers Reduces switching costs
Bargaining Power of Buyers
Rivalry Reduces differences among competitors, shifts competitive strategy, more information about strategy, goods, and prices is available online Expands geographic market potential (increasing competition) Lowers variable cost relative to fixed cost, increasing price concerns
Rivalry
Barriers to entry Reduces barriers like salesforce, channel access, physical assets, and other components affected by the internet Internet applications are difficult to keep proprietary Increased number of new entrants
'LJL7D/ Barriers to entry 0(',$ 0JPW Reduces barriers like salesforce, channel access, physical assets, and other components affected by the internet Internet applications are difficult to keep proprietary Increased number of new entrants
Substitution Expanding market due to efficiency Internet makes possible novel threats (long distance telephones, market research, auctions, employment recruiting)
Substitution
Internet Competitive Advantage
Internet Competitive Advantage Operational effectiveness information exchange across value chain
Internet Competitive Advantage Operational effectiveness information exchange across value chain Open platform, common standards, beneficial information technology
Internet Competitive Advantage Operational effectiveness information exchange across value chain Open platform, common standards, beneficial information technology
Internet Competitive Advantage Operational effectiveness information exchange across value chain Open platform, common standards, beneficial information technology But - ease of imitation, ease of implementation, lower barriers
Internet Competitive Advantage Operational effectiveness information exchange across value chain Open platform, common standards, beneficial information technology But - ease of imitation, ease of implementation, lower barriers (Unclear relationships with quality)
Internet Strategic Positioning Distinction, Unique, Customer Value Focus Integrated value chain articulated, highlighted, known Core benefits Brilliant execution
Porter s Approach to Strategic Positioning The right goal superior long-term return on investment Generation of economic value Don ts: define goals in terms of volume, market share, perceived investor desire
Internet Complementarity Internet will not replace traditional business Existing businesses, including channels, have embraced net, replicating bricks and mortar structure Customer relationships Example : Music business
The Internet and the Value Chain Set of activities through which a product or service is created and delivered to the customer A framework for identifying all activities from hiring a salesforce to fabricating a material part--and analyzing how they affect costs and value for customers
Informational Value Every step of the value chain involves creating, processing, and communicating information Internet makes linking steps easier, and provides real time information to managers, suppliers, and customers.
Information Technology Generations Automation of discrete transactions, order entry and accounting Automation of Human Resource Management, Sales Force operations, Product Design
Internet and Information Technology Cross-activity integration linking sales and orders, product design and manufacturing specifications. Customer relationship management (CRM); Supply chain management (SCM) and Enterprise resource planning (ERP) as multiple activity examples
Current Stage of Information Technology Integration of value chain and entire value system (industry-wide) suppliers, channels, customers. Information markets Product development (beginning)
Internet Applications in the Value Chain
Internet Applications in the Value Chain Firm Infrastructure Web based financial and enterprise resource planning systems On-line investor relations
Internet Value Chain Human Resource Management Personnel and benefits administration Web-based training Internet communications Electronic time and expense reporting, payment
Internet Value Chain
Internet Value Chain Technology development Collaborative product design Knowledge directories, tacit knowledge, information resources Real time access by R & D to on-line sales, service, and traffic
Internet Value Chain Procurement Internet enhanced planning Linking purchase, inventory, and forecasting with suppliers Automated billing, paying Direct procurement via digital marketplaces, agents, auctions, etc.
Internet and SCM Inbound Logistics Real-time integrated scheduling, shipping, warehouse management, planning, Real-time inventory data
Internet and SCM
Internet and SCM Operations Integrated information exchange, scheduling, decision making for plants, contract assemblers, and components suppliers Real-time available-to-promise and capable-to-promise information to sales force, and channels
Internet and SCM Outbound logistics Real-time order transaction by end consumer, sales person, or channel partner Automated customer agreements, ordering information, billing Customer access to order information, customer profile
Marketing and sales Marketing and Sales On-line channels, including marketplaces, partners, homesite Dynamic pricing On-line product configuration, specification Customer feedback, profiling,
Marketing and sales
After-sales After-Sales Service On-line support, access, information, chat rooms, e-mail Customer self-service Customer account information, parts information, work-order information, 24 hour access
Strategy and Web Creating benefits that customers will pay for (how novel!) Widen value chain, expand beyond internet (content,promotions, products, events, physical locations?) Co-branding Niche markets
Web success Distinctive strategy, rationale for web presence Customer value through direct charges Distinctive ways to perform physical functions (assembly, delivery, information exchange) Deep industry knowledge to establish proprietary skills, information, and relationships
ebay example What started as a curiosity has become highly successful, and provides a model for the entire economy auction pricing
ebay Founded 1996 Online trading community 2 million auctions per day, 10 million members, spend over 3 hours a month Explosive growth New competition - Yahoo!, Amazon.com, Tradera (bought by ebay in 2006), Blocket, Koll.se
ebay
ebay: Growth strategy First-mover advantage Critical mass Network externalities TRUST Expanding products and services (Kodak, Mailboxes, ebay Stores etc) Regional auctions, Global expansion
ebay and Internet Auctions Customers and suppliers are fragmented, widely distributed, have little power Few substitutes (classified ads, flea markets, bricks and mortar auctions, stores)
ebay Owning the market Industry structure not fixed, shaped by dominant player and competitors Dynamic pricing model influence Providing a service unites buyers and sellers. No distribution, no warehouse, few physical assets.
ebay Trust (both buyer and seller open to fraud) Regulation, Legal environment Expanding market (new products, high ticket items, Sotheby s, Skype, etc.)
Buy.com : counterexample Competition based largely on price Outsourced order fulfillment, distribution Focused on brand recognition only not value Little competitive advantage in the mind of the consumer
First mover issues Establish advantage by building strong brands Switching costs as barrier Creation of strong networks, united via the internet
First mover fallacies Switching costs may be lower customization, web wallets (Internet currency), database marketing and management, content consolidation tools
First mover fallacies Network effects (products may become more valuable as customers use them software, email, chat rooms) Often aren t proprietary, limited to one company (America Online an exception) Expensive to build, maintain
Internet Brands Lack physical presence Lack direct human contact Modest loyalty Low barriers to entry Best brands congruent with traditional brands Exceptions: Amazon, Yahoo!, ebay
Partnering problems Internet technology has made partnering widespread Complements (product bundling like hardware and software) interact with competitive advantage, and affect profitability in complex ways Partnering tends to create homogeneity
Partnering problems Microsoft operating system as example increased rivalry, barriers to entry, decreased profitability (for competitors, suppliers)
Outsourcing Partnering solution greatly expanded by internet Can reduce competitive advantage through homogenization, price competition, lower barriers to entry Can reduce control over core business
Web wondering Increased competition, decreased first mover advantage leveling of playing field Customer loyalty? Porter says low, others say high, reduced consumer sovereignty Advertising lower rates, less euphoria, more clutter
Web wonders Technology video, speed, access, searching, broadband Digital marketplaces, corporate and consumer Standardization Customer relationships, information feedback, market research