The corporate level strategy is concerned with the overall purpose and scope of the firm, such as how to allocate resources between business units; mergers, partnerships, in e-business context the choice of distribution and sales channels is very important on this level. The business unit strategy deals mostly with how to compete within individual markets. The operational strategy is about implementing business unit strategy with focus on everyday operations. The truly strategic decisions are made on first two levels and talking about strategy here I mean those two, not operational one.
Part 2 E-business strategy formulation roadmap Now we can look at e-business strategy build-up in detail. The development of e-business strategy addresses six interrelated issues or steps: Vision, Quantifiable objectives, Value creation, Target market, Organizational set-up and Business model. Any manager or entrepreneur must formulate each aforementioned step for successful development of strategy. As these steps are inter linked they should not be taken in isolation.
Vision (or vision statement) The vision is the starting point of strategy formulation. In practice vision and mission get jumble up. So what is the difference? As long as they both serve a strategic development of a firm it does not matter. However in theory: A Vision is a description of the business as you want it to be. In dictionary terms it is, ‘a mental image produced by the imagination’. It involves seeing the optimal future for the business, and vividly describing this vision. The description might include HOW things will be, WHERE, WHO with, WHAT you’ll be doing and HOW you’ll feel.
A Mission is the definition of the ‘special assignment’ being undertaken by the business. It is likely to cover the customer groups that are being served and the customer needs that are being met. (by buildingbrands.com) Vision is more about company future to reach and mission is where you’re in now and who your customer is.vAmazon vision aims to be “the earth’s most customer centric company, where customers can find and discover everything they might want to buy online” Google’s mission is nothing less than “Organize the world’s information and make it universally accessible and useful.”
Establishing a vision/mission gives you a direction to take, encourage creativity and innovation as you go beyond existing boundaries of the firm. Quantifiable objectives Once vision or/and mission is established it makes sense to set parameters to measure the firm success. The parameters are the quantifiable objectives, which may include financial (profit, ROI, sale etc) and non-financial (customer’s satisfaction) measures. The strategy implies a plan for achieving objectives with central goal to beat the competitors. Hence not only are quantifiable objectives vital for measurement of company’s performance but for benchmarking against competitors. All objectives should be measured and quantified. Only then can they provide goals for the employees to strive for and consequently the clear targets for actions to take.
Consider the example of B2B e-market place Covisint.com where the major American car makers stated to achieve 6 billion of savings per year trough online collaboration with car dealers using e-procurement and e-supply chain management. At this point an effective technique to formulate objectives and communicate them properly might be mapping a strategy, that is, to create a so-called strategy map.
“A Strategy Map is a diagram that describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationship with each other in the four Balanced Score Card objectives (financial, customer, processes, learning and growth). (Kaplan and Norton “The strategy-.focused organization) These four BSC perspectives are strategic themes in a firm. See the figure 1 above.
Value creation Value creation is concerned with decisions about what value your business adds to customers or, in other words, why customers would want to buy your product/service. On strategic map see Customer Perspective. Basically you can chose to compete on price and become a cost leader within your market or niche (EasyJet) or compete on quality- offering anything better (service, brand etc) that will differentiate you from rivals.
FedEx added value to its customer by allowing them to track and trace online the physical movement of their parcels that gave the company the differentiation edge before others introduced this service. Eventually you can opt for both cost leadership and differentiation advantage at the same time similar to Amazon and Ebay, however that entails bigger investment and risk of being “in the middle” among others competitors. Therefore strategy underlines trades-offs between resource distribution for different activities and creation of the fit between them according to the direction of a firm.
The value creation stage urges for creativity as it enables a creation of something new or different from the existing competitors such as new ways of conducting business or, moreover, opening-up new markets. Target Market Closely linked to value creation is decision about who are your customers. Here it is important to determine market segmentation and then, based on this decide which segment to target. The e-business market segmentation matrix classifies different types of interaction between a consumer, business and government. It is based on suppler/provider to buyer/recipient model see Figure 2.(From Strategies for e-business Jelassi T; Enders A. Prentice Hall 2005)
Organizational set-up This stage is the largest one and encompasses a variety of decisions. First, depending on how large your company should be you need to determine the required scale of e-business activities along the value chain and analyze their cost structure. In this context organizational set up deals also with decisions about quickness of entering markets and growth. Second, the breadth of product/services you want to offer should be thought in terms of trade-offs involved. It especially applies to expanding product scope while increased sales and market share can be resulted in loss of internal focus (leadership in a niche) and dilution of the brand name. Read about Mattel’s Business Strategies
The Internet itself offers a great possibility to establish partnerships to do e-business (e.g. Covisint.com). In contrast to traditional business, e-business has a great influence of Internet. The Internet has reshaped industries’ rivalry, barriers to entry, substitute products and the bargaining powers of buyers and suppliers, and actually making some industries more attractive for e-business potential. The Internet has just created new possibilities for value adding in non-technological industries such as in travel, cargo and stock trading.
E-commerce sites can address the question as to what else would the customers want to buy in addition to the current products/services (Amazon, Ebay). E-business can be set up purely virtual, just consider new business opportunities that Web 2.0 offers. The mashup sites, sites that combine online content into integrated hybrid from different providers using application programming interfaces (APIs) are the latest development in virtual business opportunities. Housingmaps.com “uses cartographic data from Google Maps to add location information to real-estate data from Craigslist, thereby creating a new and distinct web service that was not originally provided by either source”.
Typically those specializing in real estate and in travel services are attracting venture capitalists and advertisers. In addition, Google and Microsoft are planning to place ads on their maps, and revenue from those ads could be shared with mashup operators. The bricks-and-mortar companies embarking on e-business activities should align their physical world strategy and its e-strategy because the letter will definitely affect the strategic issues such as branding, pricing, IT and channel conflict. Another way of doing so in terms of organizational structure is, at the one end of the spectrum, complete integration of e-business into the existing organization or at the other end, setting up a new entity or a spin-off.
Finally, when identifying and analyzing e-business activities you need to decide which ones to perform in-house and which ones to outsource to external providers. There are a number of reasons in favor to “make” decisions as well as in favor “buy” decisions. As Dell examples shows, making the right “make-or-buy” decision can give sustainable competitive edge, however internal activities (in-house) ensure differentiation from the competitors. So far Dell approach of manufacturing, selling and servicing computers has been hard to imitate.
Business model IT advances have brought considerable change in our economic world modifying or completely changing previous way of doing things. In fact, the Internet was quoted as the most significant innovation since the weal. The Internet has given rise to new kinds of business models. A business model is an essential part of a strategy. It concerns financials involved in business, both cost and revenue structures. In other words, business model spells out how a company makes money. The web is also likely to reinvent old models. Auctions and Brokerage are a perfect example. “The Web has popularized the auction model and broadened its applicability to a wide array of goods and services (e.g.Ebay).