1-1 characteristics in the business environment –a more turbulent environment with more business...

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Module: Competing in the Network Economy

• Characteristics in the business environment – A more turbulent environment with more business

problems and opportunities

– Stronger competition

– Need for organisations to make decisions more frequently

– A larger scope for decisions because more factors

– More information and/or knowledge needed for making decisions.

1.4: The Business Environment Drives EC

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• Business Pressures– Market (economic), societal, and technological factors have

created a highly competitive business environment in which customers are becoming more powerful.

– These factors can change quickly, sometimes unpredictably.

• Business Critical Response Activities– EC and technology in general, provides organisations with

ways to operate their businesses more efficiently by providing services and functions that in the past have been performed by employees at less than optimum efficiencies

– Companies must not only take traditional actions such as lowering costs and closing unprofitable facilities, but also introduce innovative actions such as customising, creating new products, or providing superb customer service.


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Exhibit 1.4 Major Business Pressures and the Role of EC

• Categories of business pressures– market (economic)

– societal

– technological

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Organisational response strategies• Strategic systems for competitive advantage

• Continuous improvement efforts

• Business process restructuring (BPR)– Employee empowerment

– Supply chain improvements

• Business alliances

• Electronic markets

• Agile organisation

• Increased efficiencies

• Mass customisation


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• Strategic Systems provide organisations with strategies to increase their market share, better negotiate with suppliers, or stop competitors.

• Continuous Improvement Efforts aim to improve a company’s productivity and quality. Examples include:

• Improved productivity • Managing enterprise data

• Just-in-time (JIT) • Innovation and creativity

• Total quality management • Change management

• Knowledge management • Customer service

1.4: Organisational Response Strategies

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• Business Process Restructuring (BPR) refers to the introduction of a major innovation in an organisation’s structure & the way it conducts business.

– The major areas in which IT supports BPR are the following;

• Reducing cycle time and time to market.

• Empowerment of employees and collaborative work– EC allows the decentralisation of decision making and authority

via empowerment and distributed systems, but simultaneously supports a centralised control

• Supply Chain Improvements– EC can help reduce supply chain delays, reduce inventories, and

eliminate other inefficiencies


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• Business Alliances. Many companies realise that alliances with other companies, even competitors, can be very beneficial. – Temporary joint venture = companies form a special

company for a specific, limited-time mission. • Electronic Markets. Doing business electronically is

perhaps most promising strategy that many companies can pursue.

• Agile Organisations. Organisations that are able to react to improve productivity, even during times of change, through the appropriate uses of IT and EC.


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• Business Plan– A written document that identifies the business goals

and outlines the plan to achieve them.

• Business Case– A written document that is used by managers to gather

funding for specific applications for projects.

– Its major emphasis is the justification for specific investment.

• Business Model– A method of doing business by which a company can

generate revenue to sustain itself

1.5: EC Business Models

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• The Structure of Business Models– A description of the customers to be served and the

company’s relationships with these customers (customers’ value proposition)

– A description of all products and services the business will offer

– A description of the business process required to make and deliver the products and services


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• The Structure of Business Models– A list of the resources required and the

identification of which ones are available, which will be developed in-house, and which will need to be acquired

– A description of the organisation supply chain, including suppliers and other business partners

– A description of the revenues expected (revenue model), anticipated costs, sources of financing, and estimated profitability (financial viability)


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Revenue Models– A revenue model:

Description of how the company or an EC project will earn revenue

Major revenue models– Sales

– Transaction fees

– Subscription fees

– Advertising fees

– Affiliate fees

– Other revenue sources


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• Value proposition– The benefits a company can derive from using EC

• How do e-marketplaces create value? (Amit and Zott 2001) – Search and transaction cost efficiency– Complementarities– Lock-in– Novelty


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1.5: Exhibit 1.6 Common Revenue Models

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– Online direct marketing• Manufacturer/retailer sells directly to consumers via Internet

– Electronic tendering systems• Large organisational buyers issue needs via a reverse

auction (lowest bidder wins) hosted by an EC intermediary, which then solicits bids from potential suppliers

– Name-your-own-price • A buyer sets the price he is willing to pay and invites sellers

to supply the good or service at that price

– Find the best price• Customer specifies needs, then an EC intermediary matches

the needs against a database, locates the lowest price, and submits the information to the customer.

1.5: Typical EC Business Models

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– Affiliate marketing• An arrangement whereby a marketing partner (a business,

an organisation, or even an individual) refers consumers to the selling company’s Web site and takes a commission on sales from successful referrals.

– Viral marketing• Word-of-mouth marketing in which customers promote a

product or service to friends or other people.

– Group Purchasing• Quantity purchasing that enables groups of purchasers to

obtain a discount price on the products purchased

– e-co-ops• Another name for online group purchasing organisations


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– Online auctions• Online shoppers make consecutive bids through an EC

intermediary and the intermediary awards the product to the highest bidder

– Product and service customisation• Creation of a product or service according to the

buyer’s specifications or needs– Electronic marketplaces and exchanges

• EC intermediaries bring together potential buyers and sellers via the Internet

– Supply chain improvers• EC intermediaries who improve the speed and efficiency

of existing supply chain relationships.


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– Value-chain integrators• Aggregate information-rich products into more complete

package. Eg Carpoint.com provides financing and insurance

– Value-chain service providers• Specialise in a supply chain function. Eg UPS.com for

logistics or PayPal.com (now part of eBay) for logistics

– Information brokers• Provide privacy, trust, matching, search, etc. Eg Google.com

– Bartering • Exchange goods via a market maker. Eg Web-barter.com

– Deep discounting• Companies such as Half.com offer products/services at deep

discounting, as much as 50% off the retail price.


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1.5: Example of Supply Chain Improver

Case 1.5a

• Orbis Group changes a linear physical supply chain to an electronic hub– Traditional process in the B2B advertising field

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Product Bank simplifies this lengthy process by changing the linear flow of products and information to a digitised hub

1.5: Example of Supply Chain Improver

Case 1.5b

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Benefits to Organisations

1.6: EC Benefits

• Global reach• Reduced costs • Supply chain

improvements• Extended operating hours

(24/7/365)• Customisation• Creation of new business

models• Vendor specialisation

• Improved time-to-market• Lower communication costs• Efficient procurement• Improved customer relations• Up-to-date company material• No city business permits or

fees• Other benefits

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Benefits to Consumers

1.6: EC Benefits

• Improved information availability

• Participation in auctions• Improved interactions with

others through electronic communities

• No sales tax

• Ubiquity • More products and

services choices• Customised products and

services• Cheaper products and

services (cost)• Instant delivery (speed)

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• Benefits to Society– Telecommuting

• EC enables more individuals to work at home, thereby reducing pollution and traffic

– Improved standard of living because the less affluent can afford lower online prices

– Homeland security• EC technologies allow for better communication,

coordination, information interpretation and information sharing.

– Improve product availability in developing nations.

– Wider availability of public services

1.6: EC Benefits

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1.8: Networks for EC

• Task facing each organisation is how to put together the components that will enable the organisation to transform itself to the digital economy and gain competitive advantage by using EC

• Many employ corporate portals– A major gateway through which employees, business

partners, and the public can enter a corporate Web site

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1.8: Exhibit 1.8 The Networked Organisation

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Managerial Issues

• Is it real?

• Why is B2B e-commerce so attractive?

• There are so many EC failures—how can one avoid them?

• How do we transform our organisation into a digital one?

• How should we evaluate the magnitude of business pressures and technological advancement?

• What should be my company’s strategy toward EC?

• What are the top challenges of EC?

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