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whitepaper: Defining e-business strategy

by Simon John, Director, Verum-i Limited

synopsis
Dot coms and B2B exchanges are failing at an alarming rate - why? E-business strategy is more than developing smart technology and hoping to float on the stock market within six months. We believe that e-business strategy can be complex and must take account of a number of key business aspects to be fully effective. These aspects work together to form an integrated blueprint - an indication of potential e-business strategy success or failure. The year 2000 has been a wake up call for e-business, can you afford to make the same mistakes?

introduction
Browse your favourite online book shop or go to your local bookstore and you will find a wide array of texts defining strategy development in the new technological age. Most of these books which you can buy for less than $75 describe the easy steps which will take you to strategic nirvana and great corporate riches. If it were so easy to uncover the secrets of strategic success for less than $75, then why do we pay senior executives or consultants so much?

Everyone, from the most senior executive to the technician who has come to fix your server uses the term e-business strategy or e-strategy - but what does it really mean? This whitepaper sets out to define what we believe e-business strategy to be and sets the scene for future more in-depth articles regarding strategic development and implementation within the ever dynamic corporate environment.

strategy through the years
Since the 1960s, a number of perspectives on business strategy have been developed by academics. In brief these are:

  • classic approach, where formal structures for rational decision making are developed for a profit maximisation outcome.
  • processualists, who concentrate on environmental fit and hope for the best, to them long range planning is futile because of market imperfections.
  • evolutionists, who believe only the fittest will survive and rational long term planning is futile. To them, the dynamic and hostile markets ensures that only companies who do hit upon profit maximising strategies will survive and others will learn from them.
  • systemic perspectives believe long term strategic planning can be effective against market forces but focus more on the social environment.

our perspective
We believe that in today's complex environment, a mixture of the above perspectives come into play. Formal rational decision making structures should be adopted and supported by strong scientific decision making tools and timely information sources regarding the environment, customers etc. Company failure is inevitable and indeed healthy, however, not only can failure rates be minimised if the correct strategic process is adopted but also business's top prize - sustainable competitive advantage.

strategy in the "e" world
At its core, e-business strategy like traditional corporate strategy should focus on markets, products or services and customers. It's about:

  • How and where to compete
  • How to choose and allocate resources to maximise success.
  • How to organise the company
  • How to continually monitor your environments
  • Leadership.

Bringing this together into one simple concept, we believe that e-business strategy should be developed taking into account four closely linked aspects:

  • Customer (trading entities)
  • Environment
  • Economics
  • Delivery

    Once the strategy has been developed and implemented, it should be monitored and continually tested against the CEED model. Each of these is described in more detail below.

    customers (trading entities)
    By trading entities we mean groups like buyers and sellers that you would find in an electronic marketplace. Like customers in a B2C environment they still need to be managed and identified as sustained sources of revenue. Defining these groups is essential - how many potential customers will I have? If you're an established traditional business, what effect will moving to an e-business model have on existing customers? How can I segment my customer base - and do I want all of them? Do they actually want what we are offering them - are they ready for the new model we are putting in place? Dell announced early this year that it was closing its B2B exchange after three months - why? - it only managed to persuade a few entities to join it. Michael Dell put it down to a lack of maturity in the market. Did Dell not know this before initiating the project?

environment
What are the expected growth rates for the business you are in or want to be in? How big is your market and what share can you expect? Who are your competitors now and who will they be in the future? What legal or social issues will you face, if any? All of these questions need timely and accurate data to start to develop e-business strategy. If the data is not readily available it must be gained through research. Cost and time spent now will be nothing compared to the costs associated with a failed or limping business model.

economics
Why when some companies develop e-business models do they think economics doesn't matter any more? What effect will going on line have on margins. How price sensitive are customers? What are the true costs of developing e-business models? How much will your technology really cost - can you afford it and have you done a full analysis of the alternative technologies? Will the average value of each customer be measured differently than in more traditional businesses? On average a dot com will spend $US80 on acquiring a customer, compared to $US12 for a traditional business. With this sort of information, would your e-business strategy change?

delivery
How is this e-business model to be delivered? The structure of the organisation is critical to the success of any e-business strategy. By structure we mean not only technical infrastructure but also business and people structure and processes, including financial and operational. Also, structure may go beyond the corporate boundaries - is a joint venture involved, will you use an ASP model? - all have major ramifications for e-business strategy. Furthermore, how is this strategy to be communicated and how is it to be led? Critically, what structures will be in place to ensure feedback and an improvement by learning process?

piecing it all together
 We believe developing effective e-business strategy is more than building and integrating smart technology. It means questioning a wide variety of business aspects as noted above, finding true answers and then making rational decisions. Would you have set up a free Internet service in New Zealand in 2000, entering a crowded ISP space whose own competition is forcing them to cut charges? Taking into account all the aspects above, would you carry on with the free service or offer something different to potential customers?

If done correctly, e-business strategy can help mitigate some risk of an organisation wanting to capitalise on first mover advantage or help ensure the survival of an organisation moving into an already crowded e-business space. Development of e-business strategy can be complex but the ultimate goal of sustainable competitive advantage could be your reward. Done poorly and you can become another statistic for the e-business graveyard.

Simon John
Director
Verum-i Limited
simon@verum-i.co.nz
http://www.verum-i.co.nz

Copyright © Simon John - Verum-i Limited 2002. Copying in whole or in part of this document is prohibited without the prior written permission of Verum-i Limited.