Transcript Slide 1

Establishing an eBusiness
CITM360 – Week 4
Steven A. Gedeon, PhD, MBA, PEng
January 31, 2005
CITM360 – Week 4
This Week’s Agenda
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Strategy
Survivor Challenge
eBusiness Models
Building a Project Team and
Schedule
• Elevator Pitches Prizes/Feedback
• Interim Presentation Requirements
January 31, 2005
Strategy
A Strategy is the pattern or plan that integrates
an organization’s major goals, policies, and
actions into a cohesive whole. A well-formulated
strategy helps to marshal and allocate an
organization’s resources into a unique and
viable posture based on its relative internal
competencies and shortcomings, anticipated
changes in the environment, and contingent
moves by intelligent competitors.
“The Strategy Process” by Mintzberg and Quinn
January 31, 2005
Strategy
• Every organization has one – even if it is
not written down or is contradictory or poor
• Strategy is a Tool for integrating into a
cohesive whole
• Strategy is a Synthesis of the Market
Analysis to determine the Key Success
Factors
• Strategy drives the Market, Technology,
Organization, and Financial Plans
January 31, 2005
Strategy
Company
Strengths &
Weaknesses
Internal
Factors
Opportunities
&
Threats
Competitive
Strategy
Stakeholder
Values
January 31, 2005
External
Factors
End User
Expectations
Strategic Analysis
This is all about analyzing the strength of the company’s position and understanding the important external factors
that may influence that position.
Positive
Internal Analysis – knowing
your strengths and
weaknesses
• Will help you determine
whether these
opportunities are right
for you
External Analysis –
opportunities and threats
• May reveal strategic
opportunities
January 31, 2005
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Technological Skills
Leading Brands
Distribution channels
Customer Loyalty/Relationship
Production Quality
Scale
Management
Strategic Partners
Changing customer tastes
Technological advances
Change in population agestructure
• New distribution channels
Negative
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Absence of important skills
Weak brands
Poor access to distribution
Low customer retention
Unreliable product/service
Management
•Competitor Initiatives
•Changing customer tastes
•Closing of geographic markets
•Technological advances
•New distribution channels
Strategic Analysis
Porter’s Five Forces Analysis
- a technique for identifying the
forces which affect the level of
competition in an industry
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Threat of entry
Threat of substitution
Bargaining power of buyers
Bargaining power of
suppliers
• Rivalry among current
competitors
January 31, 2005
Strategic Analysis
Threat of Entry - Depends on barriers:
Economies of scale – need to come in large
Product differentiation – established firms have
brand identification and customer loyalties
Capital requirements
Switching costs – one time switching costs facing
the buyer – retraining, new equipment…
Access to distribution channels
Intellectual Property and patents
Threat of Substitution
All firms in an industry are competing with
industries producing substitute products
Substitutes limit potential returns
Bargaining Power of Customers
Bargaining Power of Suppliers
Customers can force prices down, playing
competitors against each other
Customers can easily move downstream to create
a more complete solution
Suppliers can exert bargaining power by
threatening to raise prices or reduce quality.
Suppliers can move upstream to create a more
complete solution
Suppliers are powerful if:
Only 1 or a couple of suppliers for industry
January 31, 2005
Strategic Analysis – Intensity of
rivalry
The intensity of rivalry between competitors in an industry will depend on:
• The structure of competition - rivalry is more intense where there are many
small or equally sized competitors; rivalry is less when an industry has a
clear market leader
• The structure of industry costs - industries with high fixed costs encourage
competitors to fill unused capacity by price cutting
• Degree of differentiation - industries where products are commodities (e.g.
steel, coal) have greater rivalry; industries where competitors can
differentiate their products have less rivalry
• Switching costs - rivalry is reduced where buyers have high switching costs
- i.e. there is a significant cost associated with the decision to buy a product
from an alternative supplier
• Strategic objectives - when competitors are pursuing aggressive growth
strategies, rivalry is more intense. Where competitors are "milking" profits in
a mature industry, the degree of rivalry is less
• Exit barriers -when barriers to leaving an industry are high (e.g. the cost of
closing down factories) - then competitors tend to exhibit greater rivalry.
January 31, 2005
Critical Strategic Factors
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Clear Decisive Objectives
Maintaining the Initiative
Concentration/Focus of Resources
Flexibility
Coordinated and Committed Leadership
Surprise
Security
January 31, 2005
“The Strategy Process” by Mintzberg and Quinn
Five P’s of Strategy
• Plan
• Ploy (Deceive Competitors)
• Pattern of Behaviors (Plan vs. Actual
Strategy)
• Position (Relative to Competition)
• Perspective (also known as “Corporate
Culture”) eg “The HP Way”
“The Strategy Process” by Mintzberg and Quinn
January 31, 2005
Generic Strategies
• Stage of Operations
Extract
Process
Fabricate
Assemble Wholesale
Retail
Upstream Industries --- Midstream --- Downstream Industries
January 31, 2005
Generic Strategies
• Maximization of Value Chain
Company Infrastructure, Legal, Governance…
HR and Operations Management
IT and Product Technology
Procurement
Margin
Inbound
Outbound Marketing
Operations
Logistics
Logistics
& Sales
January 31, 2005
Service
Generic Strategies
• Alteration of Value Chain (Value Shop)
Problem
Finding
January 31, 2005
Problem
Solving
Choice
Execution
Control &
Evaluation
Sales
Generic Strategies
• Stage of Operations (Value Network)
Network
Promotion
January 31, 2005
Service
Provisioning
Infrastructure
Operations
Partnerships
Generic Strategies
• Cost Leadership
• Differentiation
• Focus
– Segmentation (selected customer segments)
– Niche Strategy (focus on one segment)
– Customization Strategy (segment of One and
each customer is unique)
January 31, 2005
Generic Differentiation Strategies
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Price Differentiation
Image Differentiation (Branding)
Support Differentiation
Quality Differentiation
Design Differentiation
Timeliness Differentiation
Undifferentiation (Copycats)
Others?
January 31, 2005
Generic Strategies
• Position within an Existing Industry
Structure
– This is the Traditional View of Strategy
– These companies are “Market Takers”
• Create a New Industry Structure
– “Competing for the Future” Hamel & Prahalad
– These companies are “Rule Breakers” and
“Rule Makers”
January 31, 2005
Three Phases of Competing for the Future
Intellectual
Leadership
Deep Understanding of
Industry Drivers
Creative View of Core
Competencies and
Customer Interfaces
Strategic Architecture
Management of
Migration Paths
Preemptively building core
competencies and new
product concepts and
technologies
Assemble a coalition of
industry participants
Force competitors onto
longer more expensive
migration paths
January 31, 2005
Compete for
Market Share
Build a worldwide supplier
network
Preempt competitors in
critical markets
Maximize efficiency and
productivity
Manage the competition
Strategy
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"Strategy is the direction and scope of an organization over the long-term which achieves
advantage for the organization through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfill stakeholder expectations".
Strategy is about:
– Where is the business trying to get to in the long-term (direction)
– Which markets should a business compete in and what kind of activities are involved in such
markets? (markets; scope)
– How can the business perform better than the competition in those markets? (advantage)?
– What resources (skills, assets, finance, relationships, technical competence, facilities) are
required in order to be able to compete? (resources)?
– What external, environmental factors affect the businesses' ability to compete?
(environment)?
– What are the values and expectations of those who have power in and around the business?
(stakeholders)
Management
Preferences
Strategy
Organization
Resources
January 31, 2005
Environment
Survivor Challenge
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A donkey is tied to a rope 10 feet long.
Twenty feet away is a field of carrots, how
does he get to the carrots?
A barrel of water weighs 20 pounds, what do
you have to add to it to make it weigh 12
pounds?
How much dirt would be in a hole 6 feet
deep and 6 feet wide that has been dug with
a square edged shovel?
You threw away the outside and cooked the
inside. Then you ate the outside and threw
away the inside, What did you eat? Hint: It is
a food...
What unusual natural phenomenon is
capable of speaking any language?
What goes up and goes down but does not
move?
Name the elements of a Business Model.
January 31, 2005
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The other end of the rope isn't tied to
anything
holes
none, it is a hole, the hole has no dirt
Corn on the cob
an echo
the temperature
Customer Value,Scope,Revenue
Source/Model, Pricing, Connected Activities,
Sustainability,Implementation, Capabilities
What is a Business Model?
Internet and nonInternet
• A set of activities that allows the firm to make
money.
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What value are we offering and to whom?
What price is appropriate?
How do we provide the value?
Do we have a competitive advantage in providing the
value, and how do we sustain it?
January 31, 2005
Elements of a Business Model
Business Model Component
Q’s for all Business Models
Q’s Internet Business Models
Positioning
• What are the 5 Forces?
• What is the value chain?
Is the firm in a “good space” ?
How are you maximizing both IT
and Internet capabilities?
Customer Value
• What’s the value proposition?
Is the firm offering something
distinctive or at a lower cost
than its competitors ?
What is your differentiation?
What is it about the Internet that
allows your firm to offer its
customers something
distinctive? Can you solve new
problems for customers?
Scope
To which customers (geographic
and demographic) is the firm
offering value? What is the
range of products and services
offered?
What is the scope of customers
that the Internet enables your
firm to reach? Does the Internet
alter the product or service mix?
Revenue Source/Revenue
Model
Who pays for what value and
when? What are the margins in
each market?
Are revenue sources different
with the Internet? What is new?
January 31, 2005
Copyright © 2001, The MacGraw-Hill Companies, Inc., Internet Models and
Strategies, Afuah and Tucci. All Rights Reserved. (modified)
Elements of a Business Model
Pricing
How does the firm price the value?
How does the Internet make
pricing different?
Connected Activities
What set of activities does the firm
have to perform to offer this value
and when?
How many new activities must
be performed because of the
Internet? How much better can
the Internet help you to perform
existing activities?
Implementation
What organizational structure,
systems, people, and environment
does the firm need to carry out
these activities?
What does the Internet do to the
strategy, structure, systems,
people and environment?
Capabilities
What are your firm’s capabilities
and capability gaps that need to be
filled? How does the firm fill these
capabilities?
What new capabilities do you
need? What is the impact of the
Internet on those capabilities?
Sustainability
What is it about the firm that makes
it difficult for other firms to imitate
it? How does the firm sustain its
competitive advantage?
Does the Internet Make the
sustainability easier or more
difficult?
January 31, 2005
Classification of e-business Models
Strategic Scope
Refers to the company’s potential (resources, leadership, know-how,
product strength, etc.) and growth prospects in a given market
Degree of
Innovation
Traditional
model
Narrow
Broad
Limit activities to a single product
or market segment
Expand if the company, relying on
e-bus. Pursues a strategy of
diversification
Balanced businesses
Diversified Businesses
Bold businesses
Ambitious business
“brick and mortar”
companies that convert
to e-business – business
model is mixed (click and
mortar)
Revolutionary
model
“re-invent themselves by
adopting a new
entrepreneurial identity”
January 31, 2005
Classification of e-business Models
Strategic Scope
Refers to the company’s potential (resources, leadership, know-how,
product strength, etc.) and growth prospects in a given market
Degree of
Innovation
Traditional model
“brick and mortar”
companies that convert to
e-business – business
model is mixed (click and
mortar)
Revolutionary
model
“re-invent themselves by
adopting a new
entrepreneurial identity”
January 31, 2005
Narrow
Broad
Limit activities to a single product
or market segment
Expand if the company, relying on ebus. Pursues a strategy of
diversification
Balanced businesses
• Capitalize on core competencies
• Does not conflict with the
traditional business model Eg.
Dell
• Use as a lever to strengthen
strategic position
Diversified Businesses
• Focus on external positioning –
driven by operational diversification
and growth
• Specific to businesses whose
markets are already structured
Bold businesses
• Often “start-ups”
• Innovative
• “New Economy” – driven by
complex applications and
technology solutions (eg. search
engines, cyber auctions,
collaborative portals)
Ambitious business
• Focuses on diversification and
growth of company’s activities.
• Invest heavily in technological
infrastructures
• Focus on setting up technological
standards to create high switching
costs
Classification of e-business Models
Strategic Scope
Refers to the company’s potential (resources, leadership, know-how,
product strength, etc.) and growth prospects in a given market
Degree of
Innovation
Traditional
model
Narrow
Broad
Limit activities to a single product
or market segment
Expand if the company, relying on
e-bus. Pursues a strategy of
diversification
Balanced businesses
Virtual Store
“brick and mortar”
companies that convert
to e-business – business
model is mixed (click and
mortar)
Revolutionary
model
“re-invent themselves by
adopting a new
entrepreneurial identity”
January 31, 2005
Diversified Businesses
e-mall
e-procurement
Bold businesses
Ambitious business
Auctions
Information brokers
Virtual community
Business Models on the Web
Brokerage
Bring buyers and sellers together and
facilitate transactions:
B2B, B2C
Auction broker conducts auctions for
sellers –– eBay
Transaction Broker – provide a third
party payment mechanism – PayPal
Virtual Mall – hosts online merchants
– ChoiceMall
Advertising Model
Extension of the traditional media
broadcast model. The broadcaster
provides content & services mixed
with advertising messages. The
advertising model works only when
the volume of viewer traffic is large or
highly specialized
Portal – About.com
Personalized Portal - MyYahoo
Registered Users – NYTimes Digital
Merchant Model
Wholesalers and Retailers of goods
and Services.
Virtual Merchant or e-tailer – Pure
Play- Amazon.com
Click and Mortar – traditional brick
and mortar retail establishment with
web storefront – Chapters.ca
Catalog Merchant – catalog+web –
Land’s End
January 31, 2005
Business Models on the Web
Manufacturer (Direct)
Using the power of the web to allow
manufacturer to reach buyers directly
and thereby compressing the
distribution channel. The
manufacturer model can be based on
efficiency, improved customer
service, and a better understanding of
customer preferences
Dell Computer
Affiliate Model
Provides purchase opportunities.
Offers financial incentives to affiliated
partner sites. Pay per performance
model. Includes: banner exchange,
pay per click, revenue sharing
programs.
Amazon.com
Tucows.com
Esellerate.com
Subscription Model
Users are charged a fee to subscribe
to a service. Not uncommon to
combine free+fee content.
Content Services – newspapers,
music, video
Person-to-Person Networking
Services – conduits for distribution of
user submitted information
[Classmates]
Internet Service Providers
January 31, 2005
Dominant Revenue Models
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Commission
Advertising
Margin or Markup on Products
Production
Referral
Subscription or Membership
Fee-for-Service (incl. bandwidth, storage…)
January 31, 2005
Building a Project Team and Schedule
• Create a Clear Organization Structure
– BoD, CEO, CTO, CFO, VP Mrkt, VP Sales…
• Clearly write down Roles & Responsibilities and
tie these to Business Plan and Presentations
• Clearly write down deadlines for each
deliverable (I’ll ask for this if Firing someone)
• Leave time for Dry Runs and Edits
• Leave time to make major changes to Business
Model (prices, segments, financial plans…)
January 31, 2005
Results from Elevator Pitches
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Entertainment Edge
Farmer Bob’s Grocery Depot
OP Print
Connectix
netDrive.com
Lottery Click
Innotech
January 31, 2005
= 73%
= 80%
= 73%
= 78%
= 75%
= 68%
= 71%
#1
#2
#3
Results from Elevator Pitches
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Lowest Score = 1 and 32 Total
Highest Score = 20 and 97 Total
Lowest Scorer ave = 59, Hi Scorer = 89
Success and Excitement Scored Lowest in
Every Single eBusiness Idea
• Most Controversial (Highest Stn Dev)
– netDrive Success and Excitement
– Lottery Click Success and Excitement
January 31, 2005
Entertainment Edge
• Entertainment services (e.g. DVDs and
Pizza) delivered to your door
• Differentiation vs Video-on-demand, Pizza…
• Scope limited by Geography
• Revenues (delivery fee, margin, memb, ads)
• Cost Structure (mktg, delivery infrastructure)
January 31, 2005
Farmer Bob’s Grocery Depot
• Groceries purchased over the Internet and
assembled for pickup
• Differentiation vs Grocery Gateway?
• Scope limited by Geography
• Revenues ($2, margin, memb, ads)
• Cost Structure (mktg, assembly infrastruct)
• Asked for the meeting
• What about adding RFID Tags??
January 31, 2005
OP Print
• Low cost print services for print
companies. Upload content, gang running
to lower cost to 60%, delivery in 7 days
• Differentiation vs Printers doing it
themselves or Overnightprints.com?
• Scope limited by Geography
• Revenues (margin)
• Connected Activity - what about returns?
January 31, 2005
Connectix
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Shopping Mall Kiosks for product searching
Who are the Competition or Partners?
Scope limited by Geography (?)
Revenues (ads and paid search terms)
Cost Structure (capital costs, content
creation, s/w to tie into database systems)
• Strategic Partnership with Microsoft and
Kiosk Manufacturers?
January 31, 2005
netDrive.com
• Virtual Data Storage on demand
• Differentiation vs Competition (based on
data sharing?)
• Few Scope Limitations
• Revenues (monthly subscription based on
bandwidth and storage used)
• Capital Costs for Servers, Bandwidth…
• Target of 500,000 users in 12 months
January 31, 2005
Lottery Click
• Lottery Ticket purchase on-line
• Why wouldn’t the government do this
themselves?
• Few Scope Limitations
• Revenues (margin)
• Cost Structure seems favorable
• Sell to non-gov’t organizations with lotteries?
January 31, 2005
Innotech
• Wireless Calendar, Scheduler, and Alerts,
bundled into your Monthly Service Fees.
• Questions regarding Value and Pain
• Few Scope Limitations
• Revenues (rev share of new messages,
tech licensing and service fees to carrier)
• Cost Structure looks favorable
January 31, 2005
Results from Elevator Pitches
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eWed
Greenbird Athletics
StarWear
Campus Express
January 31, 2005
= 80%
= 78%
= 70%
= 79%
#1
#3
#2
Results from Elevator Pitches
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Lowest Score = 8 and 59 Total
Highest Score = 20 and 96 Total
Lowest Scorer ave = 67, Hi Scorer = 96
Success and Excitement Scored Lowest in
Every Single eBusiness Idea
• Most Controversial (Highest Stn Dev)
– eWed Success and Excitement
January 31, 2005
eWed
• On-line Wedding Planning
• Differentiation vs Competition
– Segmentation (same sex, groom services,…?
• Few Scope Limitations
• Revenues (ads, margins, paid search
terms, commission on registries)
• Cost Structure (mrkt costs for traffic gen.)
January 31, 2005
Greenbird Athletics
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Online sales of Custom Sports Apparel
Who is the Competition?
Few Scope Limitations
Revenues (logo services, product margin)
Cost Structure potentially favorable
– Use of pre-existing logos or automated logo
generation
– Flexible manufacturing needed?
January 31, 2005
StarWear
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Custom Knock-Off Bling & Fashion Apparel
Differentiation from Celeb Product Lines?
Revenues (product margins)
Cost Structure (in-house manufacturing
capital costs)
• Flexible manufacturing a key issue
• Connected Activity - what about returns?
January 31, 2005
Campus Express
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Convenience Items delivered to your dorm
Differentiation vs Competition
Scope limited by Geography
Revenues (delivery, margin)
Cost Structure (mktg, delivery infrastruct)
January 31, 2005
Interim Presentation Req’ts
• Who is the Customer (in detail!) and what is their Pain?
• Who are the Competitors and what is your
differentiation?
• What is the Business Model?
• Where are you in the Value Chain and why is this a good
place?
• How will you create Revenues?
– You must figure out how to fund your e-business, by early
customers or raising financing
• What are your Key Success Factors/Issues?
• What do you still need to figure out or Research?
January 31, 2005
No Plans Required Yet
Interim Presentations
• How will you present your idea? How many presenters?
What is the role of each group member?
• 10 - 12 minutes for presentation, time limit strictly enforced
• ~10-20 minutes for questions & discussion
(record feedback and comments from class, this will help
focus the business plan)
• Use of PowerPoint is expected, e-mail me a copy of your
slides (after class is ok). Bring USB drive with your
powerpoint, CD… ensure you can access it.
• Required - Hand-in a hard copy of the power point before
starting your presentation
• Everyone to review every presentation. Attendance Req’d
January 31, 2005
Interim Presentation Grading
Business Opportunity (5 marks)
- did the presentation clearly explain the business idea?
- did you indicate what the target market for the business is? did you show evidence of research about, and good
knowledge of, the size of the target market?
- did you explain the value proposition for this business?
- did you explain how this business offers a differentiated product or service? did you identify potential competitors?
- did you discuss how you will sustain this business? e.g. barriers to entry, sustainable competitive advantage?
is the business name you have chosen available? does the name accurately describe what your company does?
Business Model & Revenue Generation (3 marks)
- did you explain how your business will make money? are your assumptions reasonable?
- did you provide an estimate of how much money will be required to establish this business? did you indicate where
you will get your start-up financing from?
did you discuss the overall scale of your business? e.g. how many customers/sales will you need in order to make
this business viable?
Presentation (2 marks)
- were the presenters confident and well-prepared?
- did the presenters make eye contact with the audience?
- did the team handle questions effectively?
- were the slides well-designed? (appropriate colour choice, not too much info on slides, no spelling errors
- did you use your allocated time effectively?
January 31, 2005
Group Work
• How are you going to present your
business idea in class?
• How will you structure your presentation?
• What is your ‘pitch’? How can you
convince your audience (the class) that
your idea is viable?
– clear market niche?
– differentiated offering?
– feasible revenue generation model?
January 31, 2005