Information Systems: the Foundation of E-Business (CIS 108)

1)

2) Frameworks & Tools Safeguarding the Competitive Advantage (Strategic Approach)

Lecture FIVE (7 th February 2005)

Amare Michael Desta 1

Strategic Planning

- tools



1) Frameworks & Tools

a) the SWOT model [Kenneth Andrews] b) PEST Analysis 2

SWOT Analysis:

S trengths, W eakness, O pportunities & T hreats Why use the tool?

It is effective way to:   to identify Strengths and Weaknesses, to examine Opportunities & Threats org. have to face.

SWOT framework helps:  to focus the activities into areas where the org.

are

strong

and to explore where the greatest

O

lie.

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SWOT Analysis (Contd…)

Analyse Strengths 1

st

:

    What are your advantages?

What do you do well?

What relevant resources do you have?

What do other people see as your strengths?

Rem

: Consider the questions from the org.

point of view and from the point of view of the people you deal with.



Don't be modest BUT be realistic.

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SWOT Analysis (Contd…)

Analyse Weaknesses 2nd

   What could you improve?

What do you do badly?

What should you avoid?

Consider this from an internal/external basis   Do other seem to perceive

W

that you do not see?

Are the competitors doing any better than you?

It is better to be realistic now, and face any unpleasant truths ASAP

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SWOT Analysis (Contd…)

Analyse Opportunities 3rd:

  Where are the good opportunities facing you?

What are the interesting trends you are aware of?

Useful opportunities can come from:

 Changes in technology/markets on a broad/narrow scale  Changes in govt. policy related to your business   Changes in social patterns, population profiles, lifestyle changes, economic conditions etc.

Local Events 6

SWOT Analysis (Contd…)

Analyse Opportunities 3rd:

A useful approach to identify an opportunities are:  to look at your strengths and  to ask yourself whether these open up any opportunities.

Alternatively,  to look at your weaknesses and  to ask yourself whether you could open up opportunities by eliminating them 7

SWOT Analysis (Contd…)

Analyse Threats 4th

:

    What obstacles do you face?

What is/are your competitor(s) doing?

Are the required specifications for your job, products or services changing?

Is changing tech. threatening your position?

 Do you have bad debt/cash-flow problems?

 Could your W seriously threaten your business?

Carrying out this analysis will often be illuminating - both in terms of pointing out what needs to be done, and in putting problems into perspective.

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SWOT Analysis (Contd…)

E.g.

A start-up small consultancy business A small consultancy business might carry out the following SWOT analysis and may conclude:

Strengths:

 We are able to respond very quickly as we have no red tape, no need for higher management approval, etc.

  We are able to give really good customer care, as the current small amount of work means we have plenty of time to devote to customers Our lead consultant has strong reputation within the market  We can change direction quickly if we find that our marketing is not working  We have little overhead, so can offer good value to customers

Weaknesses:

  Our company has no market presence or reputation We have a small staff with a shallow skills base in many areas  We are vulnerable to vital staff being sick, leaving, etc.

 Our cash flow will be unreliable in the early stages

Opportunities:

 Our business sector is expanding, with many future opportunities for success  Our local council wants to encourage local businesses with work where possible  Our competitors may be slow to adopt new technologies

Threats:

 Will developments in technology change this market beyond our ability to adapt?

 A small change in focus of a large competitor might wipe out any market position we achieve The consultancy might therefore decide to specialize in rapid response, good value services to local businesses. Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget.

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SWOT Analysis (Contd…)

Eg.

A start-up small consultancy (Contd…) The consultancy might therefore decide to specialize in rapid response, good value services to local businesses.

Marketing would be in selected local publications, to get the greatest possible market presence for a set advertising budget. The consultancy should keep up-to-date with changes in technology where possible.

As mentioned above - useful approach to identify an opportunities are:  to look at your strengths and to ask yourself whether these open up any opportunities.

Alternatively,  to look at your weaknesses and  to ask yourself whether you could open up opportunities by eliminating them 10

PEST Framework –

the environment Understanding

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PEST Framework

: P olitical Factors

Political arena has a huge influence: 1. upon the regulation of businesses and 2. on spending power of consumers/other businesses

We must therefore consider issues such as:

 How stable is the P environment?   Will govt. policy influence laws that regulate or tax the business?

What is the govt. position on marketing ethics?   What is the govt. policy on the economy? Is the govt. involved in trading agreements such as NAFTA, ASEAN, COMESA etc….

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PEST Framework

: E conomic factors

Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when Marketers need to consider the state of a trading economy You therefore need to look at:  Interest rates    The level of inflation Employment level per capita Long-term prospects for the economy (GDP) 13

PEST Framework

: S ocio-cultural factors

This

S

influences on businesses vary from country to country but we must consider: 1. What is the dominant culture/religion? 2. What are attitudes to various local/foreign products/services?

3. Are there any barriers upon the diffusion of products onto markets? 4. Do the population have a strong/weak opinion on political/green or issues? 14

PEST Framework

: T echnological factors T

is vital for CA & is major driver for Globalisation Therefore consider the following points: 1.Does

T

allow for products/services to be made more cheaply/to a better standard of Quality?

2.Does the

T

offer consumers/businesses more innovative products/services 3.What type of

T

is in use? For what end?

4. Is the

T

used to communicate with consumers/ work force etc? If so, why/how?

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Safeguarding the Competitive Advantage (strategic approach)

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What is IT/IS Strategy planning?

IS strategy planning requires understanding of:

1.

nature of the org., its goals objective

2.

3.

4.

5.

6.

where it is going, its culture, & how it thinks type of IT what is available, how IT is changing, what the potential uses are; info. needs, what/how it flows through the org. what decisions are made, how info. Supports BP; the role(s) people play in the org. what their objectives and motives are, how they implement business processes; the org .environment, what influences the org. legislation, markets, technology, media. 17

What is IT/IS Strategy planning? (Contd…)

To put IT/IS Strategy in practice – it:

- requires technical & managerial understanding; - planning the details & thinking holistically; - rational/analytical know-how & political sensitivity Main/prime obj. is then an alignment to ensure that 1) the IS provision matches the business needs

as well as:

2) how it does it (process) & when it does it (timing) 18

What is IT/IS Strategy planning? (Contd…)

Alignment is a TWO way process:

- the business determines the IS needs

BUT

also IS influences the business.

As we all know:   IT/IS is changing the way business operates; E-commerce changes the way transactions are done and customers communicated with etc….. 19

What is IT/IS Strategy planning? (Contd…)

Alignment may be:

Reactive- following after the business strategy or Proactive - leading the business strategy, proposing new ideas 20

Business and IS Alignment

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Safeguarding the Competitive Advantage (CA)

Once the strategy is articulated, the org.

must decide how to implement it. and then find a mechanism to safeguard it:

See the offensive and defensive moves

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Safeguarding CA & Core Competence -

Offensive Moves

Offensive Moves

are: … are actions taken when an organization tries to exploit and strengthen its competitive position through attacks on a competitor's position. See the examples on the following slide 23

Safeguarding CA & Core Competence -

Offensive Moves

1.

2.

3.

4.

5.

Frontal assault Attack a competitor’s weaknesses All-out attack Maneuvering around competitors Guerilla tactics 24

Safeguarding CA & Core Competence -

Offensive Moves

1) Frontal assault

Going head to head against a competitor in price, promotion, product features, and distribution channels.

But

the org. must have the financial & marketing strength to do this. 25

Safeguarding CA & Core Competence -

Offensive Moves

2) Attack a competitor’s weaknesses

This is a good strategy for many businesses too They can place their products in geographic areas where their competitors do not compete. Also, they can serve market segments that competitors do not serve at all or do not serve well.

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Safeguarding CA & Core Competence -

Offensive Moves

3) All-out attack

Coke and Pepsi are battling it out in this fashion in the supermarkets, vending machines, and restaurant chains But this moves requires significant Financial resources and may result in market share at the expense of profits.

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Safeguarding CA & Core Competence -

Offensive Moves

4) Maneuvering around competitors

A clever competitor sometimes can find a way to change the rules of the game and circumvent its opponents.

This may involve:

changing the features of the product, such as Compaq adding a button on its personal computers to access the Internet 28

Safeguarding CA & Core Competence -

Offensive Moves

5) Guerrilla tactics:

Small, intermittent, seemingly random attacks can wear down a competitor just accumulated body blows slow an opponent in a boxing match The constant stream of coupons offered by fast food outlets do not serve well as a CA. Because they are so easily copied. But they do Keep competitors busy countering and defending their positions 29

Safeguarding CA & Core Competence –

Defensive Moves

An org. will not always be on the attack.

Sometimes it will be under attack by competitors, needing to defend its competitive advantage and core competences . This is when it will need defensive moves. See the examples on the following slide 30

1.

2.

3.

4.

Safeguarding CA & Core Competence –

Defensive Moves

Don’t give competitors anything to attack Make competitors believe they will suffer if they attack Counterattacks Lower the incentive to attack 31

Safeguarding CA & Core Competence –

Defensive Moves

1) Don’t give competitors anything to attack

If a firm offers a full and competitive product line, protects its products with patents, and has exclusive contracts with suppliers, it does not leave much for competitors to attack.

Coke & Pepsi cover many bases by having broad product lines, heavy marketing, & control over Bottlers – but rem . they are so balanced in power 32

Safeguarding CA & Core Competence –

Defensive Moves

2) Make competitors believe they will suffer if they attack

Public signals that a competitor 's move will meet with strong retaliation may prevent the competitor from executing its plans. E.g. if a firm announces plans to build a new plant, that signals a competitor that it should rethink its plans to attack that firm's market segment. Matching a competitor's price is a good signal too –

price war

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Safeguarding CA & Core Competence –

Defensive Moves

3) Counterattacks

If a vital market segment is under attack, some form of counterattack may be necessary. An organization's strategists should choose thei battles carefully,

though, because retaliation can be expensive.

They should be sure the attacker is strong enough to do harm before spending too much to defend.

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Safeguarding CA & Core Competence –

Defensive Moves

4) Lower the incentive to attack:

Most attacks are launched because the attacking firm believes that the high profits will result. There are ways for a defender to alter that belief. Some firms reduce the incentive for attack by constantly lowering costs so that price can drop while profit margins remain constant. Managers in the attacking firm should know that their costs will be higher for some time. 35

The Internet & E-Commerce

 Impact of the INTERNET  What is the difference between E-COMMERCE & E-BUSINESS 36

Impact of the Internet

  E-commerce and e-business existed before the Internet burst onto the business scene.

However it is the ubiquitous nature of the Internet which gives it much of its power.

 It is ubiquitous because it is affordable technology.

 Therefore it opens up new opportunities to small and large firms alike.

(true or false?)

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E-Commerce & E-Business

    This is a much disputed topic.

It has been argued that there is little or no meaningful difference between the two.

However, there is a plethora of definitions in the literature.

We therefore must define what it is 38

E-Commerce

‘E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for production and procurement of indirect operating-expense items, such as office supplies. It involves new business models and the potential to gain new revenue or lose some existing revenue to new competitors.’

[Bartels 00]

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E-Business (i)

E-business includes e-commerce but also covers internal processes such as production, inventory management, product development, risk mangt. ,, finance, knowledge management & human resources E-business strategy is more complex, more focused on internal processes, and aimed at cost savings and improvements in efficiency, productivity and cost savings.’ [Bartels 00]

E-Business (ii)

“E-Business is what happens when you combine the broad reach of the Internet with the vast resources of traditional information technology systems. It is dynamic and interactive.” (IBM) 41

To avoid confusion we will adopt the convention: E-COMMERCE = E-BUSINESS

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E-Commerce STRATEGY

The Internet opens up NEW STRATEGIC OPTIONS regarding how and where firms compete and how they organise.

Porter’s Five Forces reveals some of the threats and opportunities 43

Porter’s Five Forces Model

Threats of New Entrants Threats of Substitute Products & services The Company Traditional Rivals Bargaining Power of Suppliers Bargaining Power of Customers 44

EC Strategy: Concepts & Overview

The e-difference  Reach – access and connection   Richness depth & detail o f information are possible Barriers to entry are reduced  Market niches abound 45

Selling is not easy on the Internet –

because of

- Large number of sites - 80% of Internet revenue from limited sites - Profitability still out of reach of majority of Internet retailers.

- Provide all information for a sale.

- Security is paramount - Link E-commerce to back office processes.

Brand is of key importance 46

E-Commerce strategy –

main issues

We need to think about:

- New business strategies which incorporate e-b - Changing org. structure including IT business links; - Correct technology platform; - Benching marking against other sites; - Maintenance and on-going management and development of site; - Relationship management with customers, suppliers and allies.

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