Profit = revenue cost. Enhance profit by: Increasing revenue Reducing cost. Ultimate source of investment funds Source of return on investment

Transcription

1 Chapter 4 The Business Environment Profit, ROI, and Risk Profit = revenue cost Enhance profit by: Increasing revenue Reducing cost Ultimate source of investment funds Source of return on investment Business investment is risky Higher rate of return required 1

2 Figure 4.1 The business planning hierarchy. Corporate strategy Product strategy Information technology strategy Marketing strategy Human resources strategy E-commerce strategy Objective: define long-term direction A Startup Business Plan A.k.a., path to profitability Contents Product Market Competitors Customers Risks Financials 2

3 Figure 4.2 Elements of a business plan. Business description The product The market Sales and marketing Finance Management team Industry overview, mission statement, the company's products or services, company's position in the market, pricing strategies, competitive advantage. Current status of product or service, production or service delivery process, design/development budget, labor requirements, operating expenses, capital requirements, cost of goods. Target customers, market size, target market, competitors, estimated sales. Plans for identifying potential customers and converting them to actual customers, distribution channels, advertising and promotion plan. Risk assessment, cash flow, balance sheet, income statement, funding needs, return on investment, payback, net present value. Owners and controlling stockholders, management structure, board of directors, management support services. Competitive Advantage Something that Your company can do Your customers want (or value) Your competitor cannot or will not match Sources of competitive advantage Unique product Price Quality Cost controls and efficiency 3

4 Figure 4.3 The value chain. Inbound logistics Production processes Outbound logistics Sales and marketing Customer service Information technology infrastructure Upstream Downstream Conflicting objectives Local process efficiency Organization-wide efficiency Conflicting Objectives Process objectives can conflict Sales wants full warehouse Minimize inventory carrying cost You can have it fast, you can have it cheap, or you can have it right. Pick any two. Need for trade-offs to balance 4

5 Figure 4.4 The supply chain. Upstream Downstream Conflicting objectives again Company vs. company E-Commerce Business Environment Low cost of entry Global reach Huge potential markets Intense competition 5

6 Figure 4.5 The three categories form an integrated structure. B2C (Customer focus) Integration is the future of e-commerce. Intra-business (Value chain focus) B2B (Supply chain focus) Figure 4.6 The three categories are applications that communicate with each other via the infrastructure. Another way to view integration B2C Intrabusiness The World Wide Web B2B The Internet The global data communication network 6

7 Figure 4.7 A B2C transaction and a supply chain purchasing transaction are similar. Acme's Value Chain Supply chain links value chains Categories somewhat arbitrary Categories are a model Purchasing (B2B) Corporate sales (B2B)... Sales (B2C) Retail customer The Soup-to-Nuts value chain Customer's value chain Digital Products Potential killer applications/services Software Recorded music Digital books Information services Diminishing returns does not apply E-commerce is a digital technology 7

8 The law of diminishing returns applies to physical products. Unit cost Quantity At some point, unit cost increases with volume. Digital products do not experience diminishing returns. Unit cost High startup cost First copy Low incremental cost After breakeven Pure profit Quantity 8

9 Intermediaries An intermediary is a middleman Disintermediation Eliminating the middleman Sometimes claimed as e-commerce benefit Reintermediation New middlemen replace the old ones An e-commerce reality Figure 4.8 Intermediaries. Party A Intermediary Party B Intermediaries provide services that lie off the value chain. Infrastructure hardware and software providers Connectivity providers Bandwidth providers Website service providers Web information system service providers Security service providers Information service providers 9

10 Figure 4.9 Some intermediaries. Connectivity providers Telephone service providers Wireless service providers Internet service providers Cable service providers Common carriers Bandwidth providers Backbone providers Network Service Providers (NSP) Networp Access Points (NAP) Value Added Networks Website service providers Website design and development Management consulting Website hosting Content management Content distribution Website usage measurement HTML editors Storage systems Database software Web information system service providers Application service providers System development consulting Development software Enterprise portal software Plugins and gateways Infrastructure hardware and software providers Domain name registries Network hardware and software Routers and switches Load balancers Client and server computers Peripherals Operating system software Communication hardware Communication software Application software Web browser and server software Groupware Security service providers Anti-virus software Firewalls Encryption software Identification and authentication Disaster recovery services Virtual private networks Business service providers Payment systems Advertising services Supply chain management Managed service providers Customer relationship management Financial software and services Brokers Auction sites Information service providers Portals, destinations,marketplaces Search engines Virtual communities Privacy services Rating services Shopping Bots Negating Location Geography no longer matters Global competition Example writing this textbook Participants The authors (Florida and Ohio) The publisher (Boston) Production (New England) Printing and warehousing (Indiana) 10

11 Figure 4.10 A manuscript page. Created by the authors Florida Ohio MS Word Figure 4.11 Rough art. Created by the authors Florida Ohio Visio 11

12 Figure 4.12 A copy edited page Copy editor in Massachusetts MS Word Figure 4.13 A finished page. Paging done in Massachusetts Adobe Acrobat All electronic communication 12

13 Figure 4.14 Bots. Bot is an intelligent agent Increases customer power Bot Category Allows you to: Chatter bots Chat with the cyberworld Commerce bots Perform e-commerce activities on the Web and the Internet Fun bots Interact with virtual environments and virtual realities. Game bots Monitor selected online games or act as a skilled opponent Government bots Find information on government Web sites Knowledge bots Utilize various artificial intelligence (AI) agents News bots Create custom newspapers or manage a clipping service Search bots Use an intelligent agent to search the Web Shopping bots Comparison shop, often by price Software bots Obtain software fixes, diagnose problems, and create bots Stock bots Monitor stock prices Update bots Obtain update alerts when selected Web content changes Source: Figure 4.15 The competitive advantage model. Stimulus for action The two yellow boxes represent activities that happen simultaneously. First major move Customer acceptance Competitor catch up moves First mover expansion moves Commoditization 13

14 Figure 4.16 Time for technologies to reach 50 million users. Technology First use 50M Elapsed users years Radio Broadcast television Cable TV Commercial Internet Based on Morgan Stanley Dean Witter, The Global Internet Primer, Volume I, June 2000, page 12. Note the acceleration! Figure 4.17 The accelerating pace of innovation. Textbook months months Lose 40% of competitive advantage Rapid obsolescence Time to market is key Delay means lost opportunity Level of activity Readiness Intensity Impact Time 14

15 Evolving E-Commerce Business Strategies Danger everything becomes a commodity Frictionless e-commerce No competitive advantage for anyone Brand name matters more than ever Brand name reduces perceived risk Bricks-and-clicks strategy Reduced cycle time is a key objective Reduce time to market React quickly to change Figure 4.18 The 20 top technology-related brand names in the US. This list is from 2001 How would it change today? Rank Brand Name Rank Brand Name 1 Napster 11 Microsoft Office 2 Disney 12 Intel 3 Windows 13 WebTV 4 Microsoft 14 Sony 5 Replay TV 15 WebMD 6 TiVo 16 Yahoo! 7 MP3 17 Norton 8 ebay 18 Adobe 9 Pixar 19 Palm Pilot 10 Pentium 20 Blue Mountain Source: "Marks of Distinction, the Tech Brands that Grab Internet Users Worldwide," Wired, July 2001, page

16 Information Technology as Strategic Tool Modern business is Extremely competitive Changing at an accelerating rate Impossible to keep current manually Information technology infrastructure Essential A strategic resource 16