Triangular Strategic Analysis for Hybrid E-Retailers

INTRODUCTION

For traditional retailers, the success of an e-channel lies largely in formulating and implementing a sound e-chan-nel strategy that leverages their resource base. Numerous evidences show that poorly developed e-channels have added little value to retailers (Huang, 2003; Prencipe & McCarthy, 2002). Some of the poorly developed e-chan-nels have had a negative impact on business performance due to an excessive investment, disappointing sales, and low margin (Nataraj & Lee, 2002). The poor performance arose from focusing on the Internet as a separate channel not affected by the activities in other existing channels (Kannan, 2001). For many traditional retailers, their costly and frequent e-channel reorganizations could have been avoided if they had adequately analyzed the strategic fit between their external environment and e-channel organization.
There has been no universally applicable business strategy for e-channels. For many retailers, the right mix of the traditional channels and e-channel is critical to their business success (Gulati & Garino, 2000). Despite the strategic value of the e-channel, there have been only a paucity of frameworks that help managers initiate and formulate the e-commerce strategy (Allen & Fjermestad, 2001; Lee, 2001). A number of strategic analysis models such as SWOT analysis, five forces model, resource-based view, and critical success factors have been applied to the e-commerce strategy development. These models attempted to formulate a business strategy from different perspectives of a business organization, but have not been fully integrated with each other. Formulating a business strategy based on the analysis and integration of multiple perspectives will result in a more competitive strategy than those of a single perspective.
Based on a number of e-channel case studies and strategic management theories, this short article presents (1) an overview of a triangular strategic analysis and (2) an example application of the triangular strategic analysis with an Office Depot case study. Data on the Office Depot’s e-channel strategy and implementation were collected through secondary sources such as trade journals and Office Depot’s official publications. The triangular strategic analysis consists of (1) competitive forces analysis, (2) resource base analysis, and (3) critical success factor analysis

BACKGROUND

To capture the ever-increasing B2C population, retailers have experimented with a variety of B2C business models (Gulati & Garino, 2000). Some of the widely used e-commerce models include auction models (e.g., eBay.com), reverse auction models (e.g., Priceline.com), portal models (e.g., Yahoo.com), stand-alone e-retailer models (e.g., Amazon.com), and hybrid e-retailer models (e.g., Walmart.com). While B2B e-commerce applications such as e-procurement systems and the Internet-based supply chain management have brought significant benefits to business organizations, many B2C business models have failed to generate sustainable long-term profits.
In the late 1990s, most stand-alone e-retailers of commodity type products suffered the hardest hits due to low margin, rising customer acquisition cost, and the lack of financial support of investors (Stockport, Kunnath, & Sedick, 2001). Numerous stand-alone e-retailers such as Garden.com, Boo.com, and Petopia.com were consolidated with traditional retailers or liquidated (Kujubu & Martin, 2001). These failures were attributed to the poor business plan, weak complementary resources in distribution network and customer services, lack of brand name recognition, and low entry barriers.
Evidence shows that a misdirected e-channel development leads to costly and frequent revisions of e-commerce strategies. Kmart and Wal-Mart experienced a costly revision of their e-channel strategies. Kmart initially created a spin-of fentity, BlueLight.com, in December 1999 as a joint venture between Kmart and Softbank Venture Capital. After Kmart withdrew from a planned initial public offering (IPO) for BlueLight.com in 2000, it acquired all of the interests of BlueLight.com in 2001. Walmart.com is another example of the costly revision of an e-channel strategy. Walmart.com was established in January 2000 as an independent company operating as a joint venture between Wal-Mart and Accel Partners. In 2001, Wal-Mart acquired all the minority interest in Walmart.com in order to establish the tight integration between its e-channel and physical stores.
Since each organization is uniquely positioned in a market with a different set of competitive forces, critical success factors, and capabilities, no single e-channel strategy would be suitable for all organizations. The successful deployment of an e-channel requires a thorough review and analysis of all major business activities, including business strategies, processes, functions, and vendor/customer relationships. For traditional retailers, poorly deployed e-channels without cross-channel coordination and integration mechanisms in place cannot create competitive advantages. These e-channels may also have a negative impact on other channels by losing customers who value a seamless cross-channel experience. The triangular strategic analysis will provides managers with a unified view of a business organization by combining and presenting multiple organizational perspectives.

TRIANGULAR STRATEGIC ANALYSIS FOR HYBRID E-RETAILERS

The purposes of strategic analysis are to examine the current and future business environments, to identify new business opportunities and threats, and to develop strategies to counter competition and achieve strategic goals. A number of strategic analysis models have been developed with the emphasis on different perspectives of a business strategy development. Table 1 summarizes major strategic theories/models, their purposes, advantages, and disadvantages. Based on the complementarities of these models, we utilize three analysis models in an e-channel development framework. The triangular strategic analysis consists of (1) competitive forces analysis, (2) resource base analysis; and (3) critical success factor analysis. While each of these strategic analysis methods sustainable competitive advantage (Conner, 1991). The fundamental logic of the resource-based view is that the desirable outcome of a business strategy is a sustainable competitive advantage. Since not all resources are equal in creating sustainable competitive advantage, many researchers focused on identifying advantage-creating resources. Barney (1986, 1991) suggested that the advantage-creating resources must be firm-specific, rare, and difficult to imitate. The resource-based view of a firm was applied to understand how the superior IT resources of organizations render the cost and value of IT innovations different from competitors (Bharadwaj, 2002). In a changing environment, firms must continuously invent and upgrade their resources and capabilities if they are to maintain a competitive advantage and growth. The sequential development of resources and capabilities can make a firm’s advantage inimitable (Barney, 1991; Lado, Boyd, & Hanlon, 1997).

Table 1. Summary of major strategic management theories/mode

Table 2. Impacts of e-commerce on competitive forces’ threats and firm’s opportunities from retailers’ perspective

Each retailer has a different set of firm-specific resources to utilize, and an addition of an e-channel can be viewed as a unique resource utilization and development process in achieving sustainable growth. The mapping between the competitive forces and the resource base provides answers to two important questions: (1) what kinds of existing resources a retail organization can leverage and (2) what resources it needs to differentiate itself from the competitors. While strong resources are leveraged to survive, weak or non-existent resources need to be critically examined for the future resource development and sustainable competitive advantage. Traditional retailers’ resources include physical stores, distribution centers, patent, trademark, brand, reputation, enterprise-wide database, integrated information systems, skills and knowledge of employees, and organizational culture and trust. Some of these resources are more difficult to imitate and more valuable as a source of competitive advantage than others. In general, intangible resources would be more difficult to transfer and imitate than tangible resources.

Table 3. E-commerce analysis matrix of competitive forces and resource base: Office Depot’s case

Table 4. E-commerce analysis matrix of critical success factors and resource base: Office Depot’s case

Table 3 shows the e-commerce strategy matrix of the competitive forces and the resource bases of Office Depot. The rows list two types of resources: strong resources (sustaining resources) and weak/non-existent resources (developmental resources). Certain weights can be assigned to the competitive forces based on their importance to prioritize the resource allocation and development activities. The analysis of Office Depot suggests that the existing integrated information systems can be leveraged to counter the threat of the suppliers’ e-com-merce and to benefit from the growth of the customers’ online purchases.
The matrix needs filling of e-commerce strategies and projects in relation to resources, threats and opportunities. Threats posed by new market entrants may force a retailer to choose the e-channel introduction as a strategic option. If a retailer has a strong resource base in support of an e-channel, then an immediate introduction of an e-channel may be feasible with little developmental resources. Overall, the e-commerce strategy matrix of the competitive forces and the resource base provides a conceptually grounded framework for assessing sustainable and developmental resources, and enables these resources to be examined in terms of the opportunities and threats for establishing sustainable competitive advantages.

Critical Success Factors Analysis

Once the previous analyses lead to an e-commerce strategy, critical success factors (CSFs) analysis decides what the most important determinants are in achieving strategic goals (Rockart, 1979). The successful execution of CSFs requires resources. Identifying a match between the firm’s resources and the critical success factors in the industry is a demanding task, and the success of the match is a function of the accuracy of managerial expectations about the value of the strategy (Barney, 1986).
The e-commerce success factors for retailers include efficient business process, integrated distribution systems, multi-channel coordination and integration, customers’ trust, strong brand recognition, superior customer service operations, financial stability, effective online technologies, and strategic alliances. Table 4 shows a matrix that develops matches between the Office Depot’s resources and the critical success factors. For example, the business process redesign requires the integrated information systems, skills and knowledge of employees, and organizational culture and trust as critical resource bases.
The matrix helps managers determine what existing resources can be leveraged or what new resources are needed to achieve the CSFs and ultimately the business strategies. To successfully achieve e-channel strategic goals and sustain competitive advantages, retailers need to monitor the performance of these CSFs with a measurable objectives and metrics. Once CSFs and metrics are defined, a detailed e-channel plan should be developed to achieve these critical success factors and business strategies.

FUTURE TRENDS AND CONCLUSION

The rapid penetration of the World Wide Web and the explosion of e-commerce startups have changed the dynamics of the competitive forces across all industries. Due to the explosion in e-commerce competition, the e-channel has become a critical factor in the strategy development by the hybrid e-retailers. While managing the e-channel is one of the most important tasks for marketing managers, many managers are still unclear about e-channel strategies and lack core e-channel knowledge needed to analyze business environments, to develop strategies, and to evaluate alternative e-channel solutions. Empirical evidence shows that experimenting with different types of e-channels is very costly. Some retailers such as Kmart, Wal-Mart, CVS, and Staples experimented with spin-offs. These retailers later struggled to retrofit the spin-offs into their parent companies.
A number of strategic analysis models such as SWOT analysis, five forces model, resource-based view, and critical success factors have been applied to e-commerce strategy development. However, there has been little effort to integrate these models for e-channel strategy development. These models attempted to formulate a business strategy from different perspectives of a business organization, but have not been fully integrated with each other. The analysis and integration of multiple dimensions will result in a more comprehensive strategy than those of a single dimension. To develop a comprehensive e-channel strategy, the triangular strategic analysis attempted to integrate three well-known analysis models: competitive forces analysis, resource base analysis, and critical success factor analysis.
The triangular strategic analysis provides managers with a unified view of a business organization by combining and presenting multiple perspectives of an organization. The unified view will enhance managers’ ability to effectively identify their present strategic position, internal resources, and critical success factors, and decide upon the most appropriate e-channel strategy. As important, the unified view will allow managers to utilize the emerging opportunities of e-commerce and to prevent threats that would be posed by carelessly developed e-channel strategies.
The triangular strategic analysis was applied to analyze Office Depot’s e-channel development strategy. The evaluation of Office Depot’s e-channel development strategy suggests a number of its success factors that may be useful for other retailers’ e-channel development: (1) Office Depot was an early adopter of an e-commerce technology, and continued to explore different e-com-merce business models over time; (2) its e-channel was not only another distribution channel but also a service channel; (3) it also leveraged its own e-channel expertise and resources in office supplies in expanding to other markets; and (4) it treated an e-channel not as an independent entity but as an internal business unit in an integrated business organization; (5) its senior management supported an e-commerce project from a strategic point of view; and (6) it pursued a resource-based e-channel IT development.

KEY TERMS

Channel Conflict: Situation in which an e-channel creates a conflict with existing channels because of real or perceived damage from inter-channel competition.
Complementarities: Products or services that provide more value together than individually. For example, hybrid e-retailers can leverage complementarities by providing offline services to online shoppers.
E-Channel: An online marketing channel where companies and customers conduct business, no matter where they are. Since the e-commerce revolution, many brick-and-mortar businesses have expanded their marketing channel to include e-channel.
Hybrid E-Retailer: A click and mortar company which conducts retailing through e-channel as well as physical stores and other distribution channels. Compared to its pure e-commerce competitors, a hybrid e-retailer can leverage existing physical stores, brand recognition, distribution network, existing customer base, and so forth.
On-Demand Delivery Services: Express delivery of products made with highly efficient transportation systems after an online order is received.
Order Aggregation: A group purchase designed to achieve a volume discount by aggregating orders placed by individual buyers.
Reverse Auction: A fixed-duration auction hosted by a single buyer in which multiple sellers compete for business.
Sell-Side Forward Auction: An auction where a seller announces the items for quick sale and buyers bid on them.