Web Initiatives and E-Commerce Strategy

INTRODUCTION

Business use of modern computers started in the 1950s. Since then, IT has progressed through a series of hardware, software and applications improvements, delivering more value to individuals, firms, and organizations for lower cost. Productivity improvement (efficiency), at both the individual and organizational levels, has been a major focus. As well, firms have learned how to gain competitive advantage from IT.
While historical roots of the Web go back several decades, it was only in the last two that business really started to embrace the Internet, and in the last one that commercial opportunities on the Web grew rapidly. Business use has gone from simple operational efficiencies (email on the Internet, replacement of private EDI networks, etc.) to effectiveness, enhanced services, and virtual products. Information and information products available in digital form, and the ability to quickly transfer these from one party to another, have led to a paradigm shift in the way many organizations operate. While the transition has followed the automate, infomate, transformate progression of historical IT, the pace has been unprecedented. There have been successes and failures, with fortunes made and lost.
Paralleling the improvement in IT and the Internet has been a series of economic shifts including globalization, flattening of hierarchical organizations, increasing emphasis on knowledge work (contrasted with manual labour), plus growth in the service sector and information economy. IT has both hastened these economic shifts,and provided a welcome means of addressing the accompanying pressures. E-commerce, which now inevitably includes Web initiatives, has most recently been at the forefront among these economic shifts.
To consider Web initiatives and e-commerce (EC) strategy, one needs to first understand strategy, and then extend this to the organization’s business model and tactics. A firm’s general business strategy includes, but is not limited to, its IT strategy (Figure 1). Similarly, EC strategy is a subset of IT strategy. Strategy should drive actions (tactics) through an appropriate business model. When strategy (business, IT, and EC) and tactics are closely aligned, and tactics are successfully executed, desirable results are obtained.
In addition to commercial use of the Web, there are many non-commercial uses and non-commercial users (governments, educational institutions, medical organizations, etc.). The term e-business is often used to include both commercial and non-commercial activity on the Internet. In this article, the focus is on commercial activities.


BACKGROUND: BUSINESS STRATEGY, IT STRATEGY, AND WEB INITIATIVES

Business strategy and IT strategy have been extensively studied. The strategic alignment model of Henderson and Venkatraman (1993) identifies four domains of strategic choice: business strategy, IT strategy, organizational infrastructure and processes, and IT infrastructure and processes. This model recognizes that a firm’s IT operates within, and supports, a larger environment. As well, a firm’s IT strategy can lead, lag, be independent of, or be aligned with a firm’s business strategy. When alignment exists, there are significant payoffs (Tallon & Kraemer,2003).

Figure 1. Strategic alignment

Strategic alignment
On the business strategy side, Porter provides several frameworks to guide firms in selecting their strategy and business model. His five-forces model, value chain network, and generic strategies (Porter, 1996) are useful frameworks when considering both business and IT strategies. In response to the question of whether or not the Internet renders established rules of strategy obsolete (as some have proposed), Porter answers that it makes strategy more vital than ever (Porter, 2001). He shows how the Internet has both positive and negative effects on industry structure, and identifies six principles of strategic positioning: (1) start with the right goal – superior long-term return on investment; (2) a firm’s strategy enables it to deliver a value proposition, or set of benefits, that differentiates itself from competitors; (3) a firm’s strategy is reflected in a distinctive value chain; (4) effective strategies require trade-offs; (5) strategy defines how all the elements of what a company does fit together; and (6) strategy involves continuity of direction. Porter concludes, “In our quest to see how the Internet is different, we have failed to see how the Internet is the same.”
An extension to Porter’s value chain is the virtual value chain (Rayport & Sviokla, 1995). Just as the physical value chain identifies the value-adding stages through which physical goods flow, the virtual value chain identifies the value-adding steps for information (gathering,organizing, selecting, synthesizing, and distributing). For virtual products and services, EC strategy and Web initiatives are especially important.
Hence, firms need to consider their IT and EC strategies as part of their business strategy. None of these should be developed or implemented independently. Decisions within any firm are made in the context of a particular business strategy, a particular set of experience and skills, a particular culture and organizational structure, and a particular set of technology and data capabilities (Hammer, 2001). Web initiatives, as a subset of EC and IT strategy, lie at the execution end (as shown in Figure1).

E-COMMERCE STRATEGY

During the rampant optimism of the mid to late ’90s, there seemed to be much more hype than reality concerning ebusiness. Statements were made that business was different now, that the Internet and Web changes everything, and that new e-business models were needed. The feeding frenzy among venture capitalists, eager to fund almost any start-up, allowed incomplete and ill-conceived concepts to be financed. It did not take long before reality took hold again, as the dot.com boom became the dot.com bust. The pendulum has now shifted from an overemphasis on “e” to a more balanced perspective on both “e” and “c”. The Gartner Group Hype Cycle (Figure 2) provides a somewhat light-hearted, yet still realistic, view of this technology lifecycle. EC has gone through the first half of this cycle, and is now maturing.
Understanding an organization’s strategic grid position (Figure 3) is critical for developing an appropriate IT and EC strategy and determining the requisite level of resources to commit. EC is not strategic to all firms, nor is all EC strategic. As Carr (2003) argues, much of IT today is a commodity-like service for many organizations, and can be managed as such. Yet, EC and Web initiatives can be strategic. There are usually significant resource implications for firms transitioning from one quadrant to another within this grid (i.e., changing their EC strategy).

Figure 2. Gartner Group Technology Hype Cycle

Gartner Group Technology Hype Cycle
An important component of EC strategy is the business model used by a firm. As shown in the previous section, strategy is about making decisions and choices. For some firms, there will be much greater emphasis on the virtual side of their business; for others it will be the opposite. However, all firms need to consider the needs of their customers and the strategies (both business and IT) of their competitors, and be able to deliver required goods/services in a sustainable manner. Hence, the firm’s business model must align with the strategy selected (be it EC strategy, IT strategy, or business strategy). Magretta (2002) identifies two tests for a powerful business model – the narrative test, and the numbers test. The first test requires a logical, defendable explanation of who one’s customers are, what they value, and how the firm will be profitable by providing that value. The second test requires evidence of ongoing financial viability, based on realistic assumptions and a financial analysis. Online auction giant eBay passed both these tests, as did Amazon. In contrast, most online grocery models failed because of false assumptions about what customers valued, and overly optimistic estimates of marketing, technology and delivery cost. Another retailer, Lands End, utilized Web initiatives and other IT to successfully pioneer mass customization for apparel (Ives & Piccoli, 2003).
A business model is about much more than simply technology. In the earlier days of the dot.com boom, there was an overemphasis on executing Web initiatives while ignoring the rest of the business model. Now, as the EC field matures, firms have a better understanding of the opportunities, the costs/benefits, risks, and the technology and applications to use. While technology is an important component, so are organizational characteristics (culture, interorganizational relationships, leadership, reward and control systems, staffing, structure), resources (capabilities, financial, fixed assets, human, marketing, relationships, reputation and brand awareness, technology), and managerial preferences (beliefs and values, personality and needs, job experience and context, leadership style, political elements) (Crossan et al., 2002).
One question facing firms is when to use Web initiatives. Andal-Ancion et al. (2003) identify 10 drivers of new information technology (NIT), which also apply to Web initiatives. These different drivers determine the competitive advantages of deploying NIT, and fit under three general classifications: (1) Inherent characteristics of the product or service (electronic delivery, information intensity, customizability, and aggregation effects), (2) Interactions between a company and its customers (search costs, real-time interface, and contracting risk), and (3) Interactions between a company and its partners and competitors (network effects, standardization benefits, and missing competencies).
In their paper, they apply these drivers to various industries and firms, explaining the basis for disintermediation, remediation, or network-based mediation within an industry. These drivers should also be considered when a firm develops its EC strategy and considers Web initiatives.
A particular Internet benefit comes from its ability to integrate business processes across organizations, facilitated by the sharing of information between the various partners. This is seen in B2B exchanges (whether private or public) and portals. After a rocky start with involvement in public exchanges (which tended to overemphasize price), many firms are now participating in, or hosting, private by-invitation-only exchanges (Hoffman et al., 2002). Once again, it was lack of understanding of a sustainable B-model that resulted in so many failures. The original plan was to use the Internet’s power and reach to form a more efficient marketplace. Most exchanges failed once their venture capital financing dried up. The strongest surviving exchanges are those that added value for all participants (appropriate alignment, per Figure 1). Examples of successful industry exchanges include Covisint LLC (automotive), Trade-Ranger Inc (energy/ chemical), and Global Healthcare Exchange LLC (health care).

Figure 3. EC importance strategic grid

 EC importance strategic grid
In the area of supply chain management (SCM), the sharing of information allows efficiency improvements all along the chain – firms can reduce inventory levels, increase the accuracy of their forecasting, and supply parts in a timely and cost-efficient manner. With the move from EDI to the Internet, even small firms can easily participate.
Michael Hammer (2001) identifies nine things that firms must do to thrive in the customer economy of today. Four of these items (make yourself easy to do business with; sell through, not to, your distribution channels; push past your boundaries in pursuit of efficiency; and lose your identify in an extended enterprise) are directly facilitated by the Internet and Web initiatives.
When developing an EC or Web initiative there are many things to consider. A partial list includes: the source and target (business, consumer, government), the focus (internal or external or both), whether the objective is efficiency or effectiveness, go it alone versus partnership, proactive versus reactive approach, targeting onetime versus ongoing customers, physical versus virtual goods, and single good/service versus package.
From an ROI perspective, any investment in Web and e-commerce should provide a reasonable return. Yet, traditional investment analysis techniques may not be appropriate. Kohli et al. (2003) discuss the unique challenges that e-business environments pose to the measurement of IT payoff. These include the productivity paradox, level of measurement, choice of metrics, and the measurement process. The authors identify four general areas for future research (appropriate metrics, the ebusiness environment, technology, and business process change).

FUTURE TRENDS

There is considerable uncertainty about predicting the future, particularly with IT and EC. Yet, there are current observable trends.
On the technology side, there is the gradual convergence of technical standards/protocols (although some areas, such as Web service standards, are currently described as a battle ground – Koch, 2003). A benefit of collaborative consortiums is that a single protocol can be agreed upon by all participants. Certainly, the number of technologies and software capabilities will increase, and the move towards commoditization will continue, with the vendor community battling the Open Source community. For most firms, the problem will continue to be which technology to implement for what purpose. Overall, firms will continue to have more difficulty implementing technical initiatives because of non-technical issues. Usability of Web sites will continue to improve, as firms apply human factors analysis and other design procedures to implement better Web sites (see the Nielsen Norman group at www.useit.com). Research opportunities in this area will include empirical studies of how different types of organizations are using new technology, along with the study of implementation methods and challenges, and normative studies of how organizations should decide on which technologies to implement, when and how.
Customer trends are also noticeable. Today’s customers have heightened expectations. One approach to meeting these is through self-service applications (a “win/ win” for both customers and the firm) for which Web initiatives are ideal. The development and use of intra-organizational applications will continue to grow. Growing use of analytics will assist firms in segmenting their customers, quickly becoming aware of demand shifts, and providing increased value at lower cost. Retail customers will have fewer Web site security concerns and continue to become more comfortable with Web purchasing of goods and services. Research opportunities include developing better analytics, and studying the behaviour of early adopters, mainstreamers, and laggards.
At the firm level, several things are noticeable. As firms have gained experience with EC, many problems (such as channel conflict) have been identified and dealt with. SCM has led in consolidating firms into value chain networks. An increased understanding of the business levers for effective e-commerce strategies is leading to better decisions and standardization on best practices (which results in operational efficiency, but not necessarily in competitive advantage). In addition, there will be continued digitization of business processes; current estimates are that only 20%-25% are currently digitized (Kalakotra & Robinson, 2003). Smaller firms, facing resource scarcity, are likely to continue to lag in EC initiatives (Craig, 2002).
Shaw (1999) identified seven issues for EC research: (1) scope, components and potential impacts, (2) B2C EC, (3) strategy for developing online business and digital services, (4) B2B EC, (5) security, privacy and legal concerns, (6) technology and infrastructure for EC, (7) strategy for coordinating channel partners and streamlining their processes. While much has been learned about these areas, as many new questions have appeared; so these seven issues remain as attractive EC research areas.

CONCLUSION

Business success comes from making difficult decisions about business, IT and EC strategy, then implementing these successfully, using appropriate resources. While spending on IT and EC will continue, it is possible to under-spend, as well as overspend. Firms need to set priorities for investments, and ensure their business strategy aligns with their IT strategy (Farrell et al., 2003) and EC strategy. Sometimes this will result in being an IT and EC leader within an industry segment, and sometimes it will mean staying within the mainstream group or even lagging (Carr, 2003). This is an importance choice for firms and should be made consciously, rather than by default.
Web initiatives, when undertaken as part of a firm’s EC strategy, will only be successfully implemented when adequate resources are provided for each project, and appropriate project management processes followed. For leading edge (bleeding edge?) projects, significant contingency allowances are important, and firms must be prepared for occasional failures (one could call these “learning experiences”).
Finally, firms should not overly focus on technology (Barua et al., 2001; Davenport et al., 2001) when it comes to EC and Web initiatives. Good, appropriate technology (not necessarily the best), successfully implemented, will bring significant benefits at a reasonable cost.

KEY TERMS

Business Model: A specific arrangement of organizational strategies, goals, processes, resources (technologies, finances, people, etc.), structures, products and services that enable a firm to successfully compete in the marketplace. Many EC researchers have taken a narrower view, based on organizations involved (i.e., B2B, B2C, B2G, etc.), or specific framework used (i.e., hierarchy, hub, or intermediary for e-markets). While there is not yet a consensus about what makes up a business model, the trend is away from a narrower view.
E-Business Model: That subset of the general business model that supports e-business.
E-Commerce: Commercial activities taking place over electronic networks (primarily the Internet); e-commerce is a subset of general commerce.
E-Commerce Strategy: A subset of general business and information technology strategy, focusing on Web-based commercial opportunities. It may dominate general strategy in some firms.
M-Commerce: Mobile commerce, with wireless access to the Web.
Protocol: A set of rules and procedures that govern transmission between the components of an electronic network.
Strategy: The determination of the basic long-term goals and objectives of an organization, and the adoption of courses of action and allocation of resources necessary for achieving these goals; major components of strategy include: goals, product/market focus, business system focus, and competitive premise.
Web Initiative: Any use of the World Wide Web for a specific purpose.
Web Personalization: Customizing Web content, in real time, to a specific user.

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