COMP7880: E-Business Strategies

Internal and External Analysis

Dickson K.W. Chiu

PhD, SMIEEE, SMACM, Life MHKCS
Jelassi & Enders: Chapter 3-4

1
Focus of this course
 NOT how to implement EC / EB functions
 BUT to
 ANALYZE the business requirements in the
perspective of strategic management
 FORMULATE suitable business models & strategies
 CHOOSE suitable IT options (especially Web-
based ones) to implement the strategies

 Study tips - whenever mentioning something

to be done, think: How IT helps?

COMP7880-I/E-2
 Our Roadmap
Mobile e-commerce strategy
12
E-business strategy
Strategic Strategy formulation Strategy
analysis implementation
3 External
analysis 5 9
Strategy Internal
options organisation

Opportunities/
threats

6 7 10 13
Strengths/ Sustaining Exploring Interaction with
weaknesses competitive new market suppliers Implementation
advantage spaces

4
Internal
analysis
8 11
Creating and
capturing Interaction with
value users/customers

COMP7880-I/E-3
 E-business strategy formulation
SWOT Analysis
Key environmental/
industry developments External
Analysis
Opportunities Threats

• Do we have • Do we have
Strengths the strengths to the strengths to
seize possible fend off possible
Firm opportunities? threats?
charac-
teristics

Weaknesses • Which opportunities • To which threats do

do we miss because our weaknesses
of our deficits? expose us to?

Internal
Analysis COMP7880-I/E-4
 Business Example –
SME Computer Assembly
End-User

Check & Payment

Quotation Quotation Purchase
Begin Receive Authori- End
Enquiry Evaluation Order
System zation

Su
pp
Re

Pa
Quotation

ly
iry

qu

Or

ym
u

E
es
nq

de
xtr

en
E

tE

r
a

t
Inf
xtr

o
aI
nfo
Check Prepare Prepare Service Deliver &
Begin End
Parts Info Quotation Extra Info Preparation Install

System Integrator Service Preparation Sub-process

fo

Order
In

Assemble Install System

rts

Begin Missing End

uiry

System Software Testing

Pa

Parts
Enq

ted

th
wi t
da

r
de en
Or aym
Up

p
Parts Vendor ry
live
De
Parts Deliver
Begin End
Quotation Parts

Simplified main business process of the company.

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External Analysis

Examine your opportunities & threats

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What is External Analysis?
External Analysis
Scan and evaluate various external environmental
sectors impacting performance

Opportunities
Positive external environmental trends that
improve the organization’s performance

Threats
Negative external environmental trends that
hinder the organization's performance

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 Organizations as Open Systems

Environment

Organization
Inputs Processes Outputs
Organization Functions:

Environment
Production-Operations Goods
Environment

Resources: Marketing
Physical Services
Financial-Accounting
Capital Human Resource Mgt.
Human Performance
Research and Development Measures:
Information Information Systems Financial
Managerial Activities: Productivity
Planning Achieve Goal
Organization
Leading
Controlling Organization

Environment
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 External Analysis: Impacted by
industry and macro-environment

General
Environment

Technological Economic
Specific Environment
Industry-Competitors
Current
Substitute Organization Rivalry
Products
Potential
Bargaining Entrants
Political-Legal Power of Bargaining
Suppliers Power of Demographic
Buyers

Sociocultural
Source: Adapted from H. Hungenberg (2006), p. 90.
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 General Environment - Economic
Economic
All the macroeconomic data, current statistics, trends, and changes
• Interest rates
• Monetary exchange rates
• Budget deficit-surplus
• Trade deficit-surplus
• Inflation rates
• GNP or GDP
• Consumer income, spending, and debt levels
• Unemployment levels
• Workforce productivity

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 General Environment - Demographics
Demographics
Current statistical data and trends in population characteristics
• Gender
• Age
• Income levels
• Ethnic makeup
• Education
• Family composition
• Geographic location
• Birth rates
• Employment status

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General Environment - Sociocultural

Sociocultural
• Country's culture

• Society's
• Traditions
• Values
• Attitudes
• Beliefs
• Tastes
• Patterns of behavior

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General Environment – Political-Legal
Political-Legal

• Federal, state, and local

• Laws
• Regulations
• Judicial decisions
• Political forces

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General Environment - Technical
Technical
Improvements, advancements, and innovations
that create opportunities and threats
• Communications
• Computing
• Transportation
• Manufacturing
• Robotics
• Biotechnology
• Medicine and medical
• Telecommunications
• Consumer electronics

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 Porter’s 5 force model
Potential entrants

Threat of
new entrants
Bargaining power
of buyers
Industry competition
Suppliers Rivalry among Buyers
existing firms
Bargaining power
of suppliers
Threat of
substitutes

Substitutes

One assumption of Porter’s five forces model is that some industries are inherently more
attractive than others; i.e., the profit potential for companies in that industry is higher.
As this figure indicates, the interaction and strength of five forces influences profitability.

Source: Adapted from M. Porter (1998), p. 4.

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 Internet’s impact on the 5 forces
(–) Reduces barriers to entry such as
the need for a sales force, access
Barriers to to channels and physical assets.
entry
(–) Internet applications are difficult to
keep proprietary from new entrants.
(–) A flood of new entrants has come
into many new industries.

Bargaining power Rivalry among Bargaining power of

of suppliers existing competitors channels and end users

(+/–) Procurement using the Internet

tends to raise bargaining power (–) Reduces differences among (+) Eliminates (–) Shifts
over suppliers, though it can also competitors as offerings are powerful bargaining
give suppliers access to more difficult to keep proprietary. channels or power to
customers. (–) Migrates competition to price. improves consumers.
(–) The Internet provides a channel (–) Widens the geographic market, bargaining (–) Reduces
for suppliers to reach end users, increasing the number of competitors. power over switching
reducing the leverage of intervening (–) Lowers variable cost relative to fixed traditional costs.
companies. cost, increasing pressure for price channels.
(–) Internet procurement and digital discounting.
markets tend to give all companies
equal access to suppliers, and
(+) By making the overall industry
gravitate procurement to standardised
more efficient, the Internet can
products that reduce differentiation. Threat of substitute expand the size of the market.
(–) Reduced barriers to entry and the products or services (–) The proliferation of Internet approaches
proliferation of competitors downstream
creates new substitution threats.
shifts power to suppliers.
Source: Reprinted from M. Porter (2001)
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 Complementing Porter’s model:
Co-opetition value network framework

Supplier

Competitors Firm Complementors

Buyer
Source: Adapted from A. Brandenburger and B. Nalebuff (1998), p. 17
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 Responsibilities for External Analysis at Different
Managerial Levels
 Lower Level Managers/Supervisors
 Observe and interact
 Collect and consolidate
 Middle Managers
 Coordinate
 Share with organizational units
 Gatherer and disseminator
 Monitor general environmental sectors
 Make needed strategic changes
 Upper Management
 Evaluate opportunities and threats

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 Benefits of Doing An External Analysis
 Proactive managers anticipate change and plan
accordingly
 Provide information for
 Planning
 Decision making
 Strategy formulation
 Acquire and control needed resources
 Cope effectively with increasingly dynamic environment
 Make a difference with higher performance

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 Challenges of Doing an External Analysis

 Rapid environmental changes are difficult to

keep up with => IT helps 
 Amount of time that analysis can consume
=> IT helps 
 Forecasts and trend analysis are not actual
fact 

Discussion: How IT Helps?

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Internal Analysis

Examine your strength & weakness

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What is an Internal Analysis?

 Looks at the organization’s

 Vision
 Mission
 Strategic objectives
 Identifies and evaluates resources,
capabilities, and core competencies

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 Company Vision
 Massively inspiring
 Overarching
 Long-term Company vision
 Driven by and evokes passion
 Fundamental statement of the
organization’s
 Values, Aspiration, Goals
 E.g., Disneyland: “To be the
Happiest place on earth”
Hierarchy of Goals

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 Mission Statements
 Purpose of the company
 Basis of competition and
competitive advantages
Company vision
 More specific than vision
 Focused on the means by
Mission statements
which the firm will compete
 E.g., FedEx: “To produce
superior financial returns
for our shareholders as we
serve our customers with Hierarchy of Goals
the highest quality
transportation, logistics,
and e-commerce.”

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 Strategic Objectives
 Operationalize the mission
statement
 Provide guidance on how the
organization can fulfill or move
toward the “higher goals” Company vision
 More specific, a more well-defined
time frame, measurable (yardstick
for rewards and incentives), Mission statements
consistent with vision and mission,
realistic (challenging but doable),
timely Strategic objectives
 E.g., P&G: “Increase sales growth
6% to 8% in each of the next five
years” Hierarchy of Goals

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 Distinctive e-business competencies:
unique resources and capabilities

Resources

Tangible
resources Capabilities Strategic importance
The ability to • Valuable
(Equipment, • Unique
location, ...) deploy resources • Hard to imitate/
by co-ordinating substitute
them through • Valuable across different
Intangible • Structures products/markets
resources • Processes
• Systems
(Technology, know- e-Business
how, brand, ...) competencies

Build Utilize
resources resources

Source: Adapted from H. Hungenberg (2006), p. 143.

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 The Role of Strengths and Weaknesses

Strengths: Resources that an organization

possesses and capabilities that an organization has
developed. Both can be exploited and developed
into a sustainable competitive advantage

Weaknesses: Resources and capabilities that are

lacking or deficient. Prevent an organization
from developing a sustainable competitive
advantage

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How to do an internal analysis –
Capabilities Assessment Profile

Complex Analysis of Capabilities

 Not as easily identifiable as organizational functions
 Hard for competitors to imitate

Two-phased Capability Assessment

 Phase I: Identify distinctive capabilities
 Phase II: Develop and leverage these distinctive capabilities

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Identifying Distinctive
Organizational Capabilities
Step 1 Prepare current product-market profile.

Identify sources of competitive

Step 2 advantage and disadvantage in
the main product-market segments.

Describe all the organizational

Step 3 capabilities and competencies.

Sort the core capabilities and

Step 4 competencies according to
strategic importance.

Identify and agree on

Step 5 the key capabilities
and competencies.

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 Criteria to Judge Organizational Strengths
and Weaknesses

Past Performance Trends Comparison Against Competitors

Are organizational
resources and capabilities
strengths or weaknesses?

Specific Goals or Targets Personal Opinions of Strategic

Decision Makers or Consultants

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Core competence approach cuts
across different functional areas

Inbound Operations Outbound Marketing / After-sales

logistics Logistics Sales services

Demand and supply processes

Service processes

New product development processes

Etc.

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 Criteria used when including specific
activities in a company analysis

Display different For instance, the development activity of a new software

economics program displays very large economies of scale since the
software can be replicated at a negligible cost.
Provide high These are activities that can greatly increase tangible
differentiation and intangible consumer benefits, such as product and
potential
service quality, convenience and reputation.

Present sizeable These are activities that add significantly to the overall
costs cost structure of the firm.

Source: See M. Porter (1998). COMP7880-I/E-32

 Value chain analysis:
distinct value-adding activities

Firm infrastructure
Support Human resource management
activities Technology development
Procurement

Inbound Operations Outbound Marketing After-

logistics logistics and sales sales
Primary services
activities

Source: Adapted from M. Porter (1998)

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 How the Internet impacts all activities in
value chain (Support Activities)
Firm Infrastructure
• Web-based, distributed financial and ERP systems
• On-line investor relations (e.g. information dissemination, broadcast conference calls)
Human resource management
• Self-service personnel and benefits administration
• Web-based training
• Internet-based sharing and dissemination of company information
Technology development
• Collaborative product design across locations and among multiple value-system participants
• Knowledge directories accessible from all parts of the organisation
• Real-time access by R&D to online sales and service information
Procurement
• Internet-enabled demand planning
• Other linkage of purchase, inventory, and forecasting systems with suppliers
• Direct and indirect procurement via marketplaces, auctions and buyer-seller matching
Web-distributed supply chain management

Source: Reprinted from M. Porter (2001)

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 How the Internet impacts all activities in
value chain (Primary Activities)

Inbound logistics Operations Outbound logistics Marketing and sales After-sales service
• Real-time integrated • Integrated infor- • Real-time transaction of • Online sales channels • Online support of
scheduling, shipping, mation exchange, orders including web sites and customer service
warehouse scheduling and • Automated customer- marketplaces representatives
management, demand decision making in specific agreements • Real-time inside and • Customer self-
management & in-house plants and contract terms outside access to service via websites
planning, and and components • Customer and channel customer information, and intelligent
advanced planning & suppliers access to product product catalogues, service request
scheduling across the development and dynamic pricing, processing
company and its delivery status inventory availability, • Real-time field
suppliers • Collaborative online submission of service, access to
• Dissemination through integration with quotes, and order entry customer account
out the company of customer forecasting • Online product review, work-order
real-time inbound and systems configurators update, etc.
in-progress inventory • Integrated channel • Customer-tailored
data management marketing via customer
profiling

Web-distributed supply chain management

Source: Reprinted from M. Porter (2001)

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 Virtual vs physical value chain:
Developing new markets
Customer Purchasing Logistics Etc. Physical
identification process value chain

Gather
Organize
Data

Data

Data

Data
Select
Synthesize
Distribute
Customer Purchasing Logistics Virtual
identification information information Etc. value chain
information

Decision Support / Knowledge

New customers
New products New
markets
New services
Source: Adapted from A. Enders and T. Jelassi (2006), pp. 31–44.
COMP7880-I/E-36
 ICDT model: Using the Internet
in the virtual market space
The market space

Virtual Virtual
Information Communication
space space

Traditional
marketplace

Virtual Virtual
Distribution Transaction
space space

Source: Adapted from A. Angehrn (1997), pp. 38-47.

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 The value network of partners with
differing functions
Strategic core value chain partners
Inbound Manufacturing Admin., e.g.
logistics travel
Upstream Downstream
value chain partners value chain partners
Value chain integrators
Suppliers Fulfilment

Core value
chain activities
Buy-side Sell-side
intermediaries intermediaries
Value chain integrators

Finance Human Admin., e.g.

resources travel

Non-strategic service partners

Source: Adapted from D. Chaffey (2007), p.282

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Segmentation

Choose your favorable environment

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 e-business market review :
a segmentation scheme
Buyer/recipient
Consumer/peer/citizen Business Government

Consumer-to-
consumer
(e.g. ebay) Consumer-to- Citizen
Consumer/peer/citizen Peer-to-peer -to-government
(e.g. Napster) business (e.g. online tax return
Citizen-to-citizen (e.g. Amazon.com) forms)
(French presidential
election 2007)

Supplier/
Business-to-
provider Business Business-to-consumer
(e.g. Ducati.com)
Business-to-busines
(e.g. Covisint.com)
government
(e.g. online filing of
corporate tax returns)

Government-to- Government-to- Government-to-

Government citizen business (e.g. government
(e.g. information information about (e.g. exchange of
about pension most recent legal diplomatic
statements of citizens) regulations) information)

COMP7880-I/E-40
 Segmentation method

It should be possible to measure the size of a

Measurable defined segment in order to determine its
purchasing power and its peculiar
characteristics

A segment should be large enough to

Substantial justify that it is addressed separately

The segments must be exclusive and react

Differentiable differently to a variety of marketing
approaches

It should be possible to develop sales and

Actionable marketing approaches to serve specific
segments.

Source: Kotler, (2005).

 Segmentation variables are the basis
for strategic customer analysis

Segmentation type Criteria to be considered

Geographic Geographic regions (e.g. continents,

segmentation countries, states)
Demographic Age, gender, income, life style
segmentation
Psychographic Personality type and personal interests
segmentation (e.g. cash-rich, time-poor)
Behavioural Purchasing frequency, usage patterns, etc.
segmentation

Source: Kotler (2005).

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 Target-market selection
Product specialisation Full market coverage
(e.g. Spreadshirt (e.g. Nordea Bank,
Amazon.com, Tesco.com)
M1 M2 M3 M1 M2 M3

P1 P1
Many
P2 P2

P3 P3

Selective specialisation,
(e.g. Bertelsmann)

M1 M2 M3
Number of
market segments P1
served
(scale) P2
Single segment
concentration P3
(e.g. Ducati, Porsche) Market specialisation
(e.g. ING DIRECT)
M1 M2 M3 M1 M2 M3

P1 P1

P2 P2
Few
P3 P3

P = Product Number of different products

Few and services offered (scope) Many
M = Market
Source: Adapted from D. Abell (1977); “Strategy and Structure: Public Policy Implications” in Proceedings of Marketing and the Public Interest. Cambridge, Mass.: Marketing
Science Institute.
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