MSC - IB - Lecture 3 - 2014

MSc International Business (2014) The University of
Birmingham
International e-business:
Lecture 3:
E-commerce Markets:
Revenue Models and Strategies
Web Infrastructure and Sales Channels
Essential Information Flows Among
E-Commerce Companies
Adrian Boucher, 2014

Learning Objectives The University of
Birmingham
• Identify the strategic options facing a (possibly, new) business

• How the emergence of the Internet / WWW affect and influence
business strategy and choice of Revenue Model
• Identify key impacts of www on firm structure and infrastructure
• Identify Key impacts of www on industry structures
• Consider e-business adoption options: Web functionality
• Creating an effective Online Presence: Connecting with Customers
• Consider horizontal, vertical and internal factors in e-business
• Discuss distinctions between B2C e-business and B2B e-business
• Discuss importance of integrated approaches to business and IS
strategies for undertaking online sales (and support)
• Importance of streamlining and management of Supply-Chains and
Value-chains
• Effects of e-developments on Inter-Organizational Systems (IOS)
3-2
Reading and Online Activities The University of
Birmingham
• Chaffey: Chapters 2, 3 , 4 and 5

• Schneider, Chapters 3 and 4
• Laudon & Traver: Chapters 2 and 4
• Chen: Chapters 1, 3, 5 and 7
• Farhoomand: Chapters 1 & 2
• Jelassi & Enders: Chapters 3 and 4
• http://www.ideasformarketing.com/strategic-options.htm
• http://www.managingchange.com/step/strateg.htm
• http://www.netmba.com/strategy/value-chain/
• http://www.scottish-enterprise.com/
• http://ec.europa.eu/enterprise/e-bsn/index_en.html
• http://www.nb2bc.co.uk/home/
3-3
External Impacts upon Companies The University of
Birmingham
Remote Macro
Political Legal & political Economic
environment
Legal environment environment
Economic
Social Industry
Technological environment
impacts Customers
Natural Techno-
environ- logical
ment Company Competitors environment
Social
environment
Adrian Boucher, 2014 Commonly-used Framework:PESTEL 3-4

Basic Economics of e-business The University of
Birmingham
• Some of the technologies of Internet and www offer

significant benefits to Customers and businesses:
• More (and more readily available) information
• Lower search costs (and available 24/73/65)
• Lower production and distribution costs
• Lower costs of procurement (buying) and selling
• Easier identification of new suppliers (BRICs)
• More precise targetting of Customers
• Benefits from virtual communities (Web 2.0)
• Any others…?
3-5
Supply Curve The University of
Birmingham
Price Generally, the higher the

price, the more product
S1 will be brought to market
S1
Quantity
3-6
Supply and Demand The University of
Birmingham
Generally, the lower the price

Price of a product, the more will
D0 S0 be purchased.
The curves intersect to define
the equilibrium price and
quantity, P0 and Q0
P0
S0 D0
Q0
Quantity
3-7
Effect of www on Supply The University of
Birmingham
More suppliers come to the

Price market, driving down price
D0 S0 to P1 and expanding quantity
S1 to Q1
Many of these suppliers come

from rapidly developing
countries: Brazil, Russia,
India and China (BRIC).
For the past 10 years, western
countries have experienced
falling prices and low inflation
from this effect.
One of today’s concerns: rising
P0
labour prices In China might
P1
S0 D0 trigger Worldwide inflation.
Not yet perceived:
S1
Q0 Q1
Quantity
3-8
Lagged Demand Effect The University of
Birmingham
D1 With increased employment

Price and rising real incomes,
D0 S0 consumer demand increases,
to D1 driving up prices to P2
S1
Effect on Q is possibly
ambiguous, depending
on the relative strengths of
suppliers and consumers.
In this case, supply also
continues to expand.
If this oversupply is allowed
P2 to continue, eventually prices
D1 will have to fall to bring markets
P0 back to equilibrium.
P1
S0 D0
S1
Q0 Q1 Q2
Quantity
3-9
Implications for e-business The University of
Birmingham
• Business needs to take into account how cost and

demand factors affect its decisions:
• Whether to become an e-business?
• What information costs will they incur?
• What other costs and revenues will affect their
business?
• What are their decision-making costs?
• What Customer costs and benefits can they
influence, etc?
• How will they generate sales revenue?
• All of which impact upon their business strategy
3-10
Range of Revenue Models The University of
Birmingham
• Web business revenue-generating models

• Web catalogue [Argos]
• Digital content [iTunes]
• Advertising-supported [Google]
• Advertising-subscription mixed [Newspapers]
• Fee-based [Information Provision: Reuters]
• Same model can work for both sale types
• Business-to-consumer (B2C)
• Business-to-business (B2B)
3-11
Web Catalogue Models The University of
Birmingham
• Adapted from mail-order (catalogue) model

• Seller establishes brand image
• Printed information mailed to prospective buyers
• Orders placed by mail or phone
• Expands traditional model
• Replaces or supplements print catalogs
• Orders placed through Web site/Smartphone
• Creates additional sales outlets for existing companies
• Discount Retailers [Overstock.com]
• Use of Multiple Channels: Physical Stores, Website,
Mailed Catalogues, Newspapers, etc.
3-12
Combining Market Channels The University of
Birmingham
3-13
Web Catalogue Models (2) The University of
Birmingham
• Adding the Personal Touch

• Many adapted catalogue sales model to Web
• Display clothing photos categorized by type
• Prices, sizes, colours, and tailoring details
• Personal Shopping Agent (learns preferences – suggest)
• Want customers to examine clothing online
• Place orders through Web site
• Virtual Model (try different outfits)
Video Communication: Show products in real-time
• Lands’ End online Web shopping assistance
• Lands’ End Live (1999)
• Online text chat and call-back feature
• Ability to push Web pages to customers’ browser and,
nowadays, Tablet / Smartphone
3-14
Fee-for-Content Rev Models The University of
Birmingham
• Firms who own written information or info rights

• Adopt Web as highly efficient distribution mechanism
• Use Digital Content revenue model
• Sell Subscriptions for information access
• Legal, Academic, Business and Technical content:
• LexisNexis: Variety of Information Services for
Lawyers and Law Enforcement Officials
• Subscriptions and Individual access rights to Online
Academic Journals and publications
• Aggregation Services: Subscription Packages to
Schools, Libraries, etc.
• Dow-Jones: Business-Focussed Publications
• Newspapers, Magazines, etc. [Times Online,
Economist]
3-15
Fee-for-Content (2) The University of
Birmingham
• Electronic books
• Market leaders: Amazon.com’s Kindle products,
Barnes & Noble’s Nook products, and Google’s
eBookstore
• Steady sales growth anticipated (esp. future)
• Sales include:
• Books (sold individually)
• Magazines and newspapers subscriptions
• Online Music
• Largest stores: Amazon MP3, Apple’s iTunes, eMusic,
Google Music, Microsoft’s MSN Music, and Rhapsody
• Digital Rights Management (DRM): Software intended
to stop music download privacy
• Amazon MP3 – first to offer DRM-free MP3 files
3-16
Fee-for-Content (3) The University of
Birmingham
• Online video
• Issues hampering sales in previous years
• Large file size
• Fear of online sales impairing other sales types
• Inability to play on variety of devices
• Overcoming the issues
• New technologies improving delivery
• Companies incorporating online distribution into
revenue strategy
• Web browser availability for alternate devices
• Smart phones and tablet devices
• Electronic Books: Audio Books; Podcasts; CDs; other
digital files; Monthly subscriptions for number of
downloads: price – per book; Amazon delivers directly
to Kindle readers
3-17
Advertising-Supported Revenue Models
The University of
Birmingham
• Use Advertisers’ Fees not Users’ Subscriptions

• Common in Commercial TV: Now used widely online
• Problem: Measuring & Charging Site Visitor Views
• STICKINESS: Keeping Visitors at Site;
• Attracting Repeat Visitors
• Problem: Obtaining Large Advertiser Interest
• Requires Demographic Information Collection
• Need to Categorise Site Visitors: Who? Where?
• Use Specialized Target Audiences: Sports Fans
3-18
Advertising-Supported Revenue Models (2)
The University of
Birmingham
• Web portals (portal)

• Site used as a launching point to enter the Web
• Usually includes a Web directory or search engine
• Often includes other features
• Web directory
• Listing of hyperlinks to Web pages
• General interest strategy: Yahoo! portal search
engine
• Presents search term-triggered advertising on
each page
• Specific interest strategy: CNET and Kayak:
examples with targeted advertising
• Advertising-supported online classified ad sites
• Employment Sites: Monster.com, etc
3-19
Advertising-Supported Revenue Models (3)
The University of
Birmingham
• Used vehicle sites

• AutoTrader.com; WeBuyAnyCar.com, etc
• Similar sites, e.g., used musical instruments,
comic books, and used golf equipment
• Advertising-subscription mixed revenue models
• Subscribers pay fee and accept some
advertising
• Less advertising than advertising-supported
sites
• Newspapers/magazines using advertising-
subscription mixed revenue model offer varying
proportions of free content
3-20
Advertsing-Supported Summary The University of
Birmingham
3-21
Fee-for-Transaction Models The University of
Birmingham
• Service fee charged

• Based on transaction number or size
• Web site offers visitor transaction information
• Personal service formerly provided by a human
agent
• Value chain
• Disintermediation [e.g. Dell]
• Intermediary (human agent) removed
• Reintermediation
• New intermediary (fee-for-transaction Web
site) introduced
3-22
Disintermediation The University of
Birmingham
3-23
Adrian Boucher, 2014 Source: Chaffey, 2011
Reintermediation The University of
Birmingham
3-24
Adrian Boucher, 2014 Source: Chaffey, 2011
Fee-for-Transaction Revenue Models
(Continued) The University of
Birmingham
• Travel: Travel agency revenue model: receive fee for facilitating

a transaction
• Travel sites generate revenue through:
• Commissions
• Web site advertising fees (advertising-fee revenue model)
• Popular travel Web sites
• Travelocity (based on Sabre)
• Expedia (Microsoft subsidiary)
• Orbitz (consortium of major U.S airlines)
• Traditional travel agents: squeezed out
• Surviving smaller travel agents specialize in cruises
• Assisted by Web sites, e.g., VacationsToGo.com, with
detailed cruise information or discounted package deals
• Reintermediation strategy: cater to a target audience
(WaveHunters.com)
3-25
Changing Strategies:
Revenue Models in Transition The University of
Birmingham
• Companies have to change revenue model

• To meet needs of new and changing Web users
• Some companies created e-commerce Web sites
• Needed many years to grow large enough to
become profitable (CNN and ESPN)
• Some companies changed model or went out of
business
• Due to lengthy unprofitable growth phases
• Many case studies of strategies that evolved from
experience and adaptations to change (Schneider)
3-26
Revenue Strategy Issues The University of
Birmingham
• Channel conflict and cannibalization

• Channel conflict (cannibalization): company’s Web site
sales activities interfere with existing sales outlets
• Levis Web site and Maytag
• Web sites no longer sell products
• Sites now provide product and retail distributor
information
• Eddie Bauer [http://www.eddiebauer.com/home.jsp]
• Online purchases returnable at retail stores
• Required compensation and bonus plans adjustments
to support Web site
• Channel cooperation made it successful
3-27
Revenue Strategy Issues (2) The University of
Birmingham
• Strategic alliances
• Two or more companies join forces
• Undertake activity over long time period
• Yodlee account aggregation services provider
• Yodlee concentrates on developing the technology and
services
• Banks provide the customers
• Amazon.com
• Joined with Target and many smaller companies/Agents
• Luxury goods
• Difficult to sell online
• Customers want to see product in person or touch
• Overcome by some sites by limiting online offerings
• Supported by: “No Questions Asked” returns policies
• General INDEPENDENT Appraisal Certificates
3-28
Creating an Effective Presence
The University of
Birmingham
• Organization’s presence
• Public image conveyed to stakeholders
• Usually not important
• Until growth reaches significant size
• Stakeholders
• Customers, suppliers, employees,
stockholders, neighbours, and general public
• Effective Web presence
• Critical even for smallest and newest Web
operating firms
3-29
Strategic Options for Business The University of
Birmingham
Three Fundamental Options:

1. Be the cheapest (Cost-Leadership)
1. Really only an option for large businesses
2. Take advantage of significant economies of scale
3. Runs the risk of a price war with competitors
2. Be the best (Differentiation)
1. Requires that you have a unique product
2. Usually requires high R&D expenditure
3. Need continually to innovate to retain position
3. Dominate a niche market position (Niche strategy)
1. Probably most suitable for small businesses
2. Needs exceptionally effective market segmentation
3. Need to develop (and defend) a strong brand
3-30
Segmentation Issues The University of
Birmingham
It should be possible to measure the size of a

defined segment in order to determine its
Measurable purchasing power and its peculiar
characteristics
A segment should be large enough to justify

Substantial 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.
3-31
Segmentation and Customer Analysis
The University of
Birmingham
Segmentation type Criteria to be considered
Geographic segmentation Geographic regions (e.g. continents, countries, states)
Demographic segmentation Age, gender, income, life style
Psychographic segmentation Personality type and personal interests (e.g. cash-

rich, time-poor)
Behavioural segmentation Purchasing frequency, usage patterns, etc.
3-32
Target Market Selection
Product specialisation:
e.g. private banking; wealth Full market coverage:
management
e.g. 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 P1
segments
served P2
(scale)
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: Jelassi and Enders (2009)

E-Business Strategy Recap
The University of
Birmingham
• Standard Questions for defining Strategy:

• Where are we now? (Situational Analysis)
• What Business are we in?
• What business do we want to be in?
• What business SHOULD we be in?
• Where do we want to go?
• How do we get there?
• Which way is best?
• How will we know when we have arrived?
• Who are our competitors?
• Who are our allies?
• What resources do we have?
• What resources do we need?
3-34
Business Planning Resources
The University of
Birmingham
• http://forum.digitalenterprise.org/cgi-bin/bulletin/ultimatebb.cgi
• http://www.ja.org/studentcenter/entrp/entrp_business_plan_fs.html
• http://www.paloalto.com/
• http://planmagic.com/
• http://www.newarttech.com/eBusiness.htm
• http://myphliputil.pearsoncmg.com/student/bp_turban_introec_1/Tut
Intro.html
• http://www.bplans.com/
• http://www.bplans.org.uk/
• http://www.businessplans.org/
• http://www.tupson.com/ebusplan.htm
• http://ec.europa.eu/information_society/ecowor/ebusiness/index_en.
htm
• http://www.info.gov.hk/digital21/eng/strategy2001/strategy_part32.ht
ml
• http://www.businesslink4london.com/index.cfm?
fuseaction=res.viewResource&resID=97&sctn=38&subsctn=99
• Reading, C (1994): Strategic Business Planning
• McKeever, M (2003): How to Write a Business Plan,
ISBN: 0-87337-863-6 6th Edition, Nov '02
3-35
Other Strategic Issues The University of
Birmingham
• Vertical Integration: Extent to which firm owns its upstream

suppliers and downstream buyers
• May have significant impacts on costs, security of supply, ability to
differentiate products and services
• Also impacts on its relative freedom to engage in strategic activities
• Horizontal Integration: Extent of acquisition of firms at the same

level of the value chain; when a company expands its business into
different products that are similar to current lines
• Examples:
• Hamburger manufacturer decides to add hot dog manufacture to
its product range
• Dell decides to manufacture LCD TVs because the technologies
are very similar (complementary)
• Media company obtains control of magazine, TV, Satellite TV,
interactive TV, online media, newspapers and books
3-36
Porter’s value-Chain Analysis The University of
Birmingham
• Widely-used paradigm (we shall explore this later)

• Significant history of successful use as an analytical framework
• Intent: use it to put e-business developments into context
• Ask appropriate questions / explore alternative assessments of
e-business operations and e-implementation
• Different scenarios:
• Not presently in e-business
• Considering entry to e-business
• Just entered e-business
• In e-business, but not yet successful
• Successful e-business adoption
• Path breaker / world-class performer
3-37
E-business Ladder of adoption The University of
Birmingham
8 - e-business - full implementation

7 - order progress tracking
6 - online trading: B2B
5 - order or sell online - B2C
4 - marketing website: marketing communication
3 - Internet access
Source: derived from EU
2 - e-Mail
ICT and e-business benchmarking
1 - Personal Computer Surveys 2001-2006
0 - not on ladder: minimal ICT adoption
Various other ways of organising the “ladder”
3-38
Factors Affecting Adoption The University of
Birmingham
Objective: Business Growth (factors possibly in rank order)

What goals does the organization have in mind?
1. Create and maintain a competitive advantage
2. Enhance Customer satisfaction
3. Reduce Operational Costs
4. Improve employee communication and satisfaction
5. Develop new products / services
6. Find new markets for products / services
7. Create distinct and effective distribution channels
8. Improve supply-chain management
9. Develop a strong and enduring brand
10. Become a global player …? etc.
3-39
Market Opportunity The University of
Birmingham
• Refers to a company’s intended marketspace

and the overall potential financial opportunities
available to the firm in that marketspace
• Marketspace – the area of actual or potential
commercial value in which a company intends
to operate
• Realistic market opportunity is defined by
revenue potential in each of market niches in
which company hopes to compete
• Important to include these issues in business
planning and strategy development
3-40
Value Chain: An Analytical Framework
The University of
Birmingham
Human resource management
Corporate infrastructure
Technology development
product
Procurement
customer
Inbound Outbound Marketing After-sales

logistics
Operations
logistics and Sales service service
Porter, M E (1985): Competitive Advantage: Creating and Sustaining Superior Performance.

New York, The Free Press.
3-41
Primary and Support Activities The University of
Birmingham
Support Activities
product
Procurement
customer
Inbound Primary Activities

Outbound
Operations
Marketing After-sales
service
logistics logistics and Sales service
3-42
Primary and Support Activities The University of
Birmingham
Intranet
product
Procurement
customer
Inbound
logistics
Extranet
Operations
Outbound Marketing
logistics
Internet
and Sales
After-sales
service service
Refer back to Lecture 2 for definitions of Internet, Intranet and Extranet
3-43
Internet, Intranet and Extranet The University of
Birmingham
3-44
Internal Integration The University of
Birmingham
• Integration Strategy:
• May occur at number of different levels
• Often find individual departments operate in isolation
(often termed “information silos”)
• Need for improved inter-departmental communication is crucial to
e-business success
• Often attempted through Integrated Information Systems (IIS)
• Other approaches:
• Enterprise Application Integration (EAI - difficult, but getting easier)
• .NET (Microsoft web-based communication technology)
• Use of Intranets (and Extranets)
• BS2PE Framework (Afuah):
• Business Model (and Revenue Model(s))
• Structure
• Systems
• People
• Environment Structure applied to the organization
3-45
BS2PE Framework The University of
Birmingham
Competitive Judicial and

environment Legal system
Fiscal and
Monetary Technological
Business model
policies
Change
Structure Systems/Processes
• Functional People • Performance
• Matrix • Type assessment
• Divisional • Role • Rewards/sanctions
• Project • Culture • Controls
• Task Division • Information Systems
Performance
Demographic
Sociological
Factor
conditions
3-46
Adrian Boucher, 2014 Source: Afuah (2004)
Structure (of the firm) and Strategy The University of
Birmingham
• Alfred Chandler (1962) argues that “structure follows strategy”

and many other management experts and researchers have agreed
• http://www.blacksacademy.net/content/3661.html
http://www.csuchico.edu/mgmt/strategy/module9/index.htm
• Google Search for “structure follows strategy” returned 42,300,000
results (7 Jan 2012).
• However, many academics disagree; they contend that “strategy
follows structure”
• In other words, if a new strategy is developed (e-business operation)
then a firm necessarily has to consider its operating structure
• A search on Google for “strategy follows structure” returned
70,300,000 results (7 Jan 2011)
• www.firstconcepts.com/insightsintosuccess/strategystructure.html
bpminsights.blogspot.com/2006/11/structure-follows-strategy.html
In fact, the relationships are complex; structure and strategy are
inextricably entwined. Change one, and it means changing the
other.
3-47
Organizational Structure The University of
Birmingham
• Functional Organizational Structure

Span of control
Functional Organizaton
Depth of
CEO hierarchy
Director Director Director Director Director

Engineering & Design R&D Finance Manufacturing Marketing & Sales
Manager 1 Manager 2 Manager 1 Manager 2 Manager 1 Manager 2 Production Sales Manager

Ergonomics Technology Blue Sky Development Purchasing Sales Ledger Manager
Marketing Manager
Employees organised according to the function they perform.
3-48
Multi-Divisional Structure (M-form)
The University of
Birmingham
M-Form Organizaton
CEO
Director Director Director

Division A Division B Division C
Manager Manager Manager

R&D R&D R&D

Manufacturing Manufacturing Manufacturing

Marketing & Sales Marketing & Sales Marketing & Sales
Employees organised by Divisions (rather than functions). May be organised by

type of product, geographical region or by brand. Each Division has P&L responsibility
and operates as a discrete business Unit (SBU). Offers FOCUS and better accountability,
but may mean Divisional Managers have limited in-depth knowledge of the whole business.
3-49
Matrix Structure The University of
Birmingham
Matrix Organizaton
CEO
Director Director Director Director Director

Program Management R&D Finance Manufacturing Marketing & Sales
Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager Manager
Project 1 Project 2 Project 3 Project 1 Project 2 Project 3 Project 1 Project 2 Project 3 Project 1 Project 2 Project 3 Project 1 Project 2 Project 3
Attempts to combine benefits of Functional and M-form of Organization.

Disadvantages: Communication may be patchy; conflicting goals may be set for Managers
Difficult to keep Projects synchronised; may be managed by fully integrated Info Systems.
A variant of this Matrix Form is a Project Structure: Project team is allocated to a Project,
work on it, and Team is reallocated when Project is successfully completed.
3-50
Network Structure (modern) The University of
Birmingham
Sometimes described as a Virtual Organisational Structure 3-51

Network Structure (Recent) The University of
Birmingham
• Arisen as result of Technological change

• Firm outsources many (or all) value-adding activities and
acts as mediator or organiser of resources [e.g. Nike]
• Production may occur anywhere in the world - often China,
Taiwan, Singapore, India (for IT)
• Advantages: no need for high investments in assets
(especially in high-wage economies)
• Where rate of change in technology is high, risk is borne by
manufacturers; easy to switch suppliers (especially easy
using e-procurement and web-based project tendering)
• Disadvantages: May be difficult to develop competitive
advantage from a distance (becoming easier with e-business)
• Contracting out may mean losing cross-communication;
project interactions and internal idea exchanges.
3-52
Internet and Industry Structure
The University of
Birmingham
Porter, M E (2001): Strategy

and the Internet, Harvard
Business Review
3-53
Industry Value Chains The University of
Birmingham
• Set of activities performed in an industry by raw materials suppliers, by

suppliers of energy, manufacturers, transporters, distributors, and
retailers that transform raw inputs into final products and services
• Reduces the cost of information and other transactional costs
3-54
Firm Value Chains The University of
Birmingham
• Set of activities that a firm engages in to create final products

from raw inputs
• Increases operational efficiency
(I.e. Support Activities)
3-55
Firm Value Webs The University of
Birmingham
• Networked business ecosystem that uses Internet technology

to coordinate the value chains of business partners within an
industry, or within a group of firms
• Coordinates a firm’s suppliers with its own production needs
using an Internet-based supply chain management system
3-56
Value Network The University of
Birmingham
Supplier
Competitors Firm Complementors
Buyer
3-57
So why become an e-business? The University of
Birmingham
• Pro:
improve customer outreach;
reduce costs;
better communications (suppliers / customers);
information sharing;
faster transactions processing;
keeping up with the Jones’s;
opportunity of global market;
increased visibility / accountability
• Con:
may not be relevant to my business;
credit risk; security? Trust? Loss of personal touch
lack of skills; lack of understanding of resources required
low perceived ROI
too much competition already
fear (unwilling to leave “comfort zone”)
3-58
E-business Development Strategy The University of
Birmingham
• Requirement 1: Systematic Approach

• Business Planning:
• Vision
• Strategy
• Prepare a Business Plan
• Define Target Market
• Set immediate, medium - and long-term goals
• Decide on the Infrastructure required to deliver vision
• What functionality is required of website and back-office (s/w)?
• What technology / technologies are need to run these (h/w)?
• What Human Resources are required to deliver results?
• Design phase: building website and getting it running
• Marketing phase: advertising site; feedback systems;
high emphasis on CUSTOMER SERVICE (paramount)
• Fulfilment phase
• Maintenance and enhancement phases:
growing the business
3-59
Generic Approach to Strategy
Position Resources Simple Rules
Strategic logic Establish position Leverage resources Pursue opportunities
Strategic steps • identify attractive market • establish a vision • jump into the confusion
• locate defensible position • build resources • keep moving
• fortify and defend • leverage across • seize opportunities
markets • finish strongly
Strategic question Where should we be? What should we be? How should we proceed?
Source of advantage Unique, valuable position Unique, valuable, Key processes and
with tightly integrated activity inimitable resources unique simple rules
system
Works best in … Slowly changing, well- Moderately changing, Rapidly-changing,
structured markets well-structured markets ambiguous markets
Duration of Sustained Sustained Unpredictable
advantage
Risk Too difficult to alter position Firm too slow to build Managers too tentative in
as conditions change new resources as executing promising
conditions change. Long- opportunities
term dominance
Performance goal Profitability Long-term dominance growth
Eisenhart and Sull, Harvard Business Review, 2001

Competitive Advantage The University of
Birmingham
• When firm produces superior product &/or brings product to market

at lower price than competitors
• Firms achieve competitive advantage when firms are able to obtain
differential access to factors of production denied to competitors
• Asymmetry – when one participant in a market has more resources
than others
• Information Asymmetry - where one participant in a business
transaction has more INFORMATION than others [e.g. 2nd hand cars]
• Web REDUCES information asymmetries - potential Customers can
retrieve information from websites and use this to negotiate in
transactions (particularly common in car, PC and holiday purchase)
• Evidence that purchasers research markets online and use
information offline (car purchase; travel; high-ticket purchase items)
3-61
Market Strategy The University of
Birmingham
• Plan detailing how company intends to enter new market and

attract customers
• Best business concepts will fail if not properly marketed to
potential customers
• Needs properly planned and executed market research
• marketing research can be effectively conducted online:
• Web server log analysis
• Use of cookies
• Data collection, storage (warehousing) and analysis
• Data-mining, pattern recognition, demographic analysis
• Monitoring online conversations in chat rooms and social
networking sites (SNS)
• Administration of online surveys and questionnaires (need to
offer inducements to complete)
3-62
Factors Transforming Strategy
The University of
Birmingham
• Internet / www: infrastructural backbone allowing firms to

coordinate activities inside and outside the organization (go back to
value-chain diagrams: Intranet; Extranet; Internet - all use SAME
infrastructure and protocol: TCP/IP and Browser - simple, easy to
use and cheap! UNIVERSAL, well-understood, OPEN Standard).
• Internet allows reduction of Transaction Costs [Coase, 1937]
• Searching for buyers and sellers
• Coordinating various transactional activities
• Negotiating and completing contractual aspects of transactions
• Reducing search costs (for all parties to transactions)
• Allows for deconstruction and reconstruction of Value Chain
(business structure)
• MAY allow development of NEW business structure [businesses
“born on the web” vs. “businesses that move to the web”]
3-63
Value Chain Streamlining The University of
Birmingham
Technology development product

Procurement margin
customer
Inbound Outbound Marketing After-sales service

Operations
logistics logistics and Sales service margin
Porter, M E (1985)
3-64
Value Chain Deconstruction The University of
Birmingham
Existing value-chain
Unfrozen value-chain
Business Process
Re-engineering of
each link in chain
3-65
Value-Chain Reconstruction The University of
Birmingham
Re-engineered
deconstructed Enhanced Customer
value-chain Value
Reconstructed value-chain
3-66
Opportunities and Challenges
The University of
Birmingham
• Use Internet to develop competitive advantage by the ways

they perform interconnected value-adding activities
• Internet impacts not just on individual VC activities
• Internet impacts on way VC is configured, and how its
component parts are integrated (especially across different
firms in industry value chain) - IOS
• INFORMATION is the glue that holds the VC together
• Internet is a powerful tool for ungluing and re-gluing the chain
(especially when linked in with BPR)
• It is increasingly seen as important to ensure that VC is a fully
INTEGRATED as possible to deliver Customer value (e.g. Dell;
K-Mart; Cisco; SAP, etc) [Evans and Wurster (2000)]
• Firm needs to deliver competitive advantage at least in part of
its VC [E&W]
3-67
How do we make the Transition? The University of
Birmingham
• Need to define Objectives carefully

• Need to outline the hardware and software
technologies used to build an e-business
infrastructure within an organisation and with its
partners
• Need to outline the hardware and software
requirements necessary to enable employee
access to the Internet and hosting of
e-commerce services
• Need to think about future growth and
development (Scalability)
3-68
Management Issues The University of
Birmingham
• What are the practical risks to the organization of

failure to manage e-commerce infrastructure
adequately?
• How should staff access to the Internet
be managed?
• How do we manage security? (Later)
• How do we defend our Systems?
• What Threats are there for the e-business?
• What Opportunities are there?
• What Strengths do we have
• What Weaknesses do we have?
3-69
Typical Problems The University of
Birmingham
• Web site communications too slow.

• Web site not available.
• Bugs on site through pages being unavailable or
information typed in forms not being executed.
• Ordered products not delivered on time.
• E-mails not answered.
• Customers’ privacy or trust is broken through
security problems such as credit cards being
stolen or addresses sold to other companies.
• Website “hacked” or vandalised; “phishing”.
3-70
e-business Infrastructure
The University of
Birmingham
3-71
Key Management Issues for Infrastructure
The University of
Birmingham
Main Issue Detail
What type of e-business For example, supply-chain

applications do we develop? management (SCM),
e-procurement, secure online
ordering, Customer Relationship
Management (CRM)
For example, e-mail ordering, web-

Which technologies based ordering using EDI (or XML
do we use? solutions). The “cloud” or
conventional applications on PCs?
Windows, MacOS or Linux?
3-72
Key Management Issues for Infrastructure
The University of
Birmingham
Main Issue Detail

How do we achieve Quality of Service (QOS) Requirements: business fit, security, speed,
in applications availability and errors
Where do we host applications? Internal or external sourcing and hosting;
use of “the cloud”
Application Integration? Integration of e-business solutions with:
legacy systems, partners’ systems, B2B
exchanges, etc
Which access platforms do we support? Mobile access, Interactive HDTV
(e.g. CGI, Perl, Cold Fusion, ActiveX)
How do we manage content and data quality? How are content and data updated so that
only one version of “the truth”
How do we manage employee access? Staff may waste time, accessing non-
business information in firm’s time
How do we secure data? Content and data may be deleted in error or
deliberately
3-73
Physical and Network Components The University of
Birmingham
3-74
Adrian Boucher, 2014 Network Infrastructure
Advances in the Dissemination of
Information The University of
Birmingham
Source: Chaffey (2011) 3-75

Netcraft Index of Servers The University of
Birmingham
3-76
Network Protection: Firewall The University of
Birmingham
3-77
Information Exchange: Client/Server
The University of
Birmingham
3-78
How Does it Work? TCP/IP The University of
Birmingham
3-79
Web Page The University of
Birmingham
3-80
HTML of Web Page The University of
Birmingham
3-81
XML : What is it? The University of
Birmingham
• http://www.w3schools.com/xml/default.asp
• XML stands for EXtensible Markup Language
• XML is a markup language much like HTML
• XML was designed to carry data, not to display data
• XML tags are not predefined. You may define your own tags
• XML is designed to be self-descriptive
• XML is a W3C Recommendation
• XML is becoming UBIQUITOUS
• XML and HTML were designed with different goals:
• XML was designed to transport and store data, with focus on
what data is.
• HTML was designed to display data, with focus on how data
looks.
• XML allows websites to communicate in real-time and show
data as it changes in REAL TIME (great for EDI)
3-82
Media Standards The University of
Birmingham
• GIF (Graphics Interchange Format)

A graphics format and compression algorithm best
used for simple graphics
• JPEG (Joint Photographics Experts Group)
A graphics format and compression algorithm best
used for photographs
• Streaming media. Sound and video that can be
experienced within a web browser before the whole
clip is downloaded e.g. Real Networks .rm format
• Video standards include MPEG and .AVI
• Sound standards include MP3 and WMA
3-83
Use of Applications in e-business
The University of
Birmingham
3-84
Management of Applications The University of
Birmingham
3-85
Changing Strategies: Revenue Models The University of
Birmingham
• Companies need to change Revenue Models:

• To meet needs of new and changing web users
• Create e-commerce website(s)
• Some companies changed model or went bust
• Lengthy unprofitable growth phases
• Issues:
• Channel conflict – web sales affect existing
sales sites, upsets distributors, retailers, etc
• Channel elimination – DISINTERMEDIATION
• e.g. Dell Computer
3-86
Changing Strategies (2) The University of
Birmingham
• Strategic Alliances:
• Two or more companies join forces – undertake activities
over long time e.g. amazon.com – joined with Target,
many smaller companies and independent agents
(Affiliates)
• Luxury Goods:
• Difficult to sell online – Customers want to see product
and touch, wear
• Overcome by limiting online offerings – Chanel,
Tiffany, Calvin Klein
• Overstock Strategies: Physical Stores replaced with
online overstock sales – greater reach, frequent updates,
lower prices, etc. Use of SNS (social marketing, WOM)
3-87
Create Effective Presence The University of
Birmingham
• Organization’s PRESENCE: public image conveyed

to stakeholders, important once achieve significant
size and market “presence”
• STAKEHOLDERS: Customers, suppliers, allies,
employees, shareholders, community
• EFFECTIVE web presence: Critical even for the
smallest and newest online businesses
• Business Physical space: FOCUS – very specific
objectives; must satisfy business needs; “deliver”
• Online Business Site: Intentionally create
distinctive presence; GOOD DESIGN ESSENTIAL
3-88
Web Objectives and Strategies The University of
Birmingham
3-89
Website Usability The University of
Birmingham
• Current Web presences

• Few businesses accomplish all goals
• Most fail to provide visitors sufficient interactive
contact opportunities
• Improving Web presence
• Accessible to more people
• Easier to use
• Encourage visitors’ trust
• Foster feelings of loyalty toward the
organization
• “Overdeliver”: DELIGHT the Customer
3-90
Meeting Visitors’ Needs The University of
Birmingham
• Successful Web businesses:

• Realize every visitor is a potential customer (partner)
• Varied motivations of Web site visitors
• Why visitors arrive at Web sites
• Learning about company products or services
• Buying products or services
• Obtaining warranty, service, and repair policy
information
• Obtaining general company information
• Obtaining financial information
• Identifying people
• Obtaining contact information
• Following a link into the site while searching for
information about a related product, service, or topic
• Challenge to meet all motivations
• Visitors arrive with different needs, experience, and
expectation levels
3-91
Meeting Visitors’ Needs (2) The University of
Birmingham
• Making Web sites accessible

• Build interface flexibility options
• Text-only version
• W3C Accessibility Initiative site offers useful links
regarding disabilities
• Selection of smaller graphic images
• Choice of streaming media connection type
• User-specified information attributes
• Controversial Web site design issues
• Adobe Flash software use
• Some tasks lend themselves to animated Web
pages
• Offer multiple information formats
• Consider goals in Web site construction
3-92
Business Sites Requirements The University of
Birmingham
3-93
Trust and Loyalty The University of
Birmingham
• ABSOLUTELY CRITICAL
• Creates relationship value
• Sustained good service leads to trust in seller
• Delivery, order handling, help selecting product, and
after-sale support
• Repeated satisfactory service builds customer loyalty
• Excellent Service gets communicated widely (WOM)
• Unfortunately, so does poor service
• Customer service in electronic commerce sites
• Weaknesses
• Lack of integration between call centres and Web sites
• Poor e-mail responsiveness
3-94
Usability Testing The University of
Birmingham
• Widely-Rrecognised importance of usability testing

• Usability testing: owner testing/evaluation of site to
ensure site’s ease of use by visitors
• Web Design is CRITICAL to SUCCESS
• Avoids Web site frustration (difficulty and confusion)
• Customers leave site without buying anything
• Simple site usability changes
• Include telephone contact information
• Staff a call centre
• Learn about visitor needs by conducting focus groups
• Usability testing cost
• Low compared to Web site design costs
3-95
Customer-Centric Design The University of
Birmingham
• Important part of successful electronic business

operation
• Focus on meeting all site visitors’ needs
• Customer-centric approach
• Putting customer at centre of all site designs
• Follow guidelines and recommendations
• Make visitors’ Web experiences more
efficient, effective, memorable
• Give special considerations for mobile
devices – increasingly common and growing
in importance (with 4G)
• Provide substantial “content for your click”
3-96
Web Communication The University of
Birmingham
• Communication modes
• Personal contact (prospecting) model
• Individually search for, qualify, and contact potential customers
• Mass media
• Deliver messages by broadcasting
• Addressable media
• Advertising efforts directed to known addressee
• Internet medium
• Occupies central space in medium choice continuum
• Modes:
• Mass media: one-to-many communication model
• Seller is active; buyer is passive
• Personal contact: one-to-one communication model
• Web: one-to-one, many-to-one, and many-to-many communication
models
• Buyer as active participant in determining length, depth, and
scope of search
3-97
Section Summary (1) The University of
Birmingham
• Strategic Choices
• Cost-Leadership
• Differentiation
• Niche Player
• Organizational Structure: “Structure follows Strategy”
(Chandler, 1962) vs. “Strategy follows Structure”
• Forms of Organizational Structure: Virtual Organization;
Platform Company (increasingly common – outsourcing)
• Business Models:
• B2C (relatively simple)
• B2B (much more complex)
• Value Creation: Key to Competitive Advantage
• Value Chain and Supply Chain - useful frameworks for
analysis and Performance Improvement
3-98
Section Summary (2) The University of
Birmingham
• Introduced some aspects of Internet and www

infrastructure (NB Internet and Web are NOT the
same; www developed in 1993; Internet dates from
1960s)
• Considered some of the issues that require
management in migrating to e-business
• Looked at some Management issues in e-business
• Brief overview of how the web works (more online)
• Use of Standards – Internet / www use TCP/IP
which are interoperable and inexpensive
• Importance of understanding how www differs
from offline communication and sales.
3-99

MSC - IB - Lecture 3 - 2014

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MSc International Business (2014) The University of

Adrian Boucher, 2014

• Identify the strategic options facing a (possibly, new) business

• Chaffey: Chapters 2, 3 , 4 and 5

Adrian Boucher, 2014 Commonly-used Framework:PESTEL 3-4

• Some of the technologies of Internet and www offer

Price Generally, the higher the

Generally, the lower the price

More suppliers come to the

Many of these suppliers come

D1 With increased employment

• Business needs to take into account how cost and

• Web business revenue-generating models

• Adapted from mail-order (catalogue) model

• Adding the Personal Touch

• Firms who own written information or info rights

• Use Advertisers’ Fees not Users’ Subscriptions

• Web portals (portal)

• Used vehicle sites

• Service fee charged

• Travel: Travel agency revenue model: receive fee for facilitating

• Companies have to change revenue model

• Channel conflict and cannibalization

Three Fundamental Options:

It should be possible to measure the size of a

A segment should be large enough to justify

The segments must be exclusive and react

It should be possible to develop sales and

Segmentation type Criteria to be considered

Geographic segmentation Geographic regions (e.g. continents, countries, states)

Demographic segmentation Age, gender, income, life style

Psychographic segmentation Personality type and personal interests (e.g. cash-

Behavioural segmentation Purchasing frequency, usage patterns, etc.

P = Product Number of different products

Source: Jelassi and Enders (2009)

• Standard Questions for defining Strategy:

• Vertical Integration: Extent to which firm owns its upstream

• Horizontal Integration: Extent of acquisition of firms at the same

• Widely-used paradigm (we shall explore this later)

8 - e-business - full implementation

Various other ways of organising the “ladder”

Objective: Business Growth (factors possibly in rank order)

• Refers to a company’s intended marketspace

Human resource management

Inbound Outbound Marketing After-sales

Porter, M E (1985): Competitive Advantage: Creating and Sustaining Superior Performance.

Human resource management

Inbound Primary Activities

Human resource management

Refer back to Lecture 2 for definitions of Internet, Intranet and Extranet

Competitive Judicial and

• Alfred Chandler (1962) argues that “structure follows strategy”

• Functional Organizational Structure

Director Director Director Director Director

Manager 1 Manager 2 Manager 1 Manager 2 Manager 1 Manager 2 Production Sales Manager

Employees organised according to the function they perform.

Director Director Director

Manager Manager Manager

Manager Manager Manager

Manager Manager Manager

Employees organised by Divisions (rather than functions). May be organised by

Director Director Director Director Director

Attempts to combine benefits of Functional and M-form of Organization.