Chapter 4 E‑environment 167 3D Flat-Panel TVs 4G Standard and Displays Activity Streams Wireless Power Cloud Computing Media Tablet Cloud/Web Platforms Augmented Reality Private Cloud Computing Speech-to-Speech Internet TV Gesture Recognition Translation 3D Printing Social Analytics Mesh Networks: Sensor Mobile Robots Pen-Centric Tablet PCs Expectations Autonomous Video Search Microblogging Electronic Paper Speech Recognition Vehicles Extreme Transaction E-Book Readers Location-Aware Applications Processing Video Telepresence Tangiable User Predictive Analytics interfaces Interactive TV Internet Micropayment Systems Terahertz Waves Biometric Authentication Methods Computer-Brain Interface Mobile Application Stores Context Delivery Architecture Idea Management Consumer-Generated Media Human Augumentation Public Virtual Worlds Broadband Over Power Lines Virtual Assistants As of August 2010 Technology Peak of Trough of Slope of enlightenment Plateau of trigger in ated disillusionment productivity expectations Years to mainstream adoption: Time less than 2 years 2 to 5 years 5 to 10 years more than 10 years obsolete before plateau Figure 4.13 Example of a Gartner hype cycle Source: Gartner (2010). 2 Peak of inflated expectations – In the next phase, a frenzy of publicity typically generates over-e nthusiasm and unrealistic expectations. There may be some successful applications of a technology, but there are typically more failures. 3 Trough of disillusionment – Technologies enter the ‘trough of disillusionment’ because they fail to meet expectations and quickly become unfashionable. Consequently, the press usually abandons the topic and the technology. 4 Slope of enlightenment – Although the press may have stopped covering the technology, some businesses continue through the ‘slope of enlightenment’ and experiment to under- stand the benefits and practical application of the technology. 5 Plateau of productivity – A technology reaches the ‘plateau of productivity’ as the b enefits of it become widely demonstrated and accepted. The technology becomes increasingly stable and evolves in second and third generations. The final height of the plateau varies according to whether the technology is broadly applicable or benefits only a niche market. Trott (1998) identifies different requirements that are necessary within an organisation to be able to respond effectively to technological change or innovation: ● Growth orientation – a long-term rather than short-term vision. ● Vigilance – the capability of environment scanning. ● Commitment to technology – willingness to invest in technology.
168 Part 1 Introduction ● Acceptance of risk – willingness to take managed risks. ● C ross-functional cooperation – capability for collaboration across functional areas. ● Receptivity – the ability to respond to externally developed technology. ● Slack – allowing time to investigate new technological opportunities. ● Adaptability – a readiness to accept change. ● Diverse range of skills – technical and business skills and experience. The problem with being an early adopter (as an organisation) is that the leading edge is often also referred to as the ‘bleeding edge’ due to the risk of failure. New technologies will have bugs, may integrate poorly with the existing systems, or the marketing benefits may simply not live up to their promise. Of course, the reason for risk taking is that the rewards are high – if you are using a technique that your competitors are not, then you will gain an edge on your rivals. Approaches to identifying emerging technology Technology scouting PMP (2008) describes four contrasting approaches to identifying new technologies, which A structured approach may give a company a competitive edge: to reviewing technology 1 Technology networking. Individuals monitor trends through their personal network innovations akin to football scouting. and technology scouting and then share them through an infrastructure and process that supports information sharing. PMP (2008) explains that Novartis facilitates shar- Crowdsourcing ing between inside and outside experts on specific technologies through an extranet and Utilising a network of face‑to‑face events. customers or other 2 Crowdsourcing. Crowdsourcing facilitates access to a marketplace of ideas from cus- partners to gain insights tomers, partners or inventors for organisations looking to solve specific problems. Lego for new product or is well known for involving customers in discussion of new product developments. process innovations. InnoCentive (Figure 4.14) is one of the largest commercial examples of crowdsourcing. It is an online marketplace which connects and manages the relationship between ‘seek- ers’ and ‘solvers’. Seekers are the companies conducting research and development that are looking for new solutions to their business challenges and opportunities. Solvers are the 170,000 registered members of InnoCentive who can win cash prizes ranging from $5,000 to $1,000,000 for solving problems in a variety of domains, including business and technology. 3 Technology hunting. This is a structured review of new technology through reviewing the capabilities of start‑up companies. For example, British Telecom undertakes a struc- tured review of up to 1,000 start-u ps to assess relevance for improving their own capabili- ties which may ultimately be reduced to five companies with which BT will enter into a formal arrangement each year. 4 Technology mining. A traditional literature review of technologies described in published documents. Deutsche Telekom AG use technology to automate the process through soft- ware such as Autonomy which searches for patterns indicating potential technology solu- tions within patents, articles, journals, technological reports and trend studies. A simpler approach is setting up a keyword search for technologies through a free service such as Google Alerts (www.google.com/alerts). It may also be useful to identify how rapidly a new concept is being adopted. When a prod- uct or service is adopted quickly, this is known as ‘rapid diffusion’. Access to the Internet is an example of this – in developed countries the use of the Internet has become widespread more rapidly than the use of TV, for example. I nternet-e nabled mobile phones are relatively s low-d iffusion products. So, what action should e‑commerce managers take when confronted by new techniques and technologies? There is no straightforward rule of thumb, other than that a balanced approach must be taken. It would be easy to dismiss many new techniques as fads, or clas- sify them as ‘not relevant to my market’. However, competitors will probably be reviewing
Chapter 4 E‑environment 169 Figure 4.14 InnoCentive new techniques and incorporating some, so a careful review of new techniques is required. This indicates that benchmarking of ‘best of breed’ sites within sectors and in different sectors is essential as part of environmental scanning. However, by waiting for others to innovate and reviewing the results on their website, a company may have already lost 6 to 12 months. A Innovator Changes in strategy and technology B Responder I Technology changes C Laggard Time Figure 4.15 Alternative responses to changes in technology
170 Part 1 Introduction Multiscreening Figure 4.15 summarises the choices. The stepped curve I shows the variations in tech- nology through time. Some may be small incremental changes such as a new operating A term used to describe system, others such as the introduction of personalisation technology are more signifi- simultaneous use of cant in delivering value to customers and so improving business performance. Line A is devices such as digital TV a company that is using innovative business techniques, that adopts technology early, or and tablet. is even in advance of what the technology can currently deliver. Line C shows the con- servative adopter whose use of technology lags behind the available potential. Line B, the middle ground, is probably the ideal situation where a company monitors new ideas as early adopters trial them and then adopts those that will have a positive impact on the business. At the time of writing, the growth in use of mobile technology is perhaps the most sig- nificant trend in consumer adoption of digital media. Multiscreening is a trend that needs to be considered for its impact on consumers. Figure 4.16 shows common uses of mobile platforms introduced in Chapter 3 and considered further in Chapter 11. Figure 4.16 Multiscreen usage patterns Source: Google (2012). Summary 1 Environmental scanning and analysis are necessary in order that a company can respond to environmental changes and act on legal and ethical constraints on its activities. 2 Environmental constraints are related to the m icro-e nvironment variables reviewed in Chapter 5 and the m acro-e nvironment variables in this chapter using the SLEPT mnemonic. 3 Social factors that must be understood as part of the move to the Information Society include buyer behaviour characteristics such as access to the Internet and perceptions about it as a communications tool. 4 Ethical issues include the need to safeguard consumer privacy and security of per‑ sonal information. Privacy issues include collection and dissemination of customer information, cookies and the use of direct email.
Chapter 4 E‑environment 171 5 Legal factors to be considered by e‑commerce managers include: accessibility, domain name registration, copyright and data protection legislation. 6 Economic factors considered in the chapter are the regional differences in the use of the Internet for trade. Different economic conditions in different markets are con‑ sidered in developing e‑commerce budgets. 7 Political factors involve the role of governments in promoting e‑commerce, but also trying to control it. 8 Rapid variation in technology requires constant monitoring of adoption of the tech‑ nology by customers and competitors and appropriate responses. Exercises S elf-a ssessment questions 1 Why is environmental scanning necessary? 2 Give an example how each of the macro-e nvironment factors may directly drive the content and services provided by a website. 3 Summarise the social factors that govern consumer access to the Internet. How can companies overcome these influences once people venture online? 4 What actions can e‑commerce managers take to safeguard consumer privacy and security? 5 What are the general legal constraints that a company acts under in any country? 6 How do governments attempt to control the use of the Internet? 7 Summarise adoption patterns across the continents. 8 How should innovation be managed? Essay and discussion questions 1 You recently started a job as e‑commerce manager for a bank. Produce a checklist of all the different legal and ethical issues that you need to check for compliance on the existing website of the bank. 2 How should the e‑commerce manager monitor and respond to technological innovation? 3 Benchmark different approaches to achieving and reassuring customers about their privacy and security using three or four examples for a retail sector such as travel, books, toys or clothing. 4 ‘Internet access levels will never exceed 50% in most countries.’ Discuss. 5 Select a new Internet access technology that has been introduced in the last two years and assess whether it will become a significant method of access. 6 Assess how the eight principles of the UK Data Protection Act (www.gov.uk/data- protection) relate to actions that e‑commerce managers need to take to ensure legal compliance of their site. Examination questions 1 Explain the different layers of governance of the Internet. 2 Summarise the macro-e nvironment variables a company needs to monitor. 3 Explain the purpose of environmental scanning.
172 Part 1 Introduction 4 Give three examples of how websites can use techniques to protect the user’s privacy. 5 What are the three key factors which affect consumer adoption of the Internet? 6 Explain the significance of the d iffusion–a doption concept to the adoption of new technologies to: (a) Consumers purchasing technological innovations. (b) Businesses deploying technological innovations. 7 What action should e‑commerce managers take to ensure compliance with ethical and legal standards of their site? References Ahmed, N.U. and Sharma, S.K. (2006) Porter’s value chain model for assessing the impact of the internet for environmental gains. International Journal of Management and Enterprise Development, 3(3), 278–9 5. Arnott, D. and Bridgewater, S. (2002) Internet, interaction and implications for marketing. Marketing Intelligence and Planning, 20(2), 8 6–9 5. Bart, Y., Shankar, V., Sultan, F., and Urban, G. (2005) Are the drivers and role of online trust the same for all web sites and consumers? A large-s cale exploratory empirical study. Journal of Marketing, October, 1 33–5 2. Basu, D. (2007) Global Perspectives on E‑commerce Taxation Law. Ashgate, Aldershot. Booz Allen Hamilton (2002) International E‑Economy Benchmarking. The World’s Most Effective Policies for the E‑Economy. Report published 19 November, London. Cairns, S. (2005) Delivering supermarket shopping: more or less traffic? Transport Reviews, 25(1), 51–8 4. Chaffey, D., Mayer, R., Johnston, K. and E llis-C hadwick, F. (2009) Internet Marketing: Strategy, Implementation and Practice, 4th edn. Financial Times Prentice Hall, Harlow. CIFAS (2013) CIFAS (Credit Industry Fraud Association) Press release: Fraud continues to pose problems in 2012. Common Sense Advisory (2002) Beggars at the Globalization Banquet. White Paper avail- able at: www.commonsenseadvisory.com. Editor: Don Da Palma. No locale given. ’Daniel, L., Wilson, H. and Myers, A. (2002) Adoption of e‑commerce by SMEs in the UK. Towards a stage model. International Small Business Journal, 20(3), 2 53–7 0. Digitas (2007) Segmenting Internet Users: Implications for online advertising. White Paper published at: http://digitalhive.blogs.com/digiblog/files/WebDotDigitas.pdf. Dyson, E. (1998) Release 2.1.A Design for Living in the Digital Age. Penguin, London. E‑consultancy (2007) E‑business briefing interview. Bruce Tognazzini on human–c omputer interaction. Interview published November. eEurope (2005) Information Society Benchmarking Report. From eEurope (2005) initiative. EuroStat (2012) Internet use in households and by individuals 2012. EuroStat, 50. Published December 2012. Available from: http://epp.eurostat.ec.europa.eu/portal/page/portal/ product_details/publication?p_product_code=KS‑SF‑12–050. EuroStat (2013) Enterprises making slow progress in adopting ICT for e‑business integra- tion. Published February 2013: http://epp.eurostat.ec.europa.eu/portal/page/portal/ product_details/publication?p_product_code=KS‑SF‑13–006.
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174 Part 1 Introduction Web links Smart Insights Digital Marketing Statistics sources (http://bit.ly/smartstatistics/) A com- pilation of the Top 10 statistics sources and a custom search engine to search them. Google Think Insights Databoard (http://www.google.com/think/tools/databoard.html) Google’s compilation of latest research. The Oxford Internet Institute (OII) (www.oii.ox.ac.uk) Research institute focussed on the study of the impact of the Internet on society. Government sources on Internet usage and adoption ● European government (http://ec.europa.eu/eurostat) ● OECD (www.oecd.org). OECD broadband research (www.oecd.org/sti/ict/broadband) ● UK government (www.statistics.gov.uk) ● Ofcom (www.ofcom.org.uk) Ofcom is the independent regulator and competition authority for the UK communications industries, with responsibilities across televi- sion, radio, telecommunications and wireless communications services and has in‑depth reports on communications markets ● US government reference centre (www.usa.gov) Online audience panel media consumption and usage data ● These are fee-b ased data, but contain useful free data within press release sections. ● comScore (www.comscore.com). Data from comScore's global consumer panel is avail- able in its blog and press releases section. ● Hitwise (www.hitwise.com). Hitwise blog (http://weblogs.hitwise.com). Sample reports from Hitwise on consumer search behaviour and importance of different online intermediaries ● Netratings (www.netratings.com) Other major online research providers ● The European Interactive Advertising Association (www.eiaa.net). The EIAA is a p an- E uropean trade organisation with surveys of media consumption and usage across Europe ● International Telecommunications Union (www.itu.int/ITU‑D/icteye). Adoption of Internet and mobile phone statistics by company ● The Pew Internet & American Life Project (www.pewinternet.org). Produces reports that explore the impact of the Internet on families, communities, work and home, daily life, education, healthcare, and civic and political life Privacy ● Australian Privacy Commissioner (www.privacy.gov.au). Information on privacy laws in Australia such as the Privacy Act and the Telecommunications Act ● European Data Protection resources (http://europa.eu.int/comm/justice_home/fsj/pri‑ vacy/index_en.htm). These laws are coordinated centrally, but interpreted differently in different countries ● Federal Trade commission (www.ftc.gov/privacy). US privacy initiatives ● GetSafeOnline (www.getsafeonline.org). Site created by government and business to educate consumers to help them understand and manage their online privacy and security
Chapter 4 E‑environment 175 ● Home Office Identify theft web site (www.identitytheft.org). An awareness site created by the government ● iCompli (www.icompli.co.uk). Portal and e‑newsletter about privacy and data protection compliance ● Information Commissioner (www.ico.org.uk). Site explaining law for UK consumers and businesses ● Marketing Law (www.marketinglaw.co.uk). Useful email update on the latest privacy law developments ● Outlaw (www.out-law.com). Compilation of the latest technology-r elated law ● Privacy International (www.privacyinternational.org). A human rights group formed in 1990 as a watchdog on surveillance and privacy invasions by governments and corporations
2Part Strategy and applications In Part 2 of the book approaches to developing digital business strategy and applications are reviewed for the organisation as a whole (Chapter 5), with an emphasis on b uy-s ide e‑commerce (Chapters 6 and 7) and s ell-s ide e‑commerce (Chapters 8 and 9). 5 Digital business strategy p. 179 ● What is digital business Focus on . . . strategy? ● Aligning and impacting ● Strategic analysis digital business strategies ● Strategic objectives ● Strategy definition ● Strategy implementation 6 Supply chain management p. 247 ● What is supply chain ● Supply chain management management? implementation ● Options for restructuring the Focus on . . . supply chain ● The value chain ● Using digital business to restructure the supply chain 7 E‑procurement p. 297 ● What is e‑procurement? Focus on . . . ● Drivers of e‑procurement ● Estimating e‑procurement ● Barriers and risks of costs e‑procurement adoption ● B2B marketplaces ● Implementing e‑procurement ● The future of e‑procurement
8 Digital marketing p. 323 ● What is digital marketing? ● Actions ● Digital marketing planning ● Control ● Situation analysis ● Objective setting Focus on . . . ● Strategy ● Characteristics of digital ● Tactics media communications ● Online branding 9 Customer relationship management p. 387 ● What is e‑CRM? Focus on . . . ● Conversion marketing ● Marketing communications ● The online buying process ● Customer acquisition for customer acquisition ● Social media and social CRM management ● Customer retention strategy ● Excelling in e‑commerce management ● Customer extension service quality ● Technology solutions for CRM
5 Digital business strategy Chapter at a glance Learning outcomes Main topics After completing this chapter the reader should be able to: ● Follow an appropriate strategy process model for digital ➔ What is digital business strategy? 184 ➔ Strategic analysis 192 business ➔ Strategic objectives 203 ● Apply tools to generate and select digital business strategies ➔ Strategy definition 217 ● Outline alternative strategic approaches to achieve digital ➔ Strategy implementation 232 Focus on . . . business ➔ Aligning and impacting digital Management issues business strategies 237 Consideration of digital business strategy raises these issues for Case studies management: ● How does digital business strategy differ from traditional 5.1 Debenhams creates value through mobile commerce 208 business strategy? ● How should we integrate digital business strategy with existing 5.2 Setting the Internet revenue contribution at Sandvik Steel 213 business and information systems strategy? ● How should we evaluate our investment priorities and returns 5.3 Boo hoo – learning from the largest European d ot-com failure 234 from digital business? Web support Links to other chapters The following additional case study is The main related chapters are: available at ● Chapters 6 and 7 review the specific enactment of digital www.pearsoned.co.uk/chaffey ➔ Evolving business models in the business strategy to supply chain and procurement management processes Internet car sales market ● Chapters 8 and 9 explain how digital marketing and customer The site also contains a range of study relationship management relate to the concept of digital material designed to help improve your business, and e‑commerce and digital marketing planning are results. approached ● Chapters 10, 11 and 12 look at practical aspects of the Scan code implementation of digital business strategy to find the latest updates for topics in this chapter
180 Part 2 Strategy and applications Introduction Developing a digital business strategy requires a fusion of existing approaches to business, marketing, supply chain management and information systems strategy development. In addition to traditional strategy approaches, commentators have exhorted companies to apply innovative techniques to achieve competitive advantage. Around 2000, many articles, fuelled by the d ot-c om hype of the time, urged CEOs to ‘innovate or die’. For many existing companies rapid transformation was neither desirable nor necessary and they have made a more gradual approach to digital business practice. Those companies that have successfully managed the transformation to digital business have done so by applying traditional strategy approaches. At the same time there have been many start-u ps featured as cases in previous chapters, such as eBay, Lastminute.com and Zopa.com, that have succeeded through innova- tive business models. But these companies also have succeeded through applying established principles of business strategy, planning and risk management. In this chapter we seek to show how a digital business strategy can be created through follow- ing these established principles, but also through careful consideration of how to best identify and exploit the differences introduced by new electronic channels. In a nutshell, digital business isn’t just about defining ‘how to do business online’; it defines ‘how to do business differently by applying digital technology to improve profitability and processes for both customer-f acing, p artner-facing and internal communications. The digital business strategy defines how. We look at some examples of business models which need to be developed in the light of the opportuni- ties enabled by digital technology and media in the introductory interview in this chapter. We start the chapter by introducing digital business strategy and then discuss appropriate strategy process models to follow as a framework for developing digital business strategy. The chapter is structured around this classic four-s tage strategy process model: 1 Strategic evaluation. 2 Strategic objectives. 3 Strategy definition. 4 Strategy implementation. For each of these components of strategy, we cover management actions to review and refine digital business strategy. A recurring theme through this chapter is the need to align digital business strategy with business strategy while also identifying opportunities for digital busi- ness strategy to impact business strategy. ‘Focus on Aligning and impacting digital business strategies’ at the end of this chapter covers these in more depth. Development of the social business With the growing consumer and business adoption of social media (which we discussed in Chapter 4), there has been more focus on creating a social business focussed around cus- tomer needs. (Since this requires transformation in the structure of the business we cover this topic in Chapter 10.) Real-world Digital Business The Smart Insights interview Roberto Hortal explains why the marketing mix remains relevant today Roberto Hortal has worked as head of digital business with many years of experience in different types of businesses operating in different countries. Examples of the UK and global enterprises he has worked for include EDF Energy, RSA insurance group,
Chapter 5 Digital business strategy 181 MORE TH>N, easyJet and Nokia. H ere he shares his experience of how the marketing mix concept is still applicable when taking real-w orld decisions in companies to shape their online proposition and increase their commercial value. Q. We often hear that the concept of the marketing mix isn’t that useful any longer in this era of ‘customer first’. What’s your view on its relevance today? Are there any particular aspects of the mix which lend themselves to refining online? Roberto Hortal: The marketing mix is a conceptual framework, and as such it is use‑ ful since it enables a common language to be used in the planning, execution and measurement of a number of coordinated activities that deliver the desired Marketing outcomes. C ustomer-c entricity demands that organisations become a lot better at col‑ lecting and reacting to customer insight and adapt their offering to best suit an e ver- growing number of narrowing customer segments – ever approaching the ideal of the completely personalised product. As complexity increases exponentially, it is crucial to be able to rely on tried and tested concepts like the marketing mix. I use the basic components of the marketing mix (such as the Four Ps) at work daily, and as such for me the marketing mix remains a practical tool. In a digital envi‑ ronment routinely identifying and profiling individual consumers over time and adapt‑ ing to their needs and wants, the 4 Ps become elastic. Is my website a Place, or is it an integral part of the Product? When more efficient digital channels directly influence my ability to Price, do Place and Price become synonymous? This elasticity needs to be managed effectively to avoid the pitfalls of too rigidly applying the model. One must always challenge the validity of every tool in the digital marketing armoury; adding, changing and discarding as business and customers evolve. Proposed evolutions of the marketing mix concept (such as the Four Cs) may ensure it remains relevant today. My personal view is we’re still some distance from seeing the end of its useful life. Q. Could you give some examples of where you applied new ways of applying the mix online? Roberto Hortal: In my view, the key insight is that digital media can contribute to every element of the mix. Therefore we must avoid a narrow categorisation of digital as con‑ tributing solely (or even primarily) to a single component of the mix. While I haven’t come across an organisation that fundamentally disagrees with that view, some organisations find it easier than others to put it into practice. I have worked in organisations where the mix is embedded in the corporate structure with separate Pricing, Product, Distribution (Place) and Marketing (Promotion) departments. Embedding a digital mindset across those silos can be a daunting task. I’ve experimented with channel pricing, as pricing is a critical driver of conversion and business value in a services organisation: ● Straight online discounts have proven difficult to justify. Online discounts aren’t valued by customers (in the age of price comparison, they focus on the total price, rather than its components) and often do not reflect a real lower cost to the busi‑ ness (lower costs to sell and serve are offset by lower transaction value and lower retention rates). ● Using channel data as a pricing factor has proven a lot more successful: as his‑ torical data is accumulated, it is possible to really offer competitive prices to those customers identified as high value at the point of application. An accurate value/ propensity model can use the wealth of information available from digital visitors (geography, visit trigger/campaign, past visits, customer history, etc.) to drive truly personalised pricing. In this example, price follows place and both price and pro‑ motion reflect the individual customer.
182 Part 2 Strategy and applications I’ve successfully extended the d ata-d riven approach to other elements of the mix: dynamic packaging (the creation of a personalised offering from the basis of a modu‑ lar product) has proven successful many times: at easyJet we built a product that included car hire recommendations based on a predictive model that took destination, seasonality and party size as inputs – increasing car hire uptake very significantly. More recently I’ve applied the same insight-d riven dynamic packaging approach to RSA’s Central and Eastern European businesses, increasing sales of optional covers and a dd-ons very significantly. Further opportunities exist around selecting which default base products to pre‑ sent: are you more likely to want a cheap energy tariff that tracks price rises or a fixed- price deal that ensures protection against future rises? What we know about you from your digital ‘shadow’ may provide the clues we need. Q. Online channels bring great opportunities to test propositions online. Can you advise on approaches to testing propositions? Roberto Hortal: I have used online channels to test propositions in a couple of ways: ● Assign propositions randomly to visitors on first arrival to test interest/sales. I would typically run this against a large control group (being offered the current main prop‑ osition) to both protect commercial results and detect the effect of any external influences that maybe otherwise wrongly influence the experiment. This approach can be extended beyond the site, via randomised allocation of marketing messages on Display, Search etc. to measure a proposition’s attractiveness. It’s important to test all aspects of the proposition: a very successful proposition at attracting interest may convert badly if it can’t be priced at a level that matches customer expectations. ● Provide a modular proposition platform and allow customers to combine proposi‑ tion elements. We can easily analyse popular combinations as well as secondary correlations such as the propensity to add a certain ancillary product to a particular proposition configuration, and understand the compound impact on profitability, retention and advocacy from what we know about each of the modular components in isolation. I’ve found that proposition testing rarely fits neatly an A/B scenario, with tests quickly developing into complex multivariate experiments with a significant number of vari‑ ables. It is important to ensure the tests are solidly planned, rigorously executed and statistically significant. Free tools like Google Website Optimiser provide information to test and get the best out of website contact. However, such tools will not prevent badly designed experiments from yielding wrong data. In my experience, the only way to ensure valid tests and improved business results is to bring in the best analyti‑ cal brain you can find. Analytics is the first role I fill when I build a digital team from scratch, it’s that important. Q. Many organisations are now developing social media strategies. How do you see the intersection between social media and the marketing mix since it clearly impacts on product decision-m aking and service? Roberto Hortal: If I only had the answer . . . I take a radically different view of social media than many of my peers. While most people see social media as a branding and customer service channel, I see social media’s largest potential in the areas of aware‑ ness, consideration and acquisition. This is not to say the best way to use social media sites is to advertise in them. Far from it. The social nature of the Internet demands that brands engage in conversation, and identify and incentivise brand ambassadors to help amplify our messages.
Chapter 5 Digital business strategy 183 There is general acceptance of this, but also a general shyness about steering conversations and seeking to extract immediate commercial value in the form of direct sales. R isk-a version takes over and anecdotes [are] used to prove the point that there is a risk that poor execution may lead to a social backlash. The risk is clearly real but there is also an opportunity to execute well and gen‑ erate significant amounts of business and positive buzz. I recently ran a campaign with Poland’s largest social network (Nasza Klassa). A fairly simple personality quiz mechanism was executed beautifully by my Polish team, resulting in what our part‑ ners characterised as the country’s most successful campaign in terms of reach and engagement, one that generated levels of sales comparable to those contributed by mainstream e‑marketing channels. Social media spaces require nurture and respect, but we must not forget that so do physical locations. In the same way that people like to go to the village’s Post Office for a chat but also do their banking, branded social media environments have the poten‑ tial to merge conversation and commerce in a seamless, altogether better proposition for both consumers and brands. Q. Many organisations now are looking at providing new mobile propositions. A key decision is whether to implement them as a mobile app or mobile site. How do you approach this platform decision? Roberto Hortal: I start from the point of view of the user: ● Why would they use this proposition? ● Where would they use the proposition? ● How would they find it first time, and subsequently? ● Would they accept/appreciate the added engagement possibilities of an app (alerts, updates, a permanent place on the home screen)? Some scenarios where I have used this approach in the past include: ● Insurance/energy sales. Website – neither mobile app nor mobile site. In this par‑ ticular case I think the best option is to provide a solidly usable, accessible web sales capability that works well across devices. Rather than building separate sites/ capabilities for separate devices I prefer to ensure the basis of the experience is optimised – this principle ensures that device-s pecificity doesn’t catch me off- g uard: sales websites I have managed worked well on iPhone the day it came out as they were built of solid principles and standards that apply across devices. I do use extensively the principles of progressive enhancement to provide a great expe‑ rience to segments of people on particular channels/devices such as modern PC browsers and mobile browsers. However, the underlying principle of a solid, acces‑ sible, easy to use site has never let me down. ● Regular/emergency transaction. Apps – I look at regular events such as submit‑ ting an electricity meter reading or unpredictable ones such as registering a motor insurance claim as ideal candidates for a mobile app. Regularity breeds familiar‑ ity, and regular events can benefit from app characteristics such as local storage, transparent login, notifications and a permanent place on the user’s screen. These same characteristics, together with the reassurance of being completely contained on the device and not requiring uninterrupted Internet access, support the use of apps for functionality perceived as critical. HTML5 may make these distinctions technically irrelevant, but I expect customer behaviour will lag significantly so they will effectively apply for a long while yet. ● Seamless access vs perceived value. An app’s installation is quite a disruptive process: you need to open the shop interface, confirm credentials, find the app,
184 Part 2 Strategy and applications start a possibly long download (which may impact on your monthly limits), find the app on the phone screens, start it, watch it initialise (including possibly entering username and password for initial configuration) and finally access it – and from now on it will take space permanently on your device, competing with your music and movies. Quite an expensive process, from a usability point of view. Therefore an app must have quite a high perceived value in order to get installed. On the other hand, if casual use (particularly in conjunction with web searching/browsing) is what is sought, then a mobile site is the best solution. ● Fragmentation is finally the last of my current worries. We used to have to con‑ tend with the iPhone and the iPad. Two screen sizes in a universal app. Manageable. Suddenly we have myriad versions of iOS, Android, Windows Phone on a continuum of screen sizes and very variable device capabilities (processor speed, camera/s, GPS, NFC, etc.). This is turning into a big argument for HTML5 and mobile sites. Major platform/device combos will continue to be relevant for apps, but I also expect the relative size of this group of devices to shrink in relation to the universe of mobile devices – serving most of which will only be practical through mobile web. (Options for reviewing the marketing mix are discussed further at the end of Chapter 8 on Digital marketing.) What is digital business strategy? Strategy Strategy defines the future direction and actions of an organisation or part of an organisa- tion. Johnson and Scholes (2006) define corporate strategy as: Definition of the future direction and actions of the direction and scope of an organization over the long-term: which achieves advantage a company defined as for the organization through its configuration of resources within a changing environment approaches to achieve to meet the needs of markets and to fulfil stakeholder expectations. specific objectives. Lynch (2000) describes strategy as an organisation’s sense of purpose. However, he notes that purpose alone is not strategy; plans or actions are also needed. Digital business strategies share much in common with corporate, business and market- ing strategies. These quotes summarising the essence of strategy could equally apply to each strategy: ● ‘Is based on current performance in the marketplace.’ ● ‘Defines how we will meet our objectives.’ ● ‘Sets allocation of resources to meet goals.’ ● ‘Selects preferred strategic options to compete within a market.’ ● ‘Provides a long-term plan for the development of the organisation.’ ● ‘Identifies competitive advantage through developing an appropriate positioning relative to competitors defining a value proposition delivered to customer segments.’ Johnson and Scholes (2006) note that organisations have different levels of strategy, par- ticularly for larger or global organisations. These are summarised within Figure 5.1. They identify corporate strategy which is concerned with the overall purpose and scope of the organisation, business unit strategy which defines how to compete successfully in a partic- ular market and operational strategies which are concerned with achieving corporate and b usiness unit strategies. Additionally, functional strategies describe how the corporate and business unit strategies will be operationalised in different functional areas or business processes. Functional or process strategies refer to marketing, supply chain management, human resources, finance and information systems strategies.
Chapter 5 Digital business strategy 185 Corporate strategy Business unit Regional Functional Typical digital business strategies strategies strategies planning Figure 5.1 Different forms of organisational strategy Digital business Where does digital business strategy fit? Figure 5.1 does not show at which level digital strategy business strategy should be defined, since for different organisations this must be discussed and agreed. We can observe that there is a tendency for digital business strategy to be incorporated Definition of the within the functional strategies, for example within a marketing plan or logistics plan, or as part approach by which of information systems (IS) strategy. A danger with this approach is that digital business strat- applications of internal egy may not be recognised at a higher level within organisational planning. A distinguishing and external electronic feature of organisations that are leaders in digital business, such as Cisco, Dell, HSBC, easyJet communications can and General Electric, is that digital business is an element of corporate strategy development support and influence and that transformation to apply digital platforms and media is prioritised and resourced. business strategy. There is limited research on how businesses have integrated digital business strategy into existing strategy, although authors such as Doherty and McAulay (2002) and Hughes (2001) have suggested it is important that e‑commerce investments be driven by corporate strate- gies. We return to approaches of alignment later in the chapter. The imperative for digital business strategy Think about the implications if digital business strategy is not clearly defined. The following may result: ● Missed opportunities from lack of evaluation of opportunities or insufficient resourcing of digital business initiatives. These will result in more savvy competitors gaining a com- petitive advantage. ● Inappropriate direction of digital business strategy (poorly defined objectives, for example, with the wrong emphasis on buy-s ide, s ell-s ide or internal process support). ● Limited integration of digital business at a technical level, resulting in silos of information in different systems. ● Resource wastage through duplication of digital business development in different func- tions and limited sharing of best practice. To help avoid these problems, organisations will want digital business strategy to be based on corporate objectives. As Rowley (2002) pointed out, it is logical that digital business strategy should support corporate strategy objectives and it should also support functional marketing and supply chain management strategies. However, these corporate objectives should be based on new opportunities and threats related to electronic network adoption, which are identified from environment analysis and objectives defined in a digital business strategy. So it can be said that digital business strategy
186 Part 2 Strategy and applications should not only support corporate strategy, but should also influence it. Figure 5.2 explains how digital business strategy should relate to corporate and functional strategies. It also shows where these topics are covered in this book. Digital channel strategies Digital channel An important aspect of digital business strategies is that they create new ‘e‑channel strategies’ strategies for organisations. E‑channel strategies define specific goals and approaches for using electronic channels. This is to prevent simply replicating existing processes through e‑channels, which Define how a will create efficiencies but will not exploit the full potential for making an organisation more company should set effective through digital business. We have used the generic ‘digital channels’ terms since as specific objectives new digital platforms and technologies become available, companies should implement stra- and develop specific tegic initiatives to implement them where relevant. These strategies may be buy-side, sell-side differential strategies for or internal infrastructure related. Examples of digital channel strategies include: communicating with its ● Overarching digital channel or multichannel strategy with specific channel strategies customers and partners ● Mobile commerce strategy through electronic media. ● Social media strategy ● Social CRM strategy ● Supply chain or enterprise resource planning strategy ● E‑procurement strategy. Corporate strategy Constraints and Objectives opportunities Digital business Chapter 5 strategy Chapters SCM Marketing / CRM Chapters 6 and 7 strategy strategy 8 and 9 Buy-side Sell-side e-commerce e-commerce Information systems strategy All chapters SCM = supply chain management CRM = customer relationship management Figure 5.2 Relationship between digital business strategy and other strategies
Chapter 5 Digital business strategy 187 Multichannel So at any one time, there will be a lot of potential initiatives which it will be not be finan- (omnichannel) digital cially or operationally practical to implement at the same time. So roadmaps need to be pro- business strategy duced and decisions taken over priorities as described at the end of this chapter. Defines how different Digital channel strategies also need to define how electronic channels are used in conjunc- marketing and supply tion with other channels as part of a multichannel digital business strategy. This defines chain channels should how different marketing and supply chain channels should integrate and support each other in integrate and support terms of their proposition development and communications based on their relative merits for each other to drive the customer and the company. Finally, we also need to remember that digital business strategy business efficiency also defines how an organisation gains value internally from using electronic networks, such as and effectiveness. As sharing employee knowledge and improving process efficiencies through intranets. Myers et al. noted in Chapter 1, (2004) provide a useful summary of the decisions required about multichannel marketing. in 2012–1 3 the term omnichannel became The main characteristic of a multichannel digital business strategy is that it is a channel used, particularly in the strategy, so it follows that: retail sector, to reference ● Specific digital business objectives need to be set to benchmark adoption of e‑channels. the importance of ● Digital business strategy defines how we should: customer touchpoints on social media and mobile 1 Communicate the benefits of using e‑channels platforms. 2 Prioritise audiences or partners targeted for e‑channel adoption 3 Prioritise products sold or purchased through e‑channels 4 Achieve our e‑channel targets. ● Digital channel strategies thrive on creating differential value for all parties to a transaction. ● But digital channels do not exist in isolation, so we still need to manage channel integra- tion and acknowledge that the adoption of digital channels will not be appropriate for all products or services or generate sufficient value for all partners. This selective adoption of e‑channels is sometimes referred to as ‘r ight-c hannelling’ in a s ell-s ide e‑commerce con- text (as shown in Table 5.9). Right-c hannelling can be summarised as: – Reaching the right customer – Using the right channel – With the right message or offering – At the right time. ● Digital business strategy also defines how an organisation gains value internally from using electronic networks, such as through sharing employee knowledge and improving process efficiencies through intranets. As an example of how an digital channel strategy was implemented and communicated to an audience, see Mini case study 5.1: BA asks ‘Have you clicked yet?’ This shows how BA communicates its new digital channel strategy to its customers in order to show them the differential benefits of their using the channel, and so change their behaviour. BA would use ‘right-c hannelling’ by targeting a younger, more professional audience for adoption of e‑channels, while using traditional channels of phone and post to communicate with less web-s avvy customers who prefer to use these media. Mini Case Study 5.1 BA asks ‘Have you clicked yet?’ In 2004, British Airways launched online services which allowed customers to take control of the booking process, so combining new services with reduced costs. BA decided to develop a specific online ad cam‑ paign to create awareness and encourage usage of its Online Value Proposition (OVP). BA’s UK marketing manager said about the objective: British Airways is leading the way in innovating technology to simplify our customers’ journey through the airport. The role of this campaign was to give a strong message about what is now available online, over and above booking tickets.
188 Part 2 Strategy and applications The aim of the campaign was to educate and change the way in which BA’s customers behave before, while and after they travel. The campaign focussed on the key benefits of the new online services – speed, ease and convenience – and promoted the ability to check in online and print out a boarding pass. The two main target audiences were quite different, early adopters and those who use the web occasion‑ ally, but don’t rely on it. Early adopters were targeted on sites such as T3.co.uk, Newscientist.com and DigitalHomeMag.com. Occasional users were reached through ads on sites such as JazzFM.com, Vogue. com and Menshealth.com. Traditional media used to deliver the ‘Have you clicked yet?’ message included print, TV and outdoor media. The print ad copy, which details the OVP, was: Your computer is now the airport. Check in online, print your own boarding pass, choose your seat, change your booking card and even find hire cars and hotels. Simple. A range of digital media were used, including ATMs, outdoor LCD transvision screens such as those in London rail stations which included Bluecasting where commuters could receive a video on their B luetooth- e nabled mobile phone, and digital escalator panels. More than 650,000 consumers interacted with the ATM screen creative. Online ads included overlays and skyscrapers which showed a consumer using their com‑ puter, printing out a ticket and walking across the screen to the airport. Such rich-m edia campaigns gener‑ ated 17% clickthrough and 15% interaction. The website used in the campaign is shown in Figure 5.3. Figure 5.3 BA communicates its online value proposition Source: Based on Revolution (2005); wwwbritishairways.com.
Chapter 5 Digital business strategy 189 Strategy process Strategy process models for digital business model A framework for Before developing any type of strategy, a management team needs to agree the process they approaching strategy development. will follow for generating and then implementing the strategy. A strategy process model provides a framework that gives a logical sequence to follow to ensure inclusion of all key activities of digital business strategy development. It also ensures that Debate 5.1 digital business strategy can be evolved as part of a process of continuous Digital business responsibility improvement. Before the advent of digital business, many strategy process models had ‘A single person with specific digital business responsibility is required been put forward for developing business and marketing strategies. To for every medium‑to‑large business. what extent can management teams apply these models to digital busi- It is not sufficient for this to be the ness strategy development? Although strategy process models differ in responsibility of a non-s pecialist emphasis and terminology, they all have common elements. Complete manager.’ Activity 5.1 to discuss what these common elements are. Activity 5.1 Selecting a digital business strategy process model Purpose To identify the applicability of existing strategy process models to digital business. Activity Review three or four strategy process models that you have encountered. These could be models such as those shown in Table 5.1. Note that columns in this table are independent – the rows do not correspond across models. Questions 1 What are the strengths and weaknesses of each model? 2 What common features do the models share? List the key elements of an appropri‑ ate strategy process model. Answers to activities can be found at www.pearsoned.co.uk/chaffey Table 5.1 Alternative strategy process models Jelassi and Enders (2008) Johnson and Scholes McDonald (1999) Smith (1999) Digital business strategy (2006) Parallel corporate Sequential marketing SOSTAC® Sequential framework strategy model strategy model marketing strategy model (see Chapter 8) SWOT summarising external Strategic analysis Situation review (marketing Situation analysis analysis (e.g. marketplace, (environment, resources, audit, SWOT analysis, customers, competitors); expectations, objectives assumptions) internal analysis (e.g. human, and culture) financial and operational) Strategic choice (generation G oal-setting (mission, O bjective-setting Mission and objectives of options, evaluation of corporate objectives) Strategy options, selection of strategy) Strategy formulation to create Strategy formulation and capture value through Strategic implementation (marketing objectives and sustaining competitive (resource planning, people strategy, estimate expected advantage and exploring new and systems, organisation results, identify alternative market spaces structure) plans and mixes)
190 Part 2 Strategy and applications Table 5.1 Continued Jelassi and Enders (2008) Johnson and Scholes McDonald (1999) Smith (1999) Digital business strategy (2006) Parallel corporate Sequential marketing SOSTAC® Sequential framework strategy model strategy model marketing strategy model (see Chapter 8) Strategy implementation Resource allocation and including internal organisation, monitoring (budget, Tactics interaction with suppliers and first-year implementation Actions users or customers plan) Control 1 Strategic analysis External Internal environment resources 2 Strategic objectives • Vision • Objectives Monitoring, evaluation and response • Mission Option 3 Option generation Strategic de nition selection Option evaluation 4 Strategic implementation Planning Execution Control Figure 5.4 A generic strategy process model
Chapter 5 Digital business strategy 191 Prescriptive strategy Common elements include: 1 Internal and external environment scanning or analysis is needed. Scanning occurs both Strategic analysis, strategic development during strategy development and as a continuous process in order to respond to competi- and strategy tors. Digital business requires a more continuous review of opportunities and threats as implementation are linked new digital platforms are created and adopted by businesses and consumers. together sequentially. 2 A clear statement of vision and objectives is required. Clarity is required to communi- cate the strategic intention to both employees and the marketplace since digital business Emergent strategy requires a major long-term transformation. Objectives are also vital to act as a check as to whether implementation of strategy is on track. Strategic analysis, 3 Strategy development can be broken down into strategy option generation, evaluation and strategic development selection. and strategy 4 After strategy development, enactment of the strategy occurs as strategy implementation. implementation are 5 Control is required to monitor operational and strategy effectiveness problems and adjust interrelated and are the operations or strategy accordingly. With digital business, optimisation is possible developed together. using digital analytics (as described in Chapter 12). This includes tracking of audience behaviour using desktop and mobile services and qualitative feedback via social media. Harnessing this insight is useful to refine the implementation, for example to gain ideas of how to increase conversion rate to sale for e‑commerce services. Although the models suggest that these elements, are generally sequential, in reality they are iterative and require reference back to previous stages. Jelassi and Enders (2008) suggest that there are three key dimensions for defining an e‑commerce strategy: 1 Where will the organisation compete? (That is, which markets within the external m icro-environment.) 2 What type of value will it create? (Strategy options to generate value through increased revenue or reduced costs.) 3 How should the organisation be designed to deliver value? (Includes internal structure and resources and interfaces with external companies as discussed in Chapter 10.) The arrows in Figure 5.4 highlight an important distinction in the way in which strategy process models are applied. Referring to the work of Mintzberg and Quinn (1991), Lynch (2000) distin- guishes between prescriptive and emergent strategy approaches. In the p rescriptive strategy approach, strategic analysis is used to develop a strategy, and it is then implemented. In other words, the strategy is prescribed in advance. Alternatively, in the emergent strategy approach, strategic analysis, strategic development and strategy implementation are interrelated. In reality, most organisational strategy development and planning processes have elements of prescriptive and emergent strategy. The prescriptive elements are the structured annual or six-m onthly budgeting process or a longer-t erm three-y ear rolling marketing planning process. But, on a shorter timescale, organisations also need an emergent process to enable strategic agility (introduced in Chapter 2) and the ability to respond rapidly to marketplace dynamics. E‑consultancy (2008a) has researched approaches used to encourage emergent strategies or strategic agility based on interviews with e‑commerce practitioners – see Table 5.2. Table 5.2 Summary of approaches used to support emergent strategy Aspect of emergent strategy Approaches used to support emergent digital strategy Strategic analysis • Staff in different parts of organisation encouraged to monitor introduction of new approaches by competitors in‑sector or out‑of‑sector • T hird-p arty benchmarking service reporting monthly or quarterly on new functionality introduced by competitors • Ad hoc customer panel used to suggest or review new ideas for site features • Quarterly longitudinal testing of usability to complete key tasks • Subscription to audience panel data (comScore, Netratings, Hitwise) reviews changes in popularity of online services
192 Part 2 Strategy and applications Table 5.2 Continued Aspect of emergent strategy Approaches used to support emergent digital strategy Strategy formulation and selection • Budget flexible to reassign priorities • Dedicated or ‘ ring-f enced’ IT budget up to agreed limits to reduce protracted review cycles Strategy implementation • Digital channel strategy group meets monthly, empowered to take decisions about which new web functionality to implement • U se of agile development methodologies to enable rapid development • Area of site used to showcase new tools currently under trial (for example Google Labs (http://labs.google.com)). This area no longer exists Source: E‑consultancy (2008a). Events Feedback Knowledge Key building and insights capability evaluation Applications Digital business development design and (business deployment goals) Priorities Digital business Key blueprint objectives (planning applications) Figure 5.5 Dynamic digital business strategy model Source: Adapted from description in Kalakota and Robinson (2000). Kalakota and Robinson (2000) recommend a dynamic emergent strategy process specific to digital business – see Figure 5.5. It essentially shares similar features to Figure 5.4, but with an emphasis on responsiveness with continuous review and prioritisation of investment in new applications. Strategic analysis Strategic analysis Strategic analysis or situation analysis involves review of: ● The internal resources and processes of the company to assess its digital business capabili- Collection and review of information about an ties and results to date in the context of a review of its activity in the marketplace. organisation’s internal ● The immediate competitive environment (micro-environment), including customer processes and resources and external marketplace demand and behaviour, competitor activity, marketplace structure and relationships with factors in order to inform suppliers, partners and intermediaries (as described in Chapter 2). strategy definition.
Resource analysis Chapter 5 Digital business strategy 193 Review of the ● The wider environment (macro-e nvironment) in which a company operates (this includes technological, financial the social, legal, economic and political factors reviewed in Chapter 4). and human resources of an organisation and These are summarised in Figure 5.6. For the effective, responsive digital business, as explained how they are utilised in earlier, it is essential that situation analysis or environmental scanning be a continuous pro- business processes. cess with clearly identified responsibilities for performing the scanning and acting on the knowledge acquired. Resource and process analysis Resource analysis for digital business is primarily concerned with its digital business capa- bilities, i.e. the degree to which a company has in place the appropriate technological and applications infrastructure and financial and human resources to support it. These resources must be harnessed together to give efficient business processes. Jelassi and Enders (2008) distinguish between analysis of resources and capabilities: ● Resources are the tangible and intangible assets which can be used in value creation. Tangible resources include the IT infrastructure, bricks and mortar, and financial capi- tal. Intangible resources include a company’s brand and credibility, employee knowledge, licences and patents. ● Capabilities represent the ability of a firm to use resources effectively to support value cre- ation. They are dependent on the structure and processes used to manage digital business. Stage models of digital business development Stage models are helpful in reviewing how advanced a company is in its use of information and communications technology (ICT) resources to support its processes. Stage models have traditionally been popular in the analysis of the current application of business information systems (BIS) within an organisation. For example, Nolan’s (1979) six-s tage model referred 1 Strategic analysis External Internal environment resources Techniques (Ch 4) Techniques (Chs 5, 8) • Social • Resource analysis • Legal and ethical • Portfolio analysis • Economic • SWOT analysis • Political • Demand analysis • Technological • Competitor analysis Digital business speci c techniques • Stage models of digital business development • Assessing sell-side, buy-side and value-network opportunities and threats Figure 5.6 Elements of strategic situation analysis for the digital business
194 Part 2 Strategy and applications to the development of use of information systems within an organisation from initiation with simple data processing through to a mature adoption of BIS with controlled, integrated systems. (A simple example of a stage model was introduced in Figure 1.13.) When assessing the current use of ICT within a company or across a market it is instructive to analyse the extent to which an organisation has implemented the technological infrastruc- ture and support structure to achieve digital business. Quelch and Klein (1996) developed a five-stage model referring to the development of sell-side e‑commerce. The stages remain relevant today. Research (referenced in Chapter 1 and Chapter 4) shows that many compa- nies still have limited digital business capabilities and are at an early stage in the model. For existing companies the stages are: 1 Image and product information – a basic ‘brochureware’ website or presence in online directories. 2 Information collection – enquiries are facilitated through online forms. 3 Customer support and service – ‘web self-service’ is encouraged through frequently asked questions and the ability to ask questions through a forum or online. 4 Internal support and service – a marketing intranet is created to help with support process. 5 Transactions – financial transactions such as online sales or the creation of an e‑CRM system where customers can access detailed product and order information through an extranet. Considering sell-s ide e‑commerce, Chaffey and E llis-C hadwick (2012) suggest there are six options: ● Level 0. No website or presence on web. ● Level 1. Basic web presence. Company places an entry in a website listing company names. There is no website at this stage. ● Level 2. Simple static informational website. Contains basic company and product infor- mation, sometimes referred to as ‘brochureware’. ● Level 3. Simple interactive site. Users are able to search the site and make queries to retrieve information. Queries by email may also be supported. ● Level 4. Interactive site supporting transactions with users. The functions offered will vary according to company but they will usually be limited to online buying. ● Level 5. Fully interactive site supporting the whole buying process. Provides relationship marketing with individual customers and facilitating the full range of marketing exchanges. Stage models have also been applied to SME businesses where Levy and Powell (2003) reviewed different adoption ladders which, broadly speaking, have four stages of (1) publish, (2) interact, (3) transact and (4) integrate. Considering b uy-s ide e‑commerce, the corresponding levels of product sourcing applica- tions can be identified: ● Level I. No use of the web for product sourcing and no electronic integration with suppliers. ● Level II. Review and selection from competing suppliers using intermediary websites, B2B exchanges and supplier websites. Orders placed by conventional means. ● Level III. Orders placed electronically through EDI, via intermediary sites, exchanges or supplier sites. No integration between organisation’s systems and supplier’s systems. Rekeying of orders into procurement or accounting systems necessary. ● Level IV. Orders placed electronically with integration of company’s procurement systems. ● Level V. Orders placed electronically with full integration of company’s procurement, manufacturing requirements planning and stock control systems. (In Chapter 6, the case of BHP Steel (p. 253) is an illustration of such a stage model.) We should remember that typical stage models of website development such as those described above are most appropriate to companies whose products can be sold online through transactional e‑commerce. In fact, stage models could be developed for a range of different types of online presence and business models, each with different objectives. As a summary to this section, Table 5.3 presents a synthesis of stage models for digital business development. Organisations can assess their position on the continuum between stages 1 and 4 for the different aspects of digital business development shown in the column on the left.
Chapter 5 Digital business strategy 195 Table 5.3 A stage model for digital business development 1 Web presence 2 E‑commerce 3 Integrated 4 Digital business e‑commerce Services available Brochureware or Transactional Buy- and sell-side Full integration interaction with e‑commerce on buy- integrated with between all internal product catalogues side or s ell-side enterprise resource organisational and customer service planning (ERP) or processes and Cross-organisational legacy systems. elements of the value Personalisation of network Technology and services new responsibilities Organisational Isolated identified for C ross-organisational Across the enterprise scope departments, e.g. e‑commerce and beyond marketing department (‘extraprise’) Transformation S ell-side e‑commerce Technological strategy, not well Internal business Change to digital infrastructure integrated with processes and business culture, business strategy company structure linking of business processes with partners Strategy Limited E‑commerce strategy Digital business integrated with strategy incorporated business strategy using as part of business a value-chain approach strategy When companies devise the strategies and tactics to achieve their objectives they may return to the stage models to specify which level of innovation they are looking to achieve in the future. Application portfolio analysis Analysis of the current portfolio of business applications within a business is used to assess current information systems capability and also to inform future strategies. A widely applied framework within information systems study is that of McFarlan and McKenney (1993) with the modifications of Ward and Griffiths (1996). Figure 5.7 illustrates the results of a portfo- lio analysis for a B2B company applied within a digital business context. It can be seen that current applications such as human resources, financial management and production-line management systems will continue to support the operations of the business and will not be a priority for future investment. In contrast, to achieve competitive advantage, applications for maintaining a dynamic customer catalogue online, online sales and collecting marketing intel- ligence about customer buying behaviour will become more important. Applications such as procurement and logistics will continue to be of importance in a digital business context. Portfolio analysis is also often used to select the most appropriate future Internet projects. A weakness of the portfolio analysis approach is that today applications are delivered by a single digital business software or enterprise resource planning application. Given this, it is perhaps more appropriate to define the services that will be delivered to external and internal customers through deploying information systems. In E‑consultancy (2008a) I defined a form of portfolio analysis as the basis for bench- marking current e‑commerce capabilities and identifying strategic priorities. The six areas for benchmarking are: 1 Digital channel strategy. The development of a clear strategy, including situation analy- sis, goal-setting, identification of key target markets and audience, and identification of priorities for development of online services.
196 Part 2 Strategy and applications Future strategic importance of High High potential Strategic information systems (Beware) (Attack) • Procurement system • Electronic catalogue • Stock control system • E-commerce system • Distribution systems • Customer intelligence and CRM systems Low Support Key operational (Safe) (Explore) • HR systems • Production line systems • Finance systems Low High Current strategic importance of information systems Figure 5.7 Summary applications of a portfolio analysis for an example B2B company 2 Online customer acquisition. Strategies for gaining new customers online using alterna- tive digital media channels (shown in Figure 1.7), including search engine marketing, partner marketing and display advertising. 3 Online customer conversion and experience. Approaches to improve online service levels and increase conversion to sales or other online outcomes. 4 Customer development and growth. Strategies to encourage visitors and customers to continue using online services using tactics such as email marketing and personalisation. 5 C ross-c hannel integration and brand development. Integrating online sales and service with customer communications and service interactions in physical channels. 6 Digital channel governance. Issues in managing e‑commerce services such as structure and resourcing, including human resources and the technology infrastructure such as hardware and networking facilities to deliver these applications. SWOT analysis Organisational and IS SWOT analysis You will know that SWOT analysis is a relatively simple yet powerful tool that can help Strengths, weaknesses, organisations analyse their internal resources in terms of strengths and weaknesses and match opportunities and threats. them against the external environment in terms of opportunities and threats. We recommend that to get the most from SWOT analysis it’s of greatest value when it is used not only to ana- lyse the current situation, but also as a tool to formulate strategies. To achieve this it is useful once the strengths, weaknesses, opportunities and threats have been listed to combine them, as shown in Figure 5.8. This can be used to develop strategies to counter the threats and take advantage of the opportunities and can then be built into the digital business strategy. Figure 5.9 gives an example of a digital marketing SWOT using the approach shown in Figure 5.8.
Chapter 5 Digital business strategy 197 The organisation Stengths – S Weaknesses – W 1 Existing brand 1 Brand perception 2 Existing customer base 2 Intermediary use 3 Existing distribution 3 Technology/skills 4 Cross-channel support Opportunities – O SO strategies 1 Cross-selling Leverage strengths to WO strategies 2 New markets maximise opportunities Counter weaknesses through 3 New services = Attacking strategy exploiting opportunities 4 Alliances/co-branding = Build strengths for attacking strategy Threats – T ST strategies 1 Customer choice Leverage strengths to WT strategies 2 New entrants minimise threats Counter weaknesses and 3 New competitive products = Defensive strategy threats 4 Channel con icts = Build strengths for defensive strategy Figure 5.8 SWOT analysis Human and financial resources Resource analysis will also consider these two factors: 1 Human resources. To take advantage of the opportunities identified in strategic analysis the right resources must be available to deliver digital business solutions. 2 Financial resources. Assessing financial resources for information systems is usually conducted as part of investment appraisal and budgeting for enhancements to new systems which we consider later in the chapter. Evaluation of internal resources should be balanced against external resources. Perrott (2005) provides a simple framework for this analysis (Figure 5.9). He suggests that adoption of digi- tal business will be determined by the balance between internal capability and incentives and Internal Capability/Incentives High Market Driving Market-Driven Strategy: Strategy: Customer Keep pace with education market threats/ and motivation opportunities Low Status Quo: Capability Don’t bother Building: Build for transition to electronic commerce Figure 5.9 Low High External Forces/Incentives Matrix for evaluation of external capability against internal capability Source: Perrott (2005).
198 Part 2 Strategy and applications external forces and capabilities. Figure 5.9 defines a matrix where there are four quadrants which businesses within a market may occupy: ● Market driving strategy (high internal capabilities/incentives and low external forces/ incentives). This is often the situation for the early adopters. ● Capability building (low internal capabilities/incentives and high external forces/ incentives). A later adopter. ● Market-d riven strategy. Internal capabilities/incentives and external forces/incentives are both high. ● Status quo. There isn’t an imperative to change since both internal capabilities/incentives and external forces/incentives are low. An organisation’s position in the matrix will be governed by benchmarking of external fac- tors suggested by Perrott (2005), which include the proportion of competitors’ products or services delivered electronically, proportion of competitors’ communications to custom- ers done electronically, and proportion of different customer segments (and suppliers or partners on the supply side) attracted to electronic activity. Internal factors to be evaluated include technical capabilities to deliver through internal or external IT providers, desire or ability to move from legacy systems and the staff capability (knowledge, skills and attitudes necessary to conduct electronic business). The cost differential of savings made against implementation costs is also included here. Stage models can also be used to assess internal capabilities and structures. For example, Atos Consulting (2008, Table 5.4) have defined a capability maturity framework. This is based on the well-k nown capability maturity models devised by Carnegie Mellon Software Engineering Institute (now transferred to the CMMI Institute, http://cmmiinstitute.com/) to help organisations improve their software development practices. (In Chapter 10 there is more detail on how to achieve management of change between these stages.) Competitive environment analysis External factors are also assessed as part of strategic analysis. We have already considered how marketplace analysis can be undertaken to identify external opportunities and threats Table 5.4 Capability maturity model of the adoption of e‑business Carnegie Mellon Atos Consulting e‑business capability framework software development maturity process Level 1 Initial E‑business unplanned. E‑business initiatives are ad hoc, unplanned and even chaotic. The Level 2 Repeatable organisation lacks the capability to meet commitments consistently. Level 3 Defined E‑business aware. Basic e‑business processes established necessary to repeat earlier Level 4 Managed successes but not yet part of planning process. The focus is on developing the capabilities Level 5 Optimised of the organisation. E‑business enabled. Central e‑business strategy and planning process towards a centralised model (IT and competencies). E‑business integrated. E‑business part of departmental and business unit planning. Detailed performance measures of e‑business process and applications collected and used for control. Extended enterprise. E‑business core part of corporate strategy, with continuous evaluation of digital business improvements enabled by quantitative feedback, piloting innovative ideas and technologies.
Chapter 5 Digital business strategy 199 for a business in Chapter 2, but here we consider demand analysis and look at competitive threats in more detail. Demand analysis Demand analysis A key factor driving digital business strategy objectives is the current level and future projec- Assessment of the tions of customer, partner and internal access and usage of different types of digital technol- demand for e‑commerce ogy platforms and e‑commerce services, This is demand analysis. Using demand analysis is services amongst existing a key activity in producing a digital marketing plan (described in more detail in Chapter 8). and potential customer segments. For b uy-side e‑commerce a company also needs to consider the e‑commerce services its suppliers offer: how many offer services for e‑commerce and where they are located (Chapter 7, p. 302). Assessing competitive threats Michael Porter’s classic 1980 model of the five main competitive forces that affect a com- pany still provides a valid framework for reviewing threats arising in the digital business era. Table 5.5 summarises the classic analysis by Michael Porter of the impact of the Internet on business using the five forces framework (Porter, 2001). Placed in a digital business context, Figure 5.10 shows the main threats updated to place emphasis on the competitive threats applied to digital business. Threats have been grouped into buy-s ide (upstream supply chain), sell-s ide (downstream supply chain) and competitive threats. The main difference from the five forces model of Porter (1980) is the distinction between competitive threats from intermediaries (or partners) on the b uy-s ide and sell-s ide. Competitive threats 1 Threat of new e‑commerce entrants For traditional ‘b ricks-a nd-m ortar’ companies this has been a common threat for retailers selling products such as books and financial services. For example, in Europe, traditional banks have been threatened by the entry of completely new start‑up competitors such as Zopa (www.zopa.com) or traditional companies from a different geographic market that use the Internet to facilitate their entry into an overseas market. ING, an existing financial ser- vices group, formed in 1991 and based in the Netherlands, has used the Internet to facilitate Buy-side threats Sell-side threats Supplier Intermediary Organisation Intermediary Customer threats threats threats threats New digital New New business products entrants models Competitive threats Figure 5.10 Competitive threats acting on the digital business
200 Part 2 Strategy and applications Table 5.5 Impact of the Internet on the five competitive forces Bargaining power of Bargaining power of Threat of substitute Barriers to entry Rivalry amongst buyers suppliers products and existing competitors services • The power of • When an • Substitution is a • Barriers to entry • The Internet online buyers is organisation significant threat are reduced encourages increased since purchases, the since new digital through lower fixed commoditisation they have a wider bargaining power products or costs, enabling which makes it less choice and prices of its suppliers is extended products new competitors, easy to differentiate are likely to be reduced since there can be more particularly for products. forced down is wider choice readily introduced. retailers or service • Rivalry becomes through increased and increased • The introduction organisations that more intense as customer commoditisation due of new substitute have traditionally product life cycles knowledge to e‑procurement products and required a h igh- shorten and lead and price and digital services should be s treet presence or a times for new transparency, i.e. marketplaces. carefully monitored mobile sales force. product development switching behaviour • The reverse to avoid erosion of • New entrants decrease. is encouraged. arguments also market share. must be carefully • The Internet • For a B2B apply as for • Internet monitored to avoid facilitates the move organisation, bargaining power of technology erosion of market to the global market forming buyers. enables faster share. with potentially electronic links • Commoditisation introduction of • Internet services are lower cost-base also with customers reduces products and easier to imitate than potentially increasing may deepen a differentiation of services. traditional services, the number of relationship and suppliers. • This threat is making it easy for competitors. it may increase • E‑procurement can related to new ‘fast followers’. The switching costs, reduce switching business models cost of establishing leading to ‘soft costs, although use which are covered a recognised, lock‑in’. of preferred systems in a later section in trusted brand is can achieve lock‑in. this chapter. a major barrier or cost of entry and new entrants have to encourage customers to overcome switching costs. market development. These new entrants have been able to succeed in a short time since they do not have the cost of developing and maintaining a distribution network to sell their prod- ucts and these products do not require a manufacturing base. In other words, the barriers to entry are low. However, to succeed, new entrants need to be market leaders in executing marketing and customer service. The costs of achieving these will be high. This competitive threat is less common in vertical business‑to‑business markets involving manufacture and process industries such as the chemical or oil industry since the investment barriers to entry are much higher. 2 Threat of new digital products This threat can occur from established or new companies. The Internet is particularly good as a means of providing information-b ased services at a lower cost. The greatest threats are likely to occur where digital product fulfilment can occur over the Internet, as is the case with delivering share prices, digital media content or software. This may not affect many business sectors, but is vital in some, such as newspaper, magazine and book publishing, and music and software distribution. In photography, Kodak tried to respond to a major threat
Chapter 5 Digital business strategy 201 of reduced demand for traditional film by increasing its range of digital cameras to enhance this revenue stream and by providing online services for customers to print and share digital photographs. Ultimately these approaches weren’t successful. The extent of this threat can be gauged by a review of product in the context of Figure 5.10. 3 Threat of new business models This threat can also occur from established or new companies. It is related to the competitive threat in that it concerns new methods of service delivery. The threats from existing com- petitors will continue, with the Internet perhaps increasing rivalry since price comparison is more readily possible and the rival digital businesses can innovate and undertake new prod- uct development and introduce alternative business and revenue models with shorter cycle times than previously. This again emphasises the need for continual environment scanning. (See the section on business and revenue models in Chapter 2 for examples of strategies that can be adopted in response to this threat.) Commoditisation Sell-side threats The process whereby 1 Customer power and knowledge product selection This is perhaps the single biggest threat posed by electronic trading. The bargaining power of becomes more customers is greatly increased when they are using the Internet to evaluate products and com- dependent on price than pare prices. This is particularly true for standardised products that can be compared through differentiating features, price comparison engines. For commodities, auctions on business‑to‑business exchanges benefits and value-added can also have a similar effect of driving down price. Purchase of some products that have not services. traditionally been thought of as commodities may become more price-s ensitive. This process is known as ‘commoditisation’. Examples of goods that are becoming commoditised are Soft lock‑in electrical goods and cars. (The issue of online pricing is discussed in Chapter 8.) Electronic linkages In the business‑to‑business arena, a further issue is that the ease of use of the Internet between supplier and channel makes it potentially easier for customers to swap between suppliers – switching costs customer increase are lower. With a specific EDI (electronic data interchange) link that has to be set up between switching costs. one company and another, there may be reluctance to change this arrangement (soft lock‑in due to switching costs). Commentators often glibly say ‘online, your competitor is only a mouse click away’, but it should be remembered that soft lock‑in still exists on the web – there are still barriers and costs to switching between suppliers since, once customers have invested time in understanding how to use a website to select and purchase a particular type of product, they may not want to learn another service. 2 Power of intermediaries A significant downstream channel threat is the potential loss of partners or distributors if there is a channel conflict resulting from disintermediation (Chapter 2, p. 53). The tensions between intermediaries, and in particular aggregators and strategies to resolve them, are shown by the public discussion between direct insurer Direct Line (www.directline.com) and aggregator Moneysupermarket (www.moneysupermarket.com) in Box 5.1. Box 5.1 The balance of power between brands and aggregator sites Guardian (2007) reported on an ongoing spat which saw Direct Line disparaging com‑ parison engines like Moneysupermarket, Confused.com and Go Compare in a multi- m illion-p ound TV campaign. It reported Roger Ramsden, strategy director for Royal Bank of Scotland Insurance, which owns Direct Line, as saying: Direct Line has never been available through a middleman of any sort and never will be, and that’s what these [comparison] sites are. They are commercial operations
202 Part 2 Strategy and applications rather than a public service, and the [advertising] campaign is responding to our customers who tell us they are unaware of this and find the sites confusing. His assertion is partially true in that although Moneysupermarket covers approximately 80% of the motor insurance market, it does not list quotes from some large insurers such as Norwich Union or other insurers owned by the Royal Bank of Scotland, includ‑ ing Direct Line, Churchill, Privilege and Tesco Personal Finance. In a c ounter-a rgument, Richard Mason, director of Moneysupermarket.com, said that Direct Line’s campaign: smacks of complete desperation. We are the new kids on the block and Direct Line don’t like it. They have lost their market share since we came on the scene – they were in a position where consumers thought they were competitive and kept renew- ing their policies. They spent hundreds of millions of pounds on advertising. But now consumers can find cheaper alternatives and are doing so in their droves. Data from Hitwise (2006) supports Moneysupermarket’s position. It suggests this site achieves around a third of its visits from p rice-s ensitive searchers looking to compare by typing generic phrases such as ‘car insurance’, ‘cheap car insurance’ and ‘compare car insurance’. It has also invested in traditional advertising through TV, print and out‑ door media to increase brand awareness. An additional downstream threat is the growth in number of intermediaries (another form of partner) to link buyers and sellers. These include consumer portals such as Bizrate (www.bizrate.com) and business‑to‑business exchanges such as EC21 (www.ec21.com). If a company’s competitors are represented on a portal while the company is absent or, worse still, they are in an exclusive arrangement with a competitor, this can potentially exclude a substantial proportion of the market. B uy-side threats 1 Power of suppliers This can be considered as an opportunity rather than a threat. Companies can insist, for reasons of reducing cost and increasing supply chain efficiency, that their suppliers use elec- tronic links such as EDI or Internet EDI to process orders. Additionally, the Internet tends to reduce the power of suppliers since barriers to migrating to a different supplier are reduced, particularly with the advent of business‑to‑business exchanges. However, if suppliers insist on proprietary technology to link companies, then this creates ‘soft lock‑in’ due to the cost or complexity of changing suppliers. 2 Power of intermediaries Threats from buy-side intermediaries such as business‑to‑business exchanges are arguably fewer than those from sell-side intermediaries, but risks arising from using these services should be considered. These include the cost of integration with such intermediaries, par- ticularly if different standards of integration are required for each. They may pose a threat from increasing commission once they are established. From the review above, it should be apparent that the extent of the threats will be dependent on the particular market a company operates in. Generally the threats seem to be greatest for companies that currently sell through retail distributors and have products that can be readily delivered to customers across the Internet or by parcel. Case study 5.1 high- lights how one company has analysed its competitive threats and developed an appropriate strategy.
Chapter 5 Digital business strategy 203 Co‑opetition Co‑opetition Interactions between Jelassi and Enders (2008) note that while the five forces framework focuses on the negative competitors and effects that market participants can have on industry attractiveness, the positive interactions marketplace between competitors within an industry can have a positive effect on profitability. Examples intermediaries which of interactions encouraged through co‑opetition include: can mutually improve ● Joint standards setting for technology and other industry standards. For example, com- the attractiveness of a marketplace. petitors within mobile commerce can encourage development of standard approaches such as 3G, which potential customers can be educated about, and which make it easier to enable customer switching. ● Joint developments for improving product quality, increasing demand or smoothing e-procurement. For example, competing car manufacturers DaimlerChrysler, Ford and General Motors set up Covisint, a common purchasing platform (Chapter 7). ● Joint lobbying for favourable legislation, perhaps through involvement in trade associations. Competitor analysis Competitor analysis Competitor analysis is a key aspect of digital business situation analysis. It is also a key for digital business activity in producing a digital marketing plan which will feed into the digital business strat- Review of digital egy (which is described in more detail in Chapter 8). business services offered by existing and new Resource‑advantage mapping competitors and adoption It is useful to map the internal resource strengths against external opportunities, to identify, for by their customers. example, where competitors are weak and can be attacked. To identify internal strengths, defini- tion of core competencies is one approach. Lynch (2000) explains that core competencies are Core competencies the resources, including knowledge, skills or technologies, that provide a particular benefit to Resources, including customers, or increase customer value relative to competitors. Customer value is defined by skills or technologies, Deise et al. (2000) as dependent on product quality, service quality, price and fulfilment time. that provide a particular So, to understand core competencies we need to understand how the organisation is differenti- benefit to customers. ated from competitors in these areas. Benchmarking e-commerce services of competitors (as described in Chapter 8) is important here. The cost-base of a company relative to its competi- Customer value tors’ is also important since lower production costs will lead to lower prices. Lynch (2000) argues Value dependent on that core competencies should be emphasised in objective setting and strategy definition. product quality, service quality, price and fulfilment time. Strategic objectives Strategic objectives Defining and communicating an organisation’s strategic objectives is a key element of any strategy process model since (1) the strategy definition and implementation elements of strategy Statement and must be directed at how best to achieve the objectives, (2) the overall success will be assessed by communication of an comparing actual results against objectives and taking action to improve strategy, and (3) clear, organisation’s mission, realistic objectives help communicate the goals and significance of a digital business initiative to vision and objectives. employees and partners. Note that objective setting typically takes place in parallel with strategic analysis, defining a vision and strategy for digital business as part of an iterative process. Figure 5.11 highlights some of the key aspects of strategic objective setting that will be covered in this section. Defining vision and mission Corporate vision is defined in Lynch (2000) as ‘a mental image of the possible and desirable future state of the organisation’. Defining a specific company vision for digital business is
204 Part 2 Strategy and applications 2 Strategic objectives • Vision • Objectives • Mission Vision Objectives • Replace vs Complement • SMART objectives • Extent of adaptability needed • Online revenue contribution • Customer value targets • Balanced scorecards Digital business speci c techniques • Vision about capability to change, to reinvent • Online revenue contribution Figure 5.11 Elements of strategic objective setting for the digital business Vision or mission helpful since it contextualises digital business in relation to a company’s strategic initiatives statement (business alignment) and its marketplace. It also helps give a long-term emphasis on digital business transformation initiatives. A summary of the scope and broad aims of an Vision or mission statements for digital businesses are a concise summary defining the organisation. scope and broad aims of digital channels in the future, explaining how they will contribute to the organisation and support customers and interactions with partners. Jelassi and Enders (2008) explain that developing a mission statement should provide definition of: ● Business scope (where?). Markets including products, customer segments and geogra- phies where the company wants to compete online. ● Unique competencies (how?). A high-level view of how the company will position and differentiate itself in terms of digital business products or services. ● Values (why?). Less commonly included, this is an emotional element which can indicate what inspires the organisation or its digital business initiative. Many organisations have a top-level mission statement which is used to scope the ambition of the company and to highlight the success factors for the business. Some examples are shown in Box 5.2. Box 5.2 Example vision or mission statements from digital businesses Here are some examples from w ell-k nown digital businesses featured in the case studies in this book. Assess how well they meet the criteria we have discussed for an effective vision statement. Amazon.com Our vision is to be earth’s most c ustomer-c entric company, to build a place where people can come to find and discover anything they might want to buy online.
Chapter 5 Digital business strategy 205 Dell Dell listens to customers and delivers innovative technology and services they trust and value. eBay eBay pioneers communities built on commerce, sustained by trust, and inspired by opportunity. eBay brings together millions of people every day on a local, national and international basis through an array of websites that focus on commerce, payments and communications. Facebook Facebook is a social utility that helps people communicate more efficiently with their friends, family and co‑workers. The company devel‑ ops technologies that facilitate the sharing of information through the social graph, the digital mapping of people’s real-w orld social connections. Anyone can sign up for Facebook and interact with the people they know in a trusted environment. Google Google’s mission is to organise the world’s information and make it univer‑ sally accessible and useful. Vision statements can also be used to define a longer-term picture of how the channel will support the organisation through defining strategic priorities. The disadvantage with brief vision statements such as those shown in Box 5.2 is that they can be generic, so it is best to make them as specific as possible by: ● referencing key business strategy and industry issues and goals; ● referencing aspects of online customer acquisition, conversion or experience and retention; ● making them memorable through acronyms or mnemonics; ● linking through to objectives and strategies to achieve them through h igh-level goals. Dell expands on the simple vision outlined in the box to explain: Our core business strategy is built around our direct customer model, relevant technolo- gies and solutions, and highly efficient manufacturing and logistics; and we are expanding that core strategy by adding new distribution channels to reach even more commercial customers and individual consumers around the world. Using this strategy, we strive to provide the best possible customer experience by offering superior value; high-q uality, relevant technology; customized systems and services; superior service and support; and differentiated products and services that are easy to buy and use. Here’s a real example of a digital vision statement for a multichannel company that I was working for, summarised to staff as: 1×2×3 ● Largest online audience share (No. 1) in Europe by XXXX ● By XXXX, 1 in 2 of total sales will be generated online ● 1 in 3 of our people and our customers love our online services and will recom‑ mend them to a friend ● 2 in 3 customer service contacts will be electronic by XXXX You can see that this is simple yet specific enough to link to future targets, unlike many vague mission statements. More generic ‘calls to arms’ I have heard companies use are ‘Digital by Default’, ‘Digital First’ and ‘Digital DNA’. A more detailed vision statement for a multichannel retailer might read: Our digital channels will make it easy for shoppers to find, compare and select products using a structured approach to merchandising and improving conversion to produce an experience rated as excellent by the majority of our customers.
206 Part 2 Strategy and applications S cenario-based Different aspects of the vision statement (underlined) can then be expanded upon when dis- analysis cussing with colleagues, for example: ● Digital channels = the website supported by email and mobile messaging. Models of the future ● Find = improvements to site search functionality. environment are ● Compare and select = using detailed product descriptions, rich media and ratings. developed from different ● Merchandising and improving conversion = through delivery of automated merchandis- starting points. ing facilities to present relevant offers to maximise conversion and average order value. Additionally, use of structured testing techniques such as AB testing (see Chapter 12) and multivariate testing will be used. ● Experience rated as excellent = we will regularly review customer satisfaction and advo- cacy against direct competitors and out‑of‑sector to drive improvements with the website. Scenario-b ased analysis is a useful approach to discussing alternative visions of the future prior to objective setting. Lynch (2000) explains that scenario-b ased analysis is concerned with possible models of the future of an organisation’s environment. He says: The aim is not to predict, but to explore a set of possibilities; scenarios take different s ituations with different starting points. Lynch distinguishes qualitative s cenario-b ased planning from quantitative prediction based on demand analysis, for example. In a digital business perspective, scenarios that could be explored include: 1 One player in our industry becomes dominant through use of the Internet. 2 Major customers do not adopt e‑commerce due to organisational barriers. 3 Major disintermediation (Chapter 2) occurs in our industry. 4 B2B marketplaces do or do not become dominant in our industry. 5 New online entrants or substitute products change our industry. Through performing this type of analysis, better understanding of the drivers for different views of the future will result, new strategies can be generated and strategic risks can be assessed. Simons (2000a) illustrates the change in thinking required for digital business vision. He reports that to execute Barclays Bank’s vision, ‘a high tolerance of uncertainty’ must be intro- duced. The group CEO of Barclays (Matt Barrett) at the time said: our objective is to use technology to develop entirely new business models . . . while transforming our internal structure to make us more efficient and effective. Any strategy that does not achieve both is fundamentally flawed. In time, it became clear that wholesale changes in business model were often not required. Instead, success in digital business required strategic agility to provide improved proposi- tions through new platforms which could be quickly optimised to make them competitive and maximise customer conversion and customer satisfaction. Speaking at E‑metrics 2008, Julian Brewer, Head of Online Sales and Content, Barclays UK Retail Banking, explained how Barclays Bank was using digital technology to make its e‑commerce more efficient and effective, including: ● using predictive web analytics (see Chapter 12) which connects online data to effective action by drawing reliable conclusions about current conditions and future events; ● advanced attribution tracking and adoption of different online media across customer touchpoints, in particular paid search such as Google AdWords which accounts for 60% of Barclays’ spend on digital media; ● conversion rate optimisation using techniques such as AB and multivariate testing (described in Chapter 12) to boost sales efficiencies. Benefits in 2006 were a 5% improvement in paid search costs, worth £400k in saved costs (showing that around £8 million annually was spent on paid search and the importance of
Chapter 5 Digital business strategy 207 developing a search engine marketing strategy). An additional 6% of site traffic was gener- ated by applying analytics to improve search marketing, equating to £1.3 million incremental income from this source (Brewer, 2008). From a sell-side e‑commerce perspective, a key aspect of vision is whether the Internet will complement or replace the company’s other channels. It is important to communicate this to staff and other stakeholders. The impact of digital technology will vary in different industries. Kumar (1999) suggested a way to review the impact when: 1 customer access to the Internet is high (this is now a given in many markets); 2 the Internet can offer a better value proposition than other media (i.e. propensity to purchase online is high); 3 the product can be delivered over the Internet (it can be argued that this is not essential for replacement); 4 the product can be standardised (user does not usually need to view to purchase). If at least two of Kumar’s conditions are met, there may be a replacement effect. For example, purchase of travel services online fulfils criteria 1, 2 and 4. As a consequence, physical outlets for these products may no longer be viable. The extent to which these conditions are met will vary through time, for example as access to the Internet and propensity to purchase online increase. A similar test is de Kare-S ilver’s (2000) Electronic Shopping Test (Chapter 8, p. 352). A similar vision of the future can be developed for b uy-side activities such as procure- ment. A company can have a vision for how e‑procurement and e‑enabled supply chain management (SCM) will complement or replace paper-b ased procurement and SCM. How can digital business create business value? Sense and respond As Chaffey and White (2010) have emphasised, much of the organisational value created by communications digital business is due to more effective use of information and technology to deliver new value-a dding services and integrations between processes across the value chain. The strate- Organisations monitor gic importance of business information management in an organisation can be reviewed and consumers’ preferences communicated as part of the vision using Figure 5.12. This analytic tool, devised by Professor indicated by their Don Marchand, shows different ways in which digital business can generate value for organi- responses to websites or sations. The main methods are: email communications in 1 Adding value. Incremental revenue is delivered through providing b etter-q uality prod- order to target them with relevant, personalised and ucts and services to an organisation’s customers. Information can be used to better targeted communications. understand customer characteristics and needs and their level of satisfaction with ser- vices. Information is also used to sense and respond to markets. Information about trends in demands, competitor products and activities must be monitored so that organisations can develop strategies to compete in the marketplace. For example, all organisations will use databases to store personal characteristics of customers and details of their transac- tion history, which shows when they have purchased different products, responded to marketing campaigns or used different online services. Analysis of these databases using data mining can then be used to understand customer preferences and market products that better meet their needs. Companies can use sense and respond communications. The classic example of this is the personal recommendations provided by Amazon. The increased use of mobile services is currently a significant way by which companies can generate additional value and they also need to consider how to protect their existing rev- enue. Digital businesses like Facebook and Google which rely on ad revenue have had to change their advertising services to ensure that their average revenue per user (which we introduced in Chapter 1) from ads is maintained as more users access mobile devices. Other types of business are using mobile to add value. For example, retailers who have a physical presence are using mobile marketing to develop their proposition, as explained in Case study 5.1.
208 Part 2 Strategy and applications Customers and markets Organisation C Add value Organisation B Manage risks Reduce costs Market, nancial, Transactions and legal, operational processes risks Organisation A Each way of using information involves using different types of information Create new reality New products, new services, new business ideas Figure 5.12 An evaluation tool relating information to business value. An organisation’s use of information on each axis can be assessed from 1 (low use of information) to 10 (high use of information) Source: Marchand et al. (2002). 2 Reduce costs. Cost reduction through information is achieved through making the business processes shown in Figure 10.2 more efficient. Efficiency is achieved through using information to source, create, market and deliver services using fewer resources than previously. Technology is applied to reduce paperwork, reduce the human resources needed to operate the processes through automation and improve internal and external communications. 3 Manage risks. Risk management is a well-e stablished use of information within organi- sations. Marchand (1999) notes how risk management has created functions and profes- sions such as finance, accounting, auditing and corporate performance management. 4 Create new reality. Marchand uses the expression ‘create new reality’ to refer to how information and new technologies can be used to innovate, to create new ways in which products or services can be developed. This is particularly apt for digital business. Case Study 5.1 Debenhams creates value through mobile commerce A 2013 survey by EPiserver (an eXommerce and digi‑ of the UK’s biggest retailers’ apps and mobile sites. It tal marketing solutions company) has revealed that the was found that Debenhams scored top marks, as it was British high street retailer, Debenhams, was rated best at able to meet consumer expectations rated at 90%. It mobile commerce. ‘Mobile Commerce: What Consumers was followed by Argos and Expedia, who both scored Really Want’ looked at customer expectations of thirty 85%, and Tesco, whose retail facilities scored 80%.
Chapter 5 Digital business strategy 209 Debenhams showcases its mobile value proposition 3 Personalise the app with ‘My Debenhams’ by at www.debenhams.com/mobile. It offers a choice of a selecting the categories and sizes relevant to you. mobile site and apps on iOS (iPhone and iPad), Android (Google Play), Nokia and Blackberry. 4 View product pages with full product details, multiple image views and zoom images, and prod‑ You can see from the facilities available on Apple uct reviews and ratings. App Store that it has developed specific elements of mobile value to fit the context of use whether at home or 5 Add favourite items to a wish list and be notified in‑store and personalise to the individual user: when stock runs low. 1 Buy items from the Debenhams app for delivery to 6 Share products with friends on Facebook or by email. home or for collection in‑store. 7 Watch the latest videos from Debenhams TV and 2 Use the barcode scanner like a virtual assistant shop for the products in each video. in‑store to see further product details and reviews, 8 Find the nearest store with the store finder and check to buy items from the phone or to save items to your wish list or gift lists. store guides for details of ranges and opening times. 9 Receive alerts on the latest trends and products from Debenhams, and exclusive special offers. Objective setting Efficiency An effective strategy development process links general goals, strategies and more specific Minimising resources or objectives and performance measures. One method of achieving this linkage is through tabu- time needed to complete lation, as shown for a fictitious company in Table 5.6. Each of the objectives should have spe- a process: ‘doing the cific KPIs to ensure progress to the more general goal and also a timeframe in which to achieve thing right’. these objectives. Despite the dynamism of digital business, some of the goals that require pro- cesses to be re‑engineered cannot be achieved immediately. Prioritisation of goals can help Effectiveness in communicating the digital business vision to staff and also when allocating resources to Meeting process achieve the strategy. As with other forms of strategic objectives, digital business objectives objectives, delivering should be SMART (Box 5.3) and include both efficiency and effectiveness measures. the required outputs and outcomes: ‘doing the Put simply, efficiency is ‘doing the thing right’ – it defines whether processes are com- right thing’. pleted using the least resources and in the shortest time possible. Effectiveness is ‘doing the Table 5.6 Goals, strategies and objectives, performance indicators for an example B2B company (in order of priority) Goals Strategies to achieve goals Specific objectives (key performance indicators (KPIs)) 1 Develop revenue from new 1 Create e‑commerce facility for 1 Achieve combined revenue of £1m by year-end. Online revenue contribution geographical markets standard products and assign of 70% 2 Increase revenue from s maller- agents to these markets 2 Increase sales through retailers from 15% to 25% of total by year 2. Online s cale purchases from retailers 2 Create e‑commerce facility for revenue contribution of 30% 3 Ensure retention of key account standard products 3 Retain five key account customers. Online revenue contribution of 100% customers 3 Attain soft lock‑in by developing from these five 4 Improve efficiency of sourcing raw extranet facilities and continued 4 Reduce cost of procurement by 5% by year-e nd, 10% by year 2. Achieve materials support from sales reps 80% of purchasing online 5 Reduce time to market and costs 4 Develop e‑procurement system 5 Reduce cost and time to market by average of 10% by year 3 for new product development 5 Use collaboration and project 6 Reduce cost of sales in each of five 6 Protect and increase efficiency of management tools main geographical markets by 30% distributor and partner network 6 Create partner extranet and aim for paperless support
210 Part 2 Strategy and applications Box 5.3 Setting SMART objectives SMART is used to assess the suitability of objectives set to drive different strategies or the improvement of the full range of business processes. (i) Specific. Is the objective sufficiently detailed to measure real-w orld problems and opportunities? (ii) Measurable. Can a quantitative or qualitative attribute be applied to create a metric? (iii) Actionable. Can the information be used to improve performance? (iv) Relevant. Can the information be applied to the specific problem faced by the manager? (v) T ime-related. Does the measure or goal relate to a defined timeframe? The key performance indicators column in Table 5.6 gives examples of SMART digital business objectives. right thing’ – conducting the right activities, producing the required outputs and outcomes, and applying the best strategies for competitive advantage. When organisations set goals for digital business and e‑commerce, there is a tendency to focus on the efficiency metrics but such measures often do not capture the overall value that can be derived. Effectiveness meas- ures will assess how many customers or partners are using the digital business services and the incremental benefits that contribute to profitability. For example, an airline such as BA.com could use its digital channel services to reduce costs (increased efficiency), but could be facing a declining share of online bookers (decreased effectiveness). Effectiveness may also refer to the relative importance of objectives for revenue generation through online sales and improv- ing internal process or supply chain efficiency. It may be more effective to focus on the latter. Some examples of s ell-s ide e‑commerce SMART performance indicators for an online flower business are shown in Mini case study 5.2. Mini Case Study 5.2 Arena Flowers controls its growth through key performance indicators Arena Flowers (Figure 5.13) is an online florist based in London. The business was incorporated in July 2006 and went live with a transactional website in September 2006. The company delivered £2 million net sales in year one and broke even within the first 12 months of trading. At the time of the interview it is forecasting sales of £4 million in year two and making a healthy profit. The head of design and development Sam Barton sees opportunities to keep growing both sales and profitability at a similar rate going forward through various initiatives. For example, the company has developed a Facebook application that provides 15% of the site traffic – an opportunity that has been missed by many of its more established rivals. Average order values (AOVs) have developed from an initial £30 and have grown month on month. The current level is £42. Ways of increasing AOV have included options to add a vase, make a deluxe bouquet and buy Prestat’s chocolates alongside the flowers. The essence of the Arena Flowers proposition is to cut out all middlemen and buy direct from growers. There are no ‘relay’ fees and, because of its high stock turnover, it gets fresh flowers in daily and they go straight to the customer, rather than sitting in a hot shop window. Arena Flowers offers free delivery on all its products and was the first online florist in the UK to offer FFP-a ccredited, ethically sourced flowers. That has been a good ‘unique selling point’ and enables Arena to offer something different from other suppliers such as supermarkets. Source: E‑consultancy (2008b) Digital business Briefing. Arena Flowers’ Sam Barton on web design and development, E‑newsletter interview 12 March 2008.
Chapter 5 Digital business strategy 211 Figure 5.13 Arena Flowers Source: www.arenaflowers.com. Performance management systems are needed to monitor, analyse and refine the per- formance of an organisation. (The use of systems such as web analytics in achieving this is covered in Chapter 12.) Online or Internet The online revenue contribution revenue contribution By considering the demand analysis, competitor analysis and factors such as those defined by (ORC) Kumar (1999), an Internet or online revenue contribution (ORC) objective can be set. This states the percentage of company revenue directly generated through online transactions. An An assessment of indirect online contribution can be stated where the sale is influenced by the online presence the direct or indirect but purchase occurs using conventional channels. Online revenue contribution objectives contribution of the can be specified for different types of products, customer segments and geographic markets. Internet to sales, They can also be set for different digital channels such as web or mobile commerce. usually expressed as a percentage of overall Conversion modelling for sell-s ide e‑commerce sales revenue. Experienced e‑commerce managers build conversion or waterfall models of the efficiency of their web marketing to assist with forecasting future sales. Using this approach, the total Conversion online demand for a service in a particular market can be estimated and then the success of the marketing company in achieving a share of this market determined. Conversion marketing tactics can then be created to convert as many potential site visitors as possible into actual visitors and Using marketing then convert these into leads, customers and repeat customers. Box 5.4 gives further details. communications to maximise conversion of potential customers to actual customers.
212 Part 2 Strategy and applications E‑channel service So, to assess the potential impact of digital channels it is useful to put in place tracking contribution or research which assesses the c ross-c hannel conversions at different stages in the buying process. For example, phone numbers which are unique to the website can be used as an The proportion of s ervice- indication of the volume of callers to a contact centre influenced by the website. This insight type processes that can then be built into budget models of sales levels such as that shown in Figure 5.14. This are completed using shows that of the 100,000 unique visitors in a period we can determine that 5,000 (5%) may electronic channels. actually become offline leads. The e‑channel service contribution gives an indication of the proportion of service-type processes that are completed using electronic channels. Examples include e‑service (propor- tion of customers who use web self-service), e‑procurement (proportion of different types of purchases bought online) and administrative process facilities used via an intranet or extranet. Box 5.4 Conversion modelling A widely quoted conceptual measurement framework based on the industrial market‑ ing concepts of purchasing decision processes and hierarchy of effects models, which can be applied for conversion marketing, was proposed by Berthon et al. (1998). The model assesses efficiency of offline and online communications in drawing the pros‑ pect through different stages of the buying decision. The main measures defined in the model are the following ratios: 1 Awareness efficiency: target web-users/all web-users. 2 Locatability or attractability efficiency: number of individual visits/number of seekers. 3 Contact efficiency: number of active visitors/number of visits. 4 Conversion efficiency: number of purchases/number of active visits. 5 Retention efficiency: number of repurchases/number of purchases. This model is instructive for improving Internet marketing within an organisation since these different types of conversion efficiency are key to understanding how effective online and offline marketing communications are in achieving marketing outcomes. E-channel Traditional channels 1,000,000 REACH of channel Drive to Drive to 1,000,000 Response ef ciency 5.0% traditional e-channel RESPONDENTS from channel 1.00% 5.00% 10.0% Conversion to lead ef ciency 100,000 Unique visitors Of ine inbound 110,000 enquiries 10.0% 5.00% 1.00% 20.0% LEADS generated from channel 11,100 Online leads Online leads 27,000 Conversion to sale ef ciency 0.50% 40.0% 20.0% 10.00% OUTCOMES from channel 2,355 Online sales Online sales 11,910 Figure 5.14 An example of conversion modelling for an online retailer
Chapter 5 Digital business strategy 213 Research... Mobile buyer Online Of ine Purchase... Online 22% 9% Of ine 37% 32% Figure 5.15 Research Online Purchase Online example Source: Google. ROPO ROPO is a term coined to describe research published by Google (2010) meaning ‘Research Online Purchase Offline’. This study reviewed the role of the Internet in the decision process Research Online for mobile and broadband contracts involving the Vodafone website and stores in Germany Purchase Offline. based on a panel of 16,000 web users and questionnaires about their intent and purchase. For both of these services, the contract was signed online by around a third of the audi- ence. However, a significant proportion signed the contract offline. The matrix presented in Figure 5.15 is a good framework for evaluating and summarising multichannel behaviour since it also shows the situation where research is offline and purchase occurs online. This behaviour is particularly common for products such as, in this case, handsets, where con- sumers want to evaluate their purchase online. An example of objective setting within a particular company, then at a relatively early stage of adoption, is provided by Case study 5.2 and for different industries in Activity 5.2. Case Study 5.2 Setting the Internet revenue contribution at Sandvik Steel Sandvik Steel, a company selling into many international the Internet. It makes cutting tools, speciality steels and markets, provides a good illustration of how Internet rev- mining and construction equipment. enue contribution can be used to set objectives for dif- ferent geographical markets. However, the group is a long-time advocate of IT. Its annual IT budget is some SKr1bn. When dot-c om mania was at its height, so‑called old economy companies, such as Sweden’s Sandvik, ‘We first formulated our IT strategy in 1969,’ says tended to be overshadowed as the brash new online Clas Ake Hedstrom, the chief executive. ‘We didn’t fore‑ stars took the limelight. see the Internet.’ Only recently, he adds, has IT moved from serving the company to benefiting customers. But now that the collapse of Internet and other tech‑ nology stocks has injected a harsh dose of reality into Transferring its 30‑y ear-o ld IT experience to the age the stock market and business scene, many established of the web requires more than a deep understanding names are back in favour again. of technology, says Arnfinn Fredriksson, director of Internet business development at the group’s Coromant As the experience of Sandvik, founded in 1862, tooling business. shows, skilful use of the Internet can lead to huge improvements in links with customers and suppliers, ‘The major challenges are not IT and systems, but bringing considerable cost savings. “soft” things such as attitudes, insights and getting people to understand and accept that this is part of their Based north of Stockholm in Sandviken, the com‑ daily work.’ This means focussing hard on business pany’s activities seem remote from the virtual world of needs and cutting through the Internet hype.
214 Part 2 Strategy and applications Sandvik Steel, the speciality steel operation, also The proportion in the US, however, is only 3%, since goes beyond transactions to find solutions for its cus‑ most business goes through distributors and is con‑ tomers. Its extranet enables users to obtain worldwide ducted by EDI (electronic data interchange), the pre- stock information, catalogues and training aids, as well Internet means of e‑commerce. as take part in online discussions. Over the next six months, the company hopes to At both Coromant and Sandvik Steel, digital business raise the US figure to 40%. Mr Fredriksson hopes that activities are mainly directed towards enhancing links in two years, between 40 and 50% of total orders will with customers. ‘Customer value comes when our prod‑ come via the web. uct is used, not when it is purchased,’ Mr Fredriksson says. To enhance its online service to customers, Coromant plans to offer each one a personalised web page. This Thus, Coromant allows customers not only to will enable the company to offer new products, materi‑ buy tools over the web but also to design their own als and advice on productivity improvements. Training products – within parameters set by Coromant – and will also be part of this expanded web offering, which receive advice on how best to use them. Coromant aims to have in place later this year. Choosing the right cutting tools and using them For both Coromant and Sandvik Steel, the value of effectively can save around 10% of the total cost of the web lies in strengthening and expanding relation‑ manufactured components. The digital business strat‑ ships with customers. In the case of Coromant, with some egy had to take account of this. 25,000 standard products, there are numerous customers buying low volumes. With Sandvik Steel, however, a small It also had to avoid channel conflict, the bypassing number of customers buy a high volume of products. of its traditional sales outlets. Most Coromant tools are sold directly to customers, but 40% goes through resell‑ ‘Our aims were to have 200 key customers using the ers. Moreover, there are big regional variations: more extranet by a fixed time; and a confirmation from at least than 80% of sales in the Nordic region are direct, while 80% of key customers that they consider the extranet most North American sales are indirect. to be a major reason to deal with Sandvik,’ says Annika Roos, marketing manager at Sandvik Steel. The company’s approach was to work with the tra‑ ditional sales channels. ‘So many companies try to By putting the Internet at the heart of its business, bypass traditional channels and lose sales and relation‑ the Sandvik group intends to penetrate deeply into the ships,’ Mr Fredriksson says. minds and ambitions of its customers. ‘The challenge is not just doing digital business, it is becoming a digital It is the relationship with the customer – including business,’ she adds. greater personalisation and an extended reach into global markets – which will be the most important pillar Source: Andrew Fisher, Sandvik Steel, 4 June 2001. of its digital business strategy in the long term, he says. Questions This is what provides real competitive advantage. Shifting existing customers to the Internet, winning new 1 Summarise Sandvik Steel’s digital business ones and saving costs are also important. But other strategy as described in the article. companies will be doing the same. 2 Suggest why the proportion of online purchases At present, only a small part of Coromant’s orders varies in the different countries in which Sandvik are transacted over the web. Nordic countries are lead‑ trades. ing the way. Around 20% of all orders from Denmark are online and 31% of those from Sweden. Activity 5.2 Assessing the significance of digital channels Purpose To illustrate the issues involved with assessing the suitability of the Internet for e‑commerce. Activity For each of the following products and services, assess the suitability of the Internet for delivery of the product or service and position it on the grid in Figure 5.16, with justification, and make estimates in Table 5.7 for the direct and indirect online revenue
Chapter 5 Digital business strategy 215 High Information services Traditional books/CDs Market adoption/propensity for online purchase Digibooks Air tickets Grocery retailer Magazine publisher Engineering company (high-cost, low-volume) Chemical manufacturer Engineering company (low-cost, high-volume) Professional services Drug retailer (consultancy) Low Low High Product suitability = opportunity = risk Figure 5.16 Grid of product suitability against market adoption for transactional e‑commerce (online purchase) Table 5.7 Vision of online revenue contribution for a B2B company Products/services Now 2 years 5 years 10 years Example: Cars, US 5% 10% 25% 50% Direct online sales 50% 70% 90% 95% Indirect online sales Financial services Direct online sales Indirect online sales Clothing Direct online sales Indirect online sales Business office supplies Direct online sales Indirect online sales contribution in two, five and ten years’ time for different products in your country. Choose specific products within each category. No suggested answer supplied.
216 Part 2 Strategy and applications An equivalent b uy-side measure to the online revenue contribution is the proportion of procurement that is achieved online. This can be broken down into the proportions of elec- tronic transactions for ordering, invoicing, delivery and payment (as described in Chapter 7). Deise et al. (2000) note that the three business objectives for procuring materials and services should be improving supplier performance, reducing cycle time and cost for indirect pro- curement, and reducing total acquisition costs. Metrics can be developed for each of these. Balanced scorecard The balanced scorecard approach to objective setting Integrated metrics such as the balanced scorecard have become widely used as a means A framework for setting of translating organisational strategies into objectives and then providing metrics to moni- and monitoring business tor the execution of the strategy. Since the balanced business scorecard is a w ell-k nown and performance. Metrics are widely used framework, it can be helpful to define objectives for digital business in the cat- structured according to egories below. customer issues, internal efficiency measures, It was popularised in a Harvard Business Review article by Kaplan and Norton (1993). In financial measures and part, it was a response to o ver-r eliance on financial metrics such as turnover and profitability innovation. and a tendency for these measures to be retrospective rather than looking at future potential. The main areas of the balanced scorecard are: 1 Customer concerns. These include time (lead time, time to quote, etc.), quality, perfor- mance, service and cost. Example measures from Halifax Bank from Olve et al. (1999): satisfaction of mystery shoppers visiting branches and from branch customer surveys. 2 Internal measures. Internal measures should be based on the business processes that have the greatest impact on customer satisfaction: cycle time, quality, employee skills, produc- tivity. Companies should also identify critical core competencies and try to guarantee market leadership. Example measures from Halifax Bank: ATM availability (%), conver- sion rates on mortgage applications (%), arrears on mortgage (%). 3 Financial measures. Traditional measures such as turnover, costs, profitability and return on capital employed. For publicly quoted companies this measure is key to shareholder value. Example measures from Halifax Bank: gross receipts (£), mortgage offers (£), loans (£). 4 Learning and growth: innovation and staff development. Innovation can be measured by change in value through time (employee value, shareholder value, percentage and value of sales from new products). For each of these four areas management teams will define objectives, specific measures, targets and initiatives to achieve these targets. For some companies, such as Skandia Life, the Table 5.8 An example of a digital business balanced scorecard for a B2B company Scorecard component Objective metric Customer perspective Customer acquisition rate (leads generated online) Process Customer retention rate (% using online services) Customer satisfaction index Financial Average time for new product development (months) Innovation and employee Procurement lead times development Sales cycle lead time Revenue contribution from online channel Margin from online channel Cost savings from partners using different e‑services Number of new product releases per year Training hours attended per employee: target 30 hours/year
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