1. 1-1

2. 1-2
Chapter 1
Framework
for
e-Commerce
McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

3. 1-3
Key questions covered in this chapter:
• What are the categories of e-commerce?
• What are the new views of strategy in the
networked-economy?
• What is the framework for the field of e-
commerce?
• Why does a senior manager need to know all
four infrastructures?
• What are the roles and responsibilities of senior
e-commerce managers?
• What key challenges do senior leaders face
today?

4. 1-4
e-Commerce as the Networked Economy
 The networked economy business traits can be
summarized as:
• Create value largely through gathering, synthesizing
and distribution of information
• Formulate strategies that make management of the
enterprise and technology convergent
• Compete in real time rather than in “cycle time”
• Operate in a world characterized by low barriers to
entry, near-zero variable costs of operation and shifting
competition
• Organize resources around the demand side rather
than supply side
• Manage better relationships with customers through
technology

5. 1-5
Definition
– It is about the exchange of digitized
information between parties
– It is technology-enabled
– It is technology-mediated
– It includes intra- and interorganizational
activities that support the exchange

6. 1-6
How Do We Define e-Commerce?
Technology-mediated exchanges between parties as
well as electronically-based intra- or inter-
organizational activities that facilitate such exchanges

7. 1-7
Distinct Categories
• Business-to-Business
– The full spectrum of e-commerce that can occur between
two organizations.
• Business-to-Consumer
– Exchange between businesses and consumers, such as
those managed by Amazon, Yahoo etc.
• Peer-to-Peer
– Exchanges between and among consumers e.g. eBay.
• Consume-to-Business
– Consumers can band together to present themselves as a
buyer group in a C2B relationship.

8. 1-8
Exhibit 1.1: Four Categories of e-Commerce
Business originating from…
Business Consumers
Business
And Selling to…
B2B C2B
Consumers
B2C P2P

9. 1-9
Distinct Categories of e-Commerce
• Business to Business (B2B) refers to the full
spectrum of e-commerce that can occur between two
organizations.
This includes purchasing and procurement, supplier
management, inventory management, channel
management, sales activities, payment management
&service and support.
Examples: FreeMarkets, Dell and General Electric
• Business to Consumer (B2C) refers to exchanges
between business and consumers, like the ones
managed by Amazon Yahoo and Charles Schwab &
Co.
The activities tracked are consumer search, frequently
asked questions and service and support.

10. 1-10
Distinct Categories of e-Commerce (cont’d)
• Peer to Peer (C2C) exchanges involve
transactions between and among consumers.
These can include third party involvement, as in
the case of the auction website Ebay.
Examples: Owners.com, Craiglist, Monster
• Consumer to Business (C2B) involves when
consumers band together to present themselves
as a buyer in group.
Example: www.speakout.com

11. 1-11
Converging Categories of e-commerce
• A single chain of e-commerce will ultimately
emerge
• The chain will be superset of categories noted
above.
• Important to think of a single demand-and-
supply chain
• The categories of e-commerce are not distinct
, but rather intimately linked in a broader
network of supply and demand

12. Exhibit 1.2: Convergence 1-12
of e-Commerce Categories
Business originating from…
Business Consumers
Publishers order
paper supplies from Consumers
Business
paper companies
And Selling to…
aggregate to bulk
purchase from
Amazon orders Amazon
from publishers
Consumers
Consumers buy
Consumers resell
thousands of Harry
copies on eBay
Potter books from
Amazon

13. Strategy Making in a Rapidly Changing 1-13
Environment
How can a company faced with the changing online
environment set a strategy?
 Classical Strategic planning
• This begins with the specification of the mission and
vision of the firm.
• A careful balance of internal and external analysis
leads to a choice of strategy for the company as a
whole called “corporate strategy”.
• Strategies that relate to specific divisions within a
company are termed as “business-unit strategies”.

14. Exhibit 1.3: Classic Framework 1-14
for Strategy Management
Mission
Goals
Internal
External
Strategy (Company)
Analysis
Formulation Analysis
•Corporate
•Business-unit
•Functional
•Operating
Implementation
Control and
Monitoring

15. 1-15
New Views of e-Commerce Strategy
• Speed of change and adaptation must be
figured into the classical strategic
management equation.

16. 1-16
New Views of e-Commerce Strategy (cont’d)
 Sense and respond paradigm:
• It provided an approach to strategic thinking that
was intuitive, actionable and easy to implement.
• It made companies focus on listening in a new
manner to customers to reduce the high levels of
uncertainty.
Drawbacks:
• Its very reactive and the starting point is always
the customer.
• This is more appropriate for traditional offline
companies.

17. 1-17
New Views of e-Commerce Strategy (cont’d)
 Strategy as rules: Focus on “simple rules”
rather than complex strategic planning exercises.
• Simple rules help the senior e-commerce
manager recognize positive (or negative)
situations and react accordingly.
• Psychologists – or , more specifically , decision
scientists – term these cognitive approaches
“patterned recognition”
• For example chess players intuitively recognizes
various board patterns as they emerge and can
anticipate the reactions of competitors.

18. 1-18
The Three Approaches to Strategy
• Position approach: “Where should we be vs. our
competition?”
• Resources approach: “what resources should we
possess?”
• Simple rules approach: “What processes should
we follow?”

19. 1-19
Exhibit 1.4:Three Approaches to Strategy
Position Resources Simple Rules
Strategic Logic • Establish position • Leverage resources • Pursue opportunities
• Identify an attractive • Establish a vision • Jump into the confusion
market
Strategic Steps • Locate a defensible
• Build resources •Keep moving
position •Leverage across markets •Seize opportunities
• Fortify and defend •Finish strong
Strategic Question • Where should we be? • What should we be? • How should we proceed?
• Unique, valuable position • Unique, valuable, • Key processes and
Source of with tightly integrated inimitable resources unique simple rules
Advantage activity system
• Slowly changing, well- • Moderately changing, • Rapidly changing,
Works Best In structured markets well structured markets ambiguous markets
Duration of • Sustained • Sustained • Unpredictable
Advantage
• It will be too difficult to • Company will be too slow • Managers will be too
Risk alter position as conditions to build new resources as tentative in executing on
change conditions change promising opportunities
Performance Goal • Profitability • Long-term dominance • Growth

20. Factors of Consumer Behavior in the Online 1-20
Environment
 The 2 key factors that are of paramount
importance in the online environment are:
• Customization: This refers to the personalization
of communications between users and a website.
• Interactivity: is defined as the user’s ability to
conduct two-way communications. This includes
user to user and firm to user communication.

21. 1-21
The Process of Emergent Strategy
• Internet has forced companies to react more quickly
• Henry Mintzberg observed what he terms “emergent
strategy”
• These emergent strategies are the unplanned
responses to unseen changes
• Not the classical top-down analyses of the formal
planning process
• Real time changes in strategy that are often felt and
initiated by the troops.
• Sense-and-respond approach is typically directed by
senior managers
• Emergent strategy often comes from the executives
who are at the front lines executing the strategy.
• The firms often modify their intended strategy as the
forces of the four infrastructures change.

22. 1-22
Exhibit 1.5: A Comprehensive Framework
Media
Infrastructure
Technology e-Commerce Capital
Infrastructure Strategy Infrastructure
Public
Policy

23. 1-23
The Strategy Formulation Process
 There are six interrelated, sequential decisions to
strategy:
• Framing the Market Opportunity
• Business Model
• Customer Interface
• Market Communication and Branding
• Implementation
• Metrics

24. 1-24
Exhibit 1.6: e-Commerce Strategy
Framing the Market
Business Customer Communication Implementation
Market Metrics
Model Interface and Branding
Opportunity

25. The Context of Strategy Formulation: 1-25
The Four Infrastructures
• Successful strategies emerge from a deep
understanding of where the market – and ,
hence, the cash flow – will be in both the short-
term and long-term future.
• Market is the important word in this sentence
• Market certainly involves the customers –
indeed , the customer is at the center – a market
also includes the buyers and sellers as well as
the broader contextual forces shape the nature of
the marketplace exchange
• There are four critical forces that the e-commerce
manager must know and manage

26. The Context of Strategy Formulation: 1-26
The Four Infrastructures
• Technology infrastructure: This is both an enabler
and driver of change.The hardware backbone of
computers, routers, servers, fiber optics, cables,
modems, etc. provide half of the technology
equation.The other half includes the software and
communication standards including the core
protocols for the www.
• Capital Infrastructure: Deals with getting the money
to launch new businesses and finding the right
people to build the business plan and seek funding
sources.

27. The Context of Strategy Formulation: 1-27
The Four Infrastructures (cont’d)
• Media infrastructure: The e-commerce managers
must make choices about the types of media
employed(e.g., print, audio , video), the nature of the
media and editorial policy(including style, content,
look and feel).
• Public Policy Infrastructure: All the decisions
related to strategy, technology, capital and media are
influenced by laws and regulation, i.e., public policy
decisions. It not only affects specific business but
also direct and indirect competitors.

28. Why a senior Manager Needs to Know All four
1-28
Infrastructures
• Consider media company Bertelsmann
and in particular Bertelsmann Music
Group (BMG)
• One of the largest music companies in
the world
• Music companies are organized around
several functions

29. 1-29
Functions of Music Companies
• 1 Artist and repertoire
• Recording
• Manufacturing
• Distribution
• Marketing
• Music sales

30. 1-30
Types of questions for BMG executives
• E-commerce strategy
– Has the digitization of music revealed
unmet or underserved needs that MBG can
exploit?
– Has the internet brought new , indirect
competitors?
– Can BMG find a sustainable revenue
model on the internet?
– Etc.

31. Roles and Responsibilities of a Senior 1-31
e-Commerce Manager
 Senior managers need to have the basic business
skill set of traditional managers but must also
incorporate new knowledge, skills and capabilities.
The roles and responsibilities include:
Cross Discipline, Integrative position:
• Entrepreneurship is at the heart of any online business.The manager
should be able to make strategic decisions quickly and authoritatively.
• They should be trained in a variety of disciplines including marketing,
logistics, accounting, and finance.
• They should also add two new disciplines to the mix: technology
sophistication and media knowledge.
• They should also understand the role of mass communication in a
media business.

32. Exhibit 1.7: Relevant Disciplines 1-32
for a Senior e-Commerce Executive
Strategic
Management
Finance
Marketing
Entrepreneurship
Operations
Accounting and Logistics
Technology New Media

33. Roles and Responsibilities of a Senior 1-33
e-Commerce Manager (cont’d)
• The day to day responsibilities of a senior e-
commerce manager include:
• Provide vision for the online business.
– One the most important tasks of e-commerce manager is to
establish the vision for the online business.
– Superior visions often reflect something more than simple
revenue or business goals.
– “We want to be the largest online supplier of ethical, over-
the-counter drugs”
– “We want to help people recover from illness to improve
their social, medical, and family welfare”

34. Roles and Responsibilities of a Senior 1-34
e-Commerce Manager (cont’d)
– Strong visions provide direction for employees to rally
around ,encourage investors to “bet” on the company , and
send a signal to the market that the firm is able to provide
leadership in the evolution of industries.
• Set process and outcome goals by specifying clear
performance targets.
• Formulate strategic direction and choice by making
concrete choices- and associated tradeoffs- related to
each phase of the e-commerce strategy process, including
market opportunity, business model specification and
design of the customer interface.

35. Roles and Responsibilities of a Senior 1-35
e-Commerce Manager (cont’d)
• Drive implementation: Strategy implementation is
about making the right choices related to people,
structure, systems and processes to execute the
strategy.
• Accountable for performance: The senior
manager is responsible for the performance of the
organization.

36. Exhibit 1.8: A Flow Diagram of the 1-36
Strategic Responsibilities
Set Vision
Establish Goals
Formulate Strategy
Drive
Implementation
Be Accountable
for Performance

37. 1-37
Location of the Sr. Manager in the Organization
• Line Executive: The senior manager may be a line
executive who is responsible for the profit and loss of
an online initiative.
• Staff Executive: A staff executive does not have
formal profit and loss responsibility for a business.
Their role is to support the efforts of the line
executives in the execution of their strategy.

38. Exhibit 1.9: Where to Find Senior e-Commerce 1-38
Managers Within Existing Bricks-and-Mortar Companies
Corporate Business Unit Stand-Alone
•Corporate site •Report to general •Separate business
management manager of business from corporate
Line Executive unit parent
•Cross-business-unit
integration site
•Supports •Supports and
corporate-wide advises strategic
Staff Executive initiatives business unit e-
commerce
initiatives

39. Key Challenges for Senior Leadership in Today’s 1-39
Environment
• Understanding Customer Evolution: The
challenge here is to invest heavily in understanding
the customer needs and invest in advance so that the
launch of the innovation coincides exactly with the
customer needs.
• Charting Changing Technology: The senior
executive must be well schooled in the basic and
emergent technologies. Picking the right technologies
and investing ahead of the curve is a constant, high-
stakes gamble for the senior management team.

40. Key Challenges for Senior Leadership in Today’s 1-40
Environment (cont’d)
• Balancing Irrational Exuberance and Irrational
Doom: The executive must continually reassure that
the business model makes sense, spell out the path to
profitability and paint a vision that can rally all relevant
stake holders, including partners, customers and
employees.
• Integration of Offline and Online Activities:
Customer- facing activities need to be made ready for
the web.
• Identifying the Key Levers of Competitive
Advantage: The best senior leaders are able to
reallocate their resources and capabilities in anticipation
of evolving competitive landscape.