HOW E-COMMERCE CHANGES BUSINESS: STRATEGY,

STRUCTURE, AND PROCESS

 Introduction
• How e-commerce has changed the business environment in the last decade,
including industry structures, business strategies, and industry and firm
operations (business processes and value chains).

• The Internet tends to intensify competition. Because information becomes

available to everyone, the Internet inherently shifts power to buyers who can
quickly discover the lowest-cost provider. On the other hand, the Internet
presents many new opportunities for creating value, for branding products
and charging premium prices, and for enlarging an already powerful offline
physical business such as Walmart
INDUSTRY STRUCTURE
• Industry structure refers to the nature of the players in an industry and
their relative bargaining power. An industry’s structure is characterized by
five forces: rivalry among existing competitors, the threat of substitute
products, barriers to entry into the industry, the bargaining power of
suppliers, and the bargaining power of buyers (Porter, 1985).

• When you describe an industry’s structure, you are describing the general
business environment in an industry and the overall profitability of doing
business in that environment.
 INDUSTRY
STRUCTURE
INDUSTRY VALUE CHAINS
• One of the basic tools for understanding the impact of information
technology on industry and firm operations is the value chain.

• A value chain is the set of activities performed in an industry or in a firm

that transforms raw inputs into final products and services.

• Each of these activities adds economic value to the final product; hence, the
term value chain as an interconnected set of value-adding activities.

• The six generic players in an industry value chain: suppliers, manufacturers,

transporters, distributors, retailers, and customers.
 INDUSTRY
VALUE CHAINS
INDUSTRY VALUE CHAINS
By reducing the cost of information, e-commerce offers each of the key players in an industry value
chain new opportunities to maximize their positions by lowering costs and/or raising prices.

• Manufacturers can reduce the costs they pay for goods by developing Internet-based B2B
exchanges with their suppliers. Manufacturers can develop direct relationships with their
customers, bypassing the costs of distributors and retailers.

• Distributors can develop highly efficient inventory management systems to reduce their costs, and
retailers can develop highly efficient customer relationship management systems to strengthen
their service to customers.

• Customers in turn can search for the best quality, fastest delivery, and lowest prices, thereby
lowering their transaction costs and reducing prices they pay for final goods.
 Finally, the operational efficiency of the entire industry can increase, lowering prices and adding
value for consumers, and helping the industry to compete with alternative industries.
FIRM VALUE CHAINS
How does e-commerce technology potentially affect the value chains of firms within an
industry?

• A firm value chain is the set of activities a firm engages in to create final products from raw
inputs. Each step in the process of production adds value to the final product. In addition, firms
develop support activities that coordinate the production process and contribute to overall
operational efficiency.

• E-commerce offers firms many opportunities to increase their operational efficiency and
differentiate their products. Firms can use the Internet’s communications efficiency to outsource
some primary and secondary activities to specialized, more efficient providers without such
outsourcing being visible to the consumer.
FIRM VALUE CHAINS
How does e-commerce technology potentially affect the value chains of firms within an
industry?

• In addition, firms can use e-commerce to more precisely coordinate the steps in the value chains
and reduce their costs. Finally, firms can use e-commerce to provide users with more
differentiated and high-value products.

• For example: Amazon provides consumers with a much larger inventory of books to choose from,
at a lower cost, than traditional book stores. It also provides many services—such as instantly
available professional and consumer reviews, and information on buying patterns of other
consumers—that traditional bookstores cannot.
FIRM VALUE CHAINS
• E-commerce creates new opportunities for firms to cooperate and create a value web.
• A value web is a networked business ecosystem that uses e-commerce technology to coordinate
the value chains of business partners within an industry, or at the first level, to coordinate the
value chains of a group of firms.

• Firms also use the Internet to develop close relationships with their logistics partners.

• For example, Amazon relies on UPS tracking systems to provide its customers with online
package tracking, and it relies on the Postal Service systems to insert packages directly into the
mail stream.
• Amazon has partnership relations with hundreds of firms to generate customers and to manage
relationships with customers.
• In fact, when you examine Amazon closely, you realize that the value it delivers to customers is in
large part the result of coordination with other firms and not simply the result of activities internal
to Amazon. The value of Amazon is, in large part, the value delivered by its value web partners.
This is difficult for other firms to imitate in the short run.
BUSINESS STRATEGY
• Business strategy is a set of plans for achieving superior long-term returns on the capital invested in a
business firm. A business strategy is therefore a plan for making profits in a competitive environment over
the long term.
BUSINESS STRATEGY
1- Differentiation:
• E-commerce offers some unique ways to differentiate products and services, such as the ability to
personalize the shopping experience and to customize the product or service to the particular
demands of each consumer.

• E-commerce businesses can also differentiate products and services by making it possible to
purchase the product from home, work, or on the road (ubiquity);
• by making it possible to purchase anywhere in the world (global reach);
• by creating unique interactive content, videos, stories about users, and reviews by users (richness
and interactivity); and by storing and processing information for consumers of the product or
service, such as warranty information on all products purchased through a site or income tax
information online (information density).
BUSINESS STRATEGY
2- strategy of cost competition:
• E-commerce offers some ways to compete on cost, at least in the short term.
• Firms can leverage ubiquity by lowering the costs of order entry (the customer fills out all
the forms, so there is no order entry department); leverage global reach and universal
standards by having a single order entry system worldwide; and leverage richness,
interactivity, and personalization by creating customer profiles online and treating each
individual consumer differently—without the use of an expensive sales force that
performed these functions in the past. Finally, firms can leverage information intensity by
providing consumers with detailed information on products, without maintaining either
expensive catalogs or a sales force.
BUSINESS STRATEGY
3- Scope:
• The Internet’s global reach, universal standards, and ubiquity can certainly be leveraged to assist
businesses in becoming global competitors.
• Google, for instance, along with all of the other top 20 e-commerce companies, has readily
attained a global presence.
4- focus/market niche strategy:
• Firms can leverage richness and interactivity to create highly focused messages to different market
segments; information intensity makes it possible to focus e-mail and other marketing campaigns
on small market segments; personalization— and related customization—means the same product
can be customized and personalized to fulfill the very focused needs of specific market segments
and consumers.
BUSINESS STRATEGY
5- customer intimacy:
• Strong linkages with customers increase switching costs (the costs of switching from one
product or service to a competing product or service) and thereby enhance a firm’s
competitive advantage.
• For example, Amazon’s one-click shopping that retains customer details and
recommendation services based on previous purchases makes it more likely that
customers will return to make subsequent purchases.