development should be driven by the business needs of the organization. In this respect the Web or Internet development should follow a top-down approach so that the resulting systems are aligned with the strategic objectives of the organization.
Dangers can arise for an organization when the developments are driven by the information technology without due consideration of the strategic direc- tions of the business. These types of projects can result in systems that:
1. Take too much time and money to develop because they do not have the full backing of senior people.
2. Do not provide a significant return to the organization because they are peripheral to the core business needs.
3. Displace other, perhaps more worthwhile, projects from being devel- oped as they consume organizational resources.
4. Are not maintained effectively and eventually become a problem for the business. The Web developments may be poorly perceived by the customers and/or employees.
Initiative should be encouraged within the MIS division, but projects should be assessed and adopted according to whether they support the corpo- rate, business, and functional strategies. Projects should not be started solely because other organizations are developing certain systems, although this may be an opportunity to investigate. Equally, there is a place in organizations for experimentation. Systems may be trialed and the returns monitored. However, they must be recognized as experiments with appropriate budget allocations that the organization can afford to write off if the experiment does not produce worthwhile results. Projects that use leading edge technology or use technology in an innovative way and are aligned with corporate strategy have the potential to provide a competitive advantage for the business.
a given situation (Figure 4.3). ICDM draws on business process reengineering and value chain analysis for its core strategic planning tools.
SWOT Analysis
To decide on a strategy for a business, business unit, or functional area, managers need to assess an organization’s competitive situation. This involves assessing the organization and its environment. The process is known as competitive analy- sis. SWOT analysis is one method of competitive analysis [1]. The competitive situation for the company is assessed by examining its strengths (S), weaknesses (W), environmental opportunities (O), and threats (T). The competitive analy- sis will yield different results for each business examined. However, there are some broad categories of strengths and weakness that may be useful aids in the analysis (Table 4.1).
The strengths examined in the SWOT analysis are the strengths of the business. The internal strengths are features of the organization such as stream- lined administrative systems or technologically adept staff. The internal weaknesses of the organization can be detailed in much the same way. The wider environment can be scanned for economic, technological, and social trends that can be exploited. New government legislation may create an oppor- tunity for some organizations. For example, government departments may require suppliers to be year 2000 compliant. This creates opportunities for soft- ware consultants and IT training organizations who can help companies
Disintermediation?
Strengths Weaknesses Opportunities Threats
Transformation
Process reengineering
Process improvement or enhancement
· Business
· Business
· unitFunction
Radical change
Incremental change
Business process reengineering
Value chain analysis
Figure 4.3 ICDM strategic planning phase.
become accredited. The external threats need to be considered because future prosperity depends on how the organization deals with these.
Threat of Disintermediation
Besides performing a competitive analysis, organizations should assess the threat of disintermediation. Due to the ease with which suppliers of products and services can market and sell directly to consumers over the Internet, those companies that act as intermediaries in the distribution chain risk being bypassed. This would clearly have disastrous consequences for the interme- diaries and is termed disintermediation. The businesses that are most at risk of disintermediation are those that do not significantly add value to the products and services they are distributing.
Opportunities and Business Models
The Web supports a variety of business models that can serve as exemplars for organizations developing an Internet commerce strategy. They highlight in a simplified way many of the business opportunities that the Web presents and so they can play a role in examining the opportunities as part of the SWOT analysis. A company can decide to adapt its off-line business model to the Inter- net. In some cases organizations have chosen to use the Internet to experiment with business models that are quite different from their off-line approaches.
It is often these experimental systems that have been the most successful in cap- turing the attention of Web surfers. Web-based business models are generally
Table 4.1 SWOT Analysis
Internal to Organization External to Organization
Strengths Weaknesses Opportunities Threats
Highly skilled staff Market image Expand into new markets
Increasing competition Latest technology
infrastructure
High staff turnover Take advantage of new technology
New product developments, obsolescence Greatest market share Low profit margin New government
legislation
Recession in economy Sound management Poor administrative
procedures
Growth market Skills shortage
classified on functional lines such as retail, marketing, or customer service type systems. Some examples of popular business models are described in this sec- tion (and throughout the book). However, the Internet has been instrumental in developing a new type of organizational structure called the virtual organiza- tion and this will be discussed first.
Virtual Organizations
A number of characteristics are commonly used to define the term virtual cor- poration. A key feature of virtual corporations is that they form structures that are made up of different companies or individuals that come together to com- plete certain tasks and therefore appear as one organization to the customer or client. The communication, cooperation, and coordination related to their work are enabled through the use of information technology.
Virtual organizations or teams must share data, information, and knowl- edge. This type of organizational structure is typically formed to explicitly share knowledge. Knowledge management can be improved by accessing the organ- izational memory with the aid of information technology. The richer the knowledge representations, the more knowledge that should be communicated.
Organizational Web sites, whether internets or intranets, can play a strategic role in providing a rich medium for knowledge communication.
Despite the plethora of articles being written about virtual organizations, ambiguity still exists over certain features of them. It could be argued, for exam- ple, that there are degrees of virtuality. Some organizations may interact totally via information and communications technology, whereas others may inter- sperse face-to-face communication. It is assumed in the literature that virtual organizations need to be flexible to cope with a variety of tasks and locations.
However, there are varying degrees of flexibility and it is a relative concept.
Trust is often viewed as an important characteristic of virtual organizations [2], but some studies conclude that it is no more significant in virtual organizations than it is in nonvirtual organizations [3].
A commonly proposed characteristic of virtual enterprises is that they operate with some informality and with a flatter management structure than the traditional hierarchies found in many bureaucratic organizations [2]. Ahuja and Carley [4] suggest that this is an oversimplification of the management approach required in virtual environments. They argue that the management approach (centralized/hierarchical or flatter/decentralized) should depend on the task or the project being undertaken.
The Internet or intranet applications of a virtual enterprise require care- ful thought and consideration just as with nonvirtual organizations. Indeed, due to the heavy emphasis on the use of communications technology in virtual
organizations and the geographically distributed nature of these organiza- tions, we might assume that their Web sites would be even more strategically significant.
One of the best known virtual retail companies is Amazon.com, the bookseller. CDnow is also a well-known example and its history highlights some interesting features in the life of this fast-moving business paradigm.
CDnow is a CD retailer that does not carry stock. It takes orders and passes them on to its suppliers and distributors. However, CDnow faces great compe- tition from other music companies trying to emulate their business model. In mid-1999, faced with increasing losses, CDnow merged with Columbia House, a direct retail music club jointly operated by Sony and Time Warner.
CDnow is now the main thrust of Sony and Time Warner’s EC strategy.
There are many spin-offs for CDnow, such as access to their entertainment and media properties and access to their artists and record labels for interviews and behind-the-scenes footage.
A key lesson of the Internet retail model is that the Web can be used to sell additional products and services beyond the core product or service.
CDnow has done this by selling CD recording devices and they are planning to sell video movies and a range of other goods. Because they do not have to stock these products, it is a cost-effective strategy. They are also planning to use the Web to develop a customer relationship management system whereby customers can register and be informed about new releases or specials at their discretion.
Retail Sales
Transaction-based systems that allow customers to buy various products and services over the Web are now commonplace. Many companies use this approach to supplement their traditional retailing channels. It provides a con- venient service for consumers who can order products from the office or home at a time of their choosing. For companies the model is not as straightforward as it might first appear because the Web application should be preceded by a strategic plan and accompanied by a transaction support infrastructure. Such systems need to deal effectively with payments, ideally link to corporate data- base systems, and provide customer service support.
Beyond a basic retail model, the Web can be used in innovative ways to retail products and services. For instance, Internet auctions can provide an alternative to off-line approaches. Retail auction sites generally require a large number of visitors to generate the level of competition needed to shift products and services in a cost-effective manner for the company. The method can be used as a way of selling slow-moving stock and attracting general interest in the
Web site. Auctions have been used for selling airline seats, cars, and even cases of wine.
A particularly successful form of Web retailing has been in the area of digital goods. Software, for example, is easy to download off the Internet and downloadable music appears to be a new direction in the music industry. Like- wise, information in the form of research reports and magazines can easily be sent to subscribers over the Internet. Even providing access to the Web in dif- ferent ways from different situations can be a strategy. Soon consumers will be able to access the Web from basically anywhere, such as work, their home, their car, and even while walking down the street. Interestingly, General Motors has announced the “Web car,” which is a car with voice-activated Internet access [5]. GM plans to put one billion dollars into its electronic commerce ventures.
That is not to say that more traditional products and services cannot use the Internet effectively. Many business owners thought that the Web was only suited to businesses with certain characteristics. For example, whoever thought that a butcher would find a place on the Web? Omaha Steaks has shown that the Internet can be used for the most unlikely of products [6]. It sells a variety of steaks, as well as a range of other frozen foods, such as desserts, appetizers, seafood, poultry, veal, and lamb. The Web order interface connects to the com- pany’s back-end order processing system. The Web initiative has proved a very successful venture for the company with an increasing percentage of orders coming this way.
Marketing and Advertising
The Web can be used for brand name marketing and for sending sales informa- tion, product catalogs, and product or service announcements. Marketing systems, just like retailing systems, require considerable planning and support.
Many strategies and techniques can be used to market via the Internet and many are particular to the Web in that they have no off-line equivalent. The Web has a number of unique attributes: All customers can be accessed or informed at once; large amounts of information can be communicated cheaply;
users can interact with the system; and information can be provided with rela- tive ease.
The Web can be used strategically to capture an increased share of a particular market segment. Some companies are aggressively marketing via the Web with advertisements at leading Internet sites. First USA is the United States’ largest issuer of Visa and MasterCard credit cards. It has used the Web to market its cards, starting with a deal in 1996 with America Online. It has now locked into more than 50 deals with some of the Web’s biggest players
such as Yahoo, Excite, MSN, eBay, WebTV, CDnow, and GeoCities [7].
Through this strategy First USA wants to position itself to the next generation of credit card customers.
The better examples of marketing via the Internet leverage the interactiv- ity of the medium and the facility to allow users to exchange information with other users. The development of online communities provides an example of the real potential of the Internet for marketing (discussed later in the chapter).
Customer Service and Support
The Web offers a method of providing improved customer service and support in a cost-effective manner. Web-based customer service inquiry and support systems typically reduce the cost per inquiry to 20% or less compared with tra- ditional telephone inquiries. For the customer, the main benefit is the conven- ience of being able to get support and service at a time and place of their own choosing.
The Web can be used for providing after-sales support in the form of extra information on how to use or care for a product. Software patches or updates can be downloaded in a cheap and efficient manner, so the Web acts as a distribution channel for customer support. Online chat systems can be used where the customer base is large enough so that customers can help each other.
Customers or potential customers can make inquiries via the Web and receive personalized replies. Airlines, for example, have systems for their fre- quent fliers that the flier can query easily rather than telephoning a customer service center.
A company can provide information and interactive applications to improve customer relationships and service. The tax office, for example, can provide information on completing tax returns, or a bank can provide informa- tion on the types of accounts it offers.
Online Communities
Internet communities are real-time online forums where people who have some- thing in common can communicate and exchange information. They use online chat, publishing tools to gather and share information, message boards, and e-mail and generally emphasize a high level of interactivity. The interac- tions may be between the users themselves or between the company and the users. Internet communities form a business model in their own right. They provide a framework for integrating content, communication, and business and usually fulfill social and business objectives. Communities can be based around any common interest. They can be based on such things as geography, age,
support groups (e.g., cancer society), or activities (e.g., professional activities, sports).
Five key attributes distinguish an Internet community from other online ventures [8]:
1. Community members. The community members are the people who visit the site and feel part of the community. People choose to be members and are never compelled to take part. The members have something in common, but membership may be short lived. Mem- bers of the community feel a sense of ownership and contribute in various ways to the community by providing information, chatting, and posting to discussion groups. In this way the members create the community.
2. Community organizers. The community requires an organizer who is responsible for the virtual space in terms of growth and maintenance.
The owner needs a sponsor who will invest in the community for a reasonable time span.
3. Guiding principles. Rules and guidelines must be used to ensure that the purpose of the community is upheld in the running of the community. Some examples of guiding principles are tolerance of alternative opinions, and a clear statement of moral expectations and what is considered to be the focus of the community.
4. Institutional benefits. There should be clear institutional benefits for building the community. Intranets can be developed to foster a sense of community and sharing, or internets can be used to create a loyal customer base.
5. Interactivity. The richer the media space, then potentially the more scope there is for developing a vibrant community. The easier the system is to use, the lower the barrier is in terms of entry to the community.
Community building is not suited to every company and product. A soc- cer club with a large supporter base may find it worthwhile to develop an online community. Through it they could increase their image and use it for market- ing and advertising purposes. However, why would a consulting company want clients to chat with each other? The clients might swap information on fees paid and what they got for their money!
Supplier Model
The Web can be used to facilitate communication and interaction between companies and their suppliers. These systems fall into one of several categories.
Inventory management systems can be developed to allow suppliers access via the Web. The supplier can then be responsible for sending products when stock levels are low. This can result in a reduction in purchasing and inventory man- agement expenses for the company. The documentation related to purchase orders can also be sent electronically, speeding up and increasing the accuracy of data in the ordering–shipment cycle.
Used innovatively, the Web can provide a medium for improved commu- nication on many levels between organizations. Information, designs, and data can be put on the Web to inform suppliers or partner organizations of changes in strategy, product development, and market conditions. This information can be used by the suppliers to develop customized products or services.
Solectron Corporation is a manufacturer in the electronics industry that has used the Web to speed communication between organizations through reengineering of key processes [9]. It used to take up to 10 days to develop product prototypes because of delays in the exchange of data between the customer and themselves. Solectron has now developed an Internet-based sup- ply chain management system that has moved materials planning, inventory control, and other processes to an Internet-based virtual private network (VPN). The VPN is used to link 21 plants worldwide, plus some customers and suppliers. The system means that Solectron can now turn prototypes around in 24 hours or less.
Intraorganizational Commerce
Intranets are being used for a range of organizational applications that are revo- lutionizing internal communication and information processing. As document management systems, intranets provide a cost-effective method of presenting documents that incorporate policies, procedures, and organizational initiatives.
Transaction and query systems can be developed for many internal functions such as IT support systems, internal purchasing, raising orders, and even mat- ters related to payroll and leave entitlements.
Intranets can be used for sharing information. Individuals can post docu- ments to the Web for others to read and bulletin boards can be used to share ideas or raise questions. In fact, intranets are only just beginning to be viewed as potential knowledge management tools. Many intranets are simply designed to capture and present data and information. However, for effective knowledge