Bocconi MBA23 Group2
Overview
"We live in a discontinuous world--- one where digitalization, deregulation, and globalization are profoundly reshaping the industrial landscape."— Gary Hamel, strategy guru
With the rapid development and widespread use of the Internet, it is evident that information plays a vital role in the world culture. There is a great need and demand for fast and timely information without borders.
The rise of infotech is making customers enormously more powerful. For starters, it is arming them with truckloads of information. In business-to-business selling this is part of the thunderous advance of eCommerce, which is enabling buyers to check prices and specifications offered by suppliers around the globe instantly and continuously. Companies that enable price comparisons to be made most easily gain an advantage, forcing everyone to do it, whether they like it or not. As a result, sellers of every item are being forced to compete on price, and they hate it. Buyers gain further advantage in an information-based economy because new competitors can enter the market so easily.
With eCommerce, information for the buyer is cheaper in terms of money and time, constantly updated, more accessible and reliable than before, giving the purchaser more bargaining power. In the future, companies will be dragged into eCommerce by their customers -- those that do not, run the risk of losing market share, even to the point of disappearing from the race!
What is eCommerce?
- eCommerce is a new way to enable buyers and sellers to find each other in new markets.
- eCommerce will enable new products and services to be geared specifically towards electronic
media.
- eCommerce distribution channels will enable well-established companies to design more efficient
processes of increasing the level of customer service thus possibly generating new revenue streams.
- eCommerce allows the creation of extended enterprises that are competitively advantageous.
eCommerce involves automating and managing the supply chain by doing business electronically with the trading community. It is an electronic marketplace, often on WEB but certainly not restricted to it, for goods and services where buyers and sellers clear transactions at the lowest possible price. eCommerce creates opportunity in four main areas:
Continuous Transformation
In yesterday's more measured business environment, companies could afford to act sequentially: develop a strategy, redesign business processes around the strategy, select and implement the technology to support those processes, and finally organize and train their workforce under their new system. Today, with the rate of change accelerated to a near-constant state, strategy formulation, process redesign, technology acquisition, and organizational change must be executed simultaneously. New skills must be developed while the strategy is still being formulated. New business processes must be designed to exploit continuously evolving technology. In short, business transformation must now be continuous.
Buyer Trends
The advent of eCommerce will continue to have an impact on customer behavior toward purchases on the internet. Customers will use the electronic highway to search for information regarding product description, quality, price and availability. eCommerce will provide an efficient marketplace where price will be the principal determinant in a buyer’s selection. Buyers will use powerful search engines to actively search the eCommerce marketplace for products meeting their specification criteria. Furthermore, the WEB will provide an avenue for heightened customer service. Sellers will have more information as to the buying preferences of consumers. Customers will receive a continuous stream of information on products such as new product launches, online technical support and online warranty support.
The eCommerce marketplace currently attempts to ameliorate another essential element of service, that is, security of money transfer. Security issues are paramount to the continued success of eCommerce. The full resolution of security concerns will allow consumers to operate in an environment allowing free and active search and purchase of products without concern. The marketplace becomes more efficient and price will be the major determinant in purchase decisions.
Seller Trends
- Location (where the user operates)
- Focus (the kind of information a user wants to deliver to, and the relationship he has with
the customer), and
- Inventory (the types of products or services delivered, mass or custom).
Sumser ends up with eight ‘extreme’ models, ranging from the automated teller machine to in-store customization, and a range of models in between. Mitch Ratliff expands the classification even further in a two dimensional matrix with one axis ranging from internal corporate to consumer interface, and the second ranging from single vendor to multiple solutions.
eCommerce has had a major impact on the way companies provide goods and services to customers. Companies have a tradition of using technology to lower costs; however, eCommerce is forcing major strategic shifts for a number of industries – and often it is the customer driving the change, and gaining more power in the buy-sell process. As price comparison becomes a matter of clicking a button for the buyer, prices (and margins) are coming under pressure. As the technology of eCommerce makes possible higher service levels, customers are demanding more and better service -- and switching costs are declining.
Companies are responding to the challenges in a variety of ways: for survival, for expansion, and in order not to cede all the power to the buyer. Internally, companies are forced to ‘slash the fat’ in response to squeezed margins, and logistics is taking on a growing role. Externally, sellers are increasing the variety of products or services on offer as ‘virtual shelf space’ has expanded. Some early participants are benefiting from the early mover advantage in order to set standards and increase brand or company awareness. Other companies are turning the tables on buyers to some extent, recognizing the increased ease and cost effectiveness of reaching very targeted audiences electronically.
eCommerce models break down into trends beyond the traditional business-business, business-customer, customer-customer. William Gurley expounds upon four models emerging on the internet for conducting eCommerce, each focused on the customer. ‘Automated Purchasing’ that aims at streamlining business-to-business purchases of repetitive or non-core items, such as restocking supplies or booking travel. ‘Anonymous Exchange’ which focuses on relatively homogenous products, such as insurance or mortgages, with qualified buyers and sellers. 'Content Sites’ where sellers such as Amazon.com pay to advertise. And finally, ‘Consumer Exchanges’ in which buyers advertise and sellers respond.
John Sumser takes a different approach to classifying eCommerce models, using a matrix of three dimensions:
An Example
- Buyers, who have a chance at products at a bargain, and
- Sellers, who can reach consumers worldwide, especially the market segment attracted to auctions in the first place.
helps buyers and sellers exchange goods using a dynamic auction system. eBay is the leader in this
area, and also the longest running and the most innovative. Products on offer range from antique vases to computer
screens, from Barbie dolls to chrome ratchet handles. Auctions typically last 3-7 days from the time the seller
places an ad. Bidders click on an item and input a bid, with the maximum they are willing to pay. eBay makes bids on the buyers’ behalf in increments, and notifies the seller
and winning bidder by e-mail at the end of the time period, who then contact each other to effect the transaction.
eBay acts as a listing
agent, receiving a listing fee from the seller.
eBay is a service provider – both the sellers and buyers are the customers – and provides an excellent example of using eCommerce to break old modes and create new ones for commerce. Auctions are not new, but traditional ones are markets for limited items and limited buyers. Classified advertising is not new either, selling mass items in a static manner. eBay adds a critical element of dynamism to traditional classified ads, to the possible benefit of both buyers and sellers.
This is also a very clear example of the new way of making business on internet: a continuous concurrent modification of strategy, people, process and technology. The strategy is based on an innovative idea of eBay, to mediate the supply and the demand of everything, everywhere in every moment. A simple process, managing the auctions, a very small group of people and using the internet technology (site, secure money transaction, email, group-news) can compete with every market place in the world (in the eworld too!) -- You can even buy an airplane on eBay!
This service provide benefits to both:
Last Word
To win the business game, everyone wants a sustainable competitive advantage. The problem is that in the age of infotech, it is rarely a source of sustainable competitive advantage. In fact, most of the time, infotech will not catapult us ahead of the competition in any reliable way. You must keep your infotech current with that of competitors -- otherwise you're dead -- but for sustainable competitive advantage you'll have to look elsewhere, look to your people, your ideas and in your intrinsic competencies or advantages.
Technology is an enabler, not an answer!
