CAP. 5

Question 1

Introduction

Answer 1

One of the key drivers of digital business is disruptive innovation: transforming an expensive and complicated product used by a few people into something more affordable and accessible (es: Walkman).
There’s also a growing number of companies providing disruptive innovation in the service industry. They’re capitalising on changes in technology, customer behaviour and availability of data to create innovative alternatives to traditional services.
McKinsey Quarterly article: winning approaches to service innovation combine 3 elements:
1. A focus on service innovation matching the intensity and attention that product companies bring to R&D;
2. The ability to personalise the customer experience and to help customers do things themselves;
3. The will to simplify (or automate) the way services are delivered.
Companies must find more collaborative ways of working to ensure that they remain focused on their customers.
Some of key elements of digital disruption:
1. A move from product-centric to customer-centric
2. A shift from expensive, risky and slow-to-market to cheap, low-risk, fast-to-market/fail
3. A move away from innovations taking hold in niche markets first, to impacting the mainstream quickly
4. From long product-development cycles to rapid ideation, iteration, delivery and optimisation
5. From devices such as fax machines and mobile phones to apps, a sharing economy and crowdfunding
Real-world Digital Business: The Smart Insights interview
Development of the social business. With the growing consumer and business adoption of social media, there has been more focus on creating a social business, focused around customer needs.

Question 2

McKinsey Quarterly article: winning approaches to service innovation combine 3 elements:

Answer 2

1. A focus on service innovation matching the intensity and attention that product companies bring to R&D;
2. The ability to personalise the customer experience and to help customers do things themselves;
3. The will to simplify (or automate) the way services are delivered.

Question 3

Some of key elements of digital disruption

Answer 3

1. A move from product-centric to customer-centric
2. A shift from expensive, risky and slow-to-market to cheap, low-risk, fast-to-market/fail
3. A move away from innovations taking hold in niche markets first, to impacting the mainstream quickly
4. From long product-development cycles to rapid ideation, iteration, delivery and optimisation
5. From devices such as fax machines and mobile phones to apps, a sharing economy and crowdfunding

Question 4

What is digital business strategy?

Answer 4

Strategy defines the future direction and actions of an organisation. Johnson and Scholes (2017) define corporate strategy as: “the direction and scope of an organization over the long term: which achieves advantage for the organisation through its configuration of resources within a changing environment to meet the needs of markets and to fulfil stakeholder expectations”.
Lynch (2000): strategy as an organisation’s sense of purpose; purpose alone isn’t strategy: plans or actions are also needed.
Digital business strategies share much in common with corporate, business and marketing strategies. 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 (2017): organisations have different levels of strategy, particularly for larger or global organisations. They identify:
- Corporate strategy: concerned with the overall purpose and scope;
- Business unit strategy: defines how to compete successfully in a particular market;
- Operational strategies: concerned with achieving corporate and business unit strategies;
- Functional strategies: describe how the corporate and business unit strategies will be operationalised in different functional areas or business processes.
Where does digital business strategy fit? There’s a tendency for digital business strategy to be incorporated within the functional strategies. A danger with this approach is that digital business strategy may not be recognised at a higher level within organisational planning. Digital business is an element of corporate strategy development and that transformation to apply digital platforms and media is prioritised and resourced.

Question 5

Johnson and Scholes (2017): organisations have different levels of strategy, particularly for larger or global organisations. They identify:

Answer 5

• Corporate strategy: concerned with the overall purpose and scope;
• Business unit strategy: defines how to compete successfully in a particular market;
• Operational strategies: concerned with achieving corporate and business unit strategies;
• Functional strategies: describe how the corporate and business unit strategies will be operationalised in different functional areas or business processes.

Question 6

The imperative for digital business strategy.

Answer 6

Implications if digital business strategy is not clearly defined:
* Missed opportunities from lack of evaluation of opportunities or insufficient resourcing of digital business initiatives.
* Inappropriate direction of digital business strategy.
* Limited integration of digital business at a technical level.
* Resource wastage through duplication of digital business development in different functions and limited sharing of best practice.
To help avoid these problems, organisations will want digital business strategy to be based on corporate objectives. Rowley (2002): digital business strategy should support corporate strategy objectives and should support functional marketing and supply chain management strategies.
These corporate objectives should be based on new opportunities and threats related to digital network adoption, which are identified from an environmental analysis. Digital businesses shouldn’t only support corporate strategy, but also influence it.

Question 7

Implications if digital business strategy is not clearly defined

Answer 7

• Missed opportunities from lack of evaluation of opportunities or insufficient resourcing of digital business initiatives.
• Inappropriate direction of digital business strategy.
• Limited integration of digital business at a technical level.
• Resource wastage through duplication of digital business development in different functions and limited sharing of best practice.

Question 8

Digital channel strategies

Answer 8

An important aspect of digital business strategies is that they create new digital channel strategies. It’s important to define specific goals and approaches for these channels, to prevent simply replicating existing processes through digital channels. Examples of digital channel strategies:
* Overarching digital channel, multichannel or omnichannel strategy, with specific channel strategies;
* Mobile commerce strategy;
* Social media strategy;
* Social CRM strategy;
* Supply chain or enterprise resource planning strategy;
* E-procurement strategy;
* Platform strategy.
There are a lot of potential initiatives that won’t be financially or operationally practical to implement at the same time: roadmaps need to be produced and decisions taken over priorities.
Digital channel strategies also need to define how online channels are used with other channels as part of a multichannel digital business strategy. This defines how different marketing and supply chain channels should integrate and support each other in terms of their proposition development and communications based on their relative merits for the customer and the company. Alternatively, an organisation may pursue an omnichannel business strategy. This is a cross-channel business model that organisations can use to provide their user/customer experience.
Digital business strategy also defines how an organisation gains value internally from using digital networks. Myers et al. (2004) provide a useful summary of the decisions required about multichannel marketing.
Main characteristics of a multichannel (and omnichannel) digital business strategy is that it’s a channel strategy, so:
* Specific digital business objectives set to benchmark adoption of digital channels.
* Digital business strategy defines how we should:
1. Communicate the benefits of using digital channels;
2. Prioritise audiences or partners targeted for digital channel adoption;
3. Prioritise products sold or purchased through digital channels;
4. Achieve our digital channel targets.
* Digital channels don’t exist in isolation, so we still need to manage channel integration and acknowledge that the adoption of digital channels won’t be appropriate for all products or services or generate sufficient value for all partners. This selective adoption is sometimes referred to as right-channelling in a sell-side e-commerce context. Right-channelling:
- 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.

Question 9

Examples of digital channel strategies

Answer 9

• Overarching digital channel, multichannel or omnichannel strategy, with specific channel strategies;
• Mobile commerce strategy;
• Social media strategy;
• Social CRM strategy;
• Supply chain or enterprise resource planning strategy;
• E-procurement strategy;
• Platform strategy.

Question 10

Main characteristics of a multichannel (and omnichannel) digital business strategy is that it’s a channel strategy, so:

Answer 10

• Specific digital business objectives set to benchmark adoption of digital channels.
• Digital business strategy defines how we should:
  1. Communicate the benefits of using digital channels;
  2. Prioritise audiences or partners targeted for digital channel adoption;
  3. Prioritise products sold or purchased through digital channels;
  4. Achieve our digital channel targets.
• Digital channels don’t exist in isolation, so we still need to manage channel integration and acknowledge that the adoption of digital channels won’t be appropriate for all products or services or generate sufficient value for all partners. This selective adoption is sometimes referred to as right-channelling in a sell-side e-commerce context. Right-channelling:
• 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.

Question 11

Platform strategy

Answer 11

New type of strategy: entering a market that revolves around allowing platform participants to benefit from the presence of others. The platforms are environments that connect different groups and provide benefits from others participating in it. They’re about co-creating value. Platforms also rely on the power of network effects.
The rise of platforms has been driven by 3 main technologies: cloud, social and mobile. Bonchek and Choudary (2013): the success of a platform strategy is determined by 3 things:
1. Connection.
2. Gravity.
3. Flow.
Hagel (2015): 3 common types of platforms:
* Aggregation platforms. They bring together a broad array of different resources and help users connect with them; tend to be very transaction/task focused. 3 sub-categories:
- Data/information aggregation platforms (es: scientific databases)
- Marketplace/broker platforms (es: App Store, eBay)
- Contest platforms (es: InnoCentive, Kaggle).
* Social platforms. Bringing together a lot of people who want to communicate because of a common interest, helping to build and reinforce long-term relationships across participants (es: FB, Twitter).
* Mobilisation platforms. To take common interests to the next level of action: about moving people to act together to accomplish something beyond an individual participant (es: Crowdfounder, Kickstarter).
Mini Case Study 5.1: How Onedox.com built a business and used peer-to-peer lending platform Crowdcube to raise money

Question 12

Choudary (2013): the success of a platform strategy is determined by 3 things

Answer 12

1. Connection.
2. Gravity.
3. Flow.

Question 13

Hagel (2015): 3 common types of platforms

Answer 13

• Aggregation platforms. They bring together a broad array of different resources and help users connect with them; tend to be very transaction/task focused. 3 sub-categories:
• Data/information aggregation platforms (es: scientific databases)
• Marketplace/broker platforms (es: App Store, eBay)
• Contest platforms (es: InnoCentive, Kaggle).
• Social platforms. Bringing together a lot of people who want to communicate because of a common interest, helping to build and reinforce long-term relationships across participants (es: FB, Twitter).
• Mobilisation platforms. To take common interests to the next level of action: about moving people to act together to accomplish something beyond an individual participant (es: Crowdfounder, Kickstarter).

Question 14

Strategy process models for digital business

Answer 14

Before developing a strategy, a management team needs to agree the process it will follow for generating and 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 digital business strategy can be evolved as part of a process of continuous improvement.
Although strategy process models differ in emphasis and terminology, they all have common elements, which include:
1. Internal and external environmental scanning or analysis is needed. Scanning occurs both during strategy development and as a continuous process to respond to competitors. Digital business requires a more continuous review of opportunities and threats as new digital platforms are created and adopted by businesses and consumers.
2. A clear statement of vision and objectives is required. Clarity is required to communicate the strategic intention to employees and the marketplace since digital business requires a major long-term transformation. Objectives are also vital to act as a check as to whether implementation of strategy is on track.
3. Strategic definition can be broken down into strategy option generation, evaluation and selection.
4. After strategy development, enactment of the strategy occurs as strategy implementation.
5. Control is required to monitor operational and strategy effectiveness problems and adjust the operations or strategy accordingly. Optimisation is possible using digital analytics. Harnessing this insight is useful to refine the implementation.
Jelassi and Enders (2008): 3 key dimensions for defining an e-commerce strategy:
1. Where will the organisation compete?
2. What type of value will it create?
3. How should the organisation be designed to deliver value?
Lynch (2000): distinguishes between two approaches:
- Prescriptive strategy approach: strategic analysis used to develop a strategy, and then implemented; strategy prescribed in advance;
- Emergent strategy approach: strategic analysis, strategic development and strategy implementation are interrelated.
Most organisational strategy development and planning processes have elements of prescriptive and emergent strategy. The prescriptive elements are the structured annual or six-monthly budgeting process or a longer-term 3-year rolling marketing planning process. But organisations also need an emergent process to enable strategic agility and the ability to respond rapidly to marketplace dynamic. Econsultancy (2008): has researched approaches used to encourage emergent strategies or strategic agility based on interviews with e-commerce practitioners.
Kalakota and Robinson (2000): recommend a dynamic emergent strategy process specific to digital business; it has emphasis on responsiveness with continuous review and prioritisation of investment in new applications.

Question 15

Although strategy process models differ in emphasis and terminology, they all have common elements, which include:

Answer 15

1. Internal and external environmental scanning or analysis is needed. Scanning occurs both during strategy development and as a continuous process to respond to competitors. Digital business requires a more continuous review of opportunities and threats as new digital platforms are created and adopted by businesses and consumers.
2. A clear statement of vision and objectives is required. Clarity is required to communicate the strategic intention to employees and the marketplace since digital business requires a major long-term transformation. Objectives are also vital to act as a check as to whether implementation of strategy is on track.
3. Strategic definition can be broken down into strategy option generation, evaluation and selection.
4. After strategy development, enactment of the strategy occurs as strategy implementation.
5. Control is required to monitor operational and strategy effectiveness problems and adjust the operations or strategy accordingly. Optimisation is possible using digital analytics. Harnessing this insight is useful to refine the implementation.

Question 16

Jelassi and Enders (2008): 3 key dimensions for defining an e-commerce strategy

Answer 16

1. Where will the organisation compete?
2. What type of value will it create?
3. How should the organisation be designed to deliver value?

Question 17

Lynch (2000): distinguishes between two approaches

Answer 17

• Prescriptive strategy approach: strategic analysis used to develop a strategy, and then implemented; strategy prescribed in advance;
• Emergent strategy approach: strategic analysis, strategic development and strategy implementation are interrelated.

Question 18

Strategic analysis

Answer 18

Strategic analysis or situation analysis involves the review of:
* The internal resources and processes of the company to assess its digital business capabilities and results to date in the context of a review of its activity in the marketplace;
* The immediate competitive environment (micro);
* The wider environment (macro).
It’s essential that situation analysis or environmental scanning be a continuous process with clearly identified responsibilities for performing the scanning and acting on the knowledge acquired.

Question 19

Resource and process analysis

Answer 19

Resource analysis for a digital business is primarily concerned with its digital business capabilities, 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 that can be used in value creation.
* Capabilities are the ability of a firm to use resources effectively to support value creation. 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 ICT resources to support its processes. Stage models were popular in the analysis of the current application of business information system (BIS) within an organisation.
Quelch and Klein (1996): 5-stage model referring to the development of sell-side e-commerce. Many companies still have limited digital business capabilities and are at an early stage in the model. For the existing companies, the stages are:
1. Image and product information.
2. Information collection.
3. Customer support and service.
4. Internal support and service.
5. Transactions.
Chaffey and Ellis-Chadwick (2012): 6 levels of sell-side e-commerce:
* 0. No website or presence on web.
* 1. Basic web presence: entry in a website listing of company names; no website.
* 2. Simple static informational website; basic company and product information, brochureware.
* 3. Simple interactive site; users are able to search the site and make queries to retrieve information (also by email).
* 4. Interactive site supporting transactions with users. The functions offered vary according to company but usually limited to online buying.
* 5. Fully interactive site supporting the whole buying process; relationship marketing with individual customers and facilitating the full range of marketing exchanges.
Stage models have also been applied to SME business; Levy and Powell (2003): reviewed different adoption ladders that have the four stages of:
1. Publish;
2. Interact;
3. Transact;
4. Integrate.
Considering buy-side e-commerce, corresponding levels of product-sourcing applications:
* 1. No use of the web for product sourcing and no electronic integration with suppliers.
* 2. Review and selection from competing suppliers using intermediary websites, b2b exchanges and supplier websites; orders placed by conventional means.
* 3. 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.
* 4. Orders placed electronically with integration of company’s procurement systems.
* 5. Orders placed electronically with full integration of company’s procurement, manufacturing requirements planning and stock control systems.
Organisations can assess their position on the continuum between stages 1 and 4 for the different aspects of digital business development. 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’re looking to achieve.
* Application portfolio analysis.
Analysis of the current portfolio of business applications within a business is used to assess current info systems capability and also to inform future strategies. McFarlan and McKenney (1993) with the modifications of Ward and Griffiths (1996): widely applied framework within information systems study. Current applications will continue to support the operations of the business and won’t be a priority for future investment. To achieve competitive advantage, applications for maintaining a dynamic customer catalogue online, online sales and collecting marketing intelligence about customer buying behaviour will become more important.
Portfolio analysis is also often used to select the most appropriate future Internet projects. A weakness of the portfolio analysis approach is that applications are delivered by a single digital business software or enterprise resource planning application.
In Econsultancy (2008): Chaffey defined a form of portfolio analysis as the basis for benchmarking current e-commerce capabilities and identifying strategic priorities. 6 areas of benchmarking:
1. Digital channel strategy.
2. Online customer acquisition.
3. Online customer conversion and experience.
4. Customer development and growth.
5. Cross-channel integration and brand development.
6. Digital channel governance.
- Organisational and IS SWOT analysis.
SWOT analysis is a simple yet powerful tool that can help organisations analyse their internal resources in terms of strengths and weaknesses and match them against the external environment in terms of opportunities and threats. SWOT has the greatest values when used not only to analyse the current situation, but also as a tool to formulate strategies: it’s useful once the strength, weaknesses, opportunities and threats have been listed to combine them into a TOWS matrix, that 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.
* Human and financial resources
Resources analysis will also consider two factors:
1. Human resources.
2. Financial resources.
Evaluation of internal resources should be balanced against external factors. Perrott (2005): adoption of digital business will be determined by the balance between internal capability and incentives and external forces and capabilities. Matrix with 4 quadrants that business within a market may occupy:
* Market-driven strategy (high internal capabilities/incentives and low external forces/incentives)  early adopters.
* Capability building (low internal capabilities and high external forces)  later adopter.
* Market-driven strategy (high internal capabilities and high external forces)
* Status quo (there isn’t an imperative to change since both internal capabilities and external forces are low).
An organisation’s position in the matrix will be governed by benchmarking of external factors suggested by Perrott (2005), which include the proportion of competitors’ communications to customers done electronically, and proportion of different customer segments 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. The cost differential of savings made against implementation costs is also included.
Stage models can also be used to assess internal capabilities and structures.

Question 20

Jelassi and Enders (2008): distinguish between analysis of resources and capabilities:

Answer 20

• Resources are the tangible and intangible assets that can be used in value creation.
• Capabilities are the ability of a firm to use resources effectively to support value creation. They are dependent on the structure and processes used to manage digital business.

Question 21

• Stage models of digital business development

Answer 21

Stage models are helpful in reviewing how advanced a company is in its use of ICT resources to support its processes. Stage models were popular in the analysis of the current application of business information system (BIS) within an organisation.
Quelch and Klein (1996): 5-stage model referring to the development of sell-side e-commerce. Many companies still have limited digital business capabilities and are at an early stage in the model. For the existing companies, the stages are:
1. Image and product information.
2. Information collection.
3. Customer support and service.
4. Internal support and service.
5. Transactions.
Chaffey and Ellis-Chadwick (2012): 6 levels of sell-side e-commerce:
* 0. No website or presence on web.
* 1. Basic web presence: entry in a website listing of company names; no website.
* 2. Simple static informational website; basic company and product information, brochureware.
* 3. Simple interactive site; users are able to search the site and make queries to retrieve information (also by email).
* 4. Interactive site supporting transactions with users. The functions offered vary according to company but usually limited to online buying.
* 5. Fully interactive site supporting the whole buying process; relationship marketing with individual customers and facilitating the full range of marketing exchanges.
Stage models have also been applied to SME business; Levy and Powell (2003): reviewed different adoption ladders that have the four stages of:
1. Publish;
2. Interact;
3. Transact;
4. Integrate.
Considering buy-side e-commerce, corresponding levels of product-sourcing applications:
* 1. No use of the web for product sourcing and no electronic integration with suppliers.
* 2. Review and selection from competing suppliers using intermediary websites, b2b exchanges and supplier websites; orders placed by conventional means.
* 3. 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.
* 4. Orders placed electronically with integration of company’s procurement systems.
* 5. Orders placed electronically with full integration of company’s procurement, manufacturing requirements planning and stock control systems.
Organisations can assess their position on the continuum between stages 1 and 4 for the different aspects of digital business development. 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’re looking to achieve.

Question 22

Chaffey and Ellis-Chadwick (2012): 6 levels of sell-side e-commerce

Answer 22

• 0. No website or presence on web.
• 1. Basic web presence: entry in a website listing of company names; no website.
• 2. Simple static informational website; basic company and product information, brochureware.
• 3. Simple interactive site; users are able to search the site and make queries to retrieve information (also by email).
• 4. Interactive site supporting transactions with users. The functions offered vary according to company but usually limited to online buying.
• 5. Fully interactive site supporting the whole buying process; relationship marketing with individual customers and facilitating the full range of marketing exchanges.

Question 23

Stage models have also been applied to SME business; Levy and Powell (2003): reviewed different adoption ladders that have the four stages of:

Answer 23

1. Publish;
2. Interact;
3. Transact;
4. Integrate.

Question 24

• Application portfolio analysis.

Answer 24

Analysis of the current portfolio of business applications within a business is used to assess current info systems capability and also to inform future strategies. McFarlan and McKenney (1993) with the modifications of Ward and Griffiths (1996): widely applied framework within information systems study. Current applications will continue to support the operations of the business and won’t be a priority for future investment. To achieve competitive advantage, applications for maintaining a dynamic customer catalogue online, online sales and collecting marketing intelligence about customer buying behaviour will become more important.
Portfolio analysis is also often used to select the most appropriate future Internet projects. A weakness of the portfolio analysis approach is that applications are delivered by a single digital business software or enterprise resource planning application.
In Econsultancy (2008): Chaffey defined a form of portfolio analysis as the basis for benchmarking current e-commerce capabilities and identifying strategic priorities. 6 areas of benchmarking:
1. Digital channel strategy.
2. Online customer acquisition.
3. Online customer conversion and experience.
4. Customer development and growth.
5. Cross-channel integration and brand development.
6. Digital channel governance.

Question 25

In Econsultancy (2008): Chaffey defined a form of portfolio analysis as the basis for benchmarking current e-commerce capabilities and identifying strategic priorities. 6 areas of benchmarking

Answer 25

1. Digital channel strategy.
2. Online customer acquisition.
3. Online customer conversion and experience.
4. Customer development and growth.
5. Cross-channel integration and brand development.
6. Digital channel governance.

Question 26

• Organisational and IS SWOT analysis

Answer 26

SWOT analysis is a simple yet powerful tool that can help organisations analyse their internal resources in terms of strengths and weaknesses and match them against the external environment in terms of opportunities and threats. SWOT has the greatest values when used not only to analyse the current situation, but also as a tool to formulate strategies: it’s useful once the strength, weaknesses, opportunities and threats have been listed to combine them into a TOWS matrix, that 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.

Question 27

• Human and financial resources

Answer 27

Resources analysis will also consider two factors:
1. Human resources.
2. Financial resources.
Evaluation of internal resources should be balanced against external factors. Perrott (2005): adoption of digital business will be determined by the balance between internal capability and incentives and external forces and capabilities. Matrix with 4 quadrants that business within a market may occupy:
* Market-driven strategy (high internal capabilities/incentives and low external forces/incentives)  early adopters.
* Capability building (low internal capabilities and high external forces)  later adopter.
* Market-driven strategy (high internal capabilities and high external forces)
* Status quo (there isn’t an imperative to change since both internal capabilities and external forces are low).
An organisation’s position in the matrix will be governed by benchmarking of external factors suggested by Perrott (2005), which include the proportion of competitors’ communications to customers done electronically, and proportion of different customer segments 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. The cost differential of savings made against implementation costs is also included.
Stage models can also be used to assess internal capabilities and structures.

Question 28

Matrix with 4 quadrants that business within a market may occupy:

Answer 28

• Market-driven strategy (high internal capabilities/incentives and low external forces/incentives)  early adopters.
• Capability building (low internal capabilities and high external forces)  later adopter.
• Market-driven strategy (high internal capabilities and high external forces)
• Status quo (there isn’t an imperative to change since both internal capabilities and external forces are low).

Question 29

Competitive environment analysis

Answer 29

External factors are also assessed as part of strategic analysis. Here we consider demand analysis and look at competitive threats in more detail.
* Demand analysis
A key factor driving digital business strategy objectives is the current level and future projections of customer, partner and internal access and usage of different types of digital technology platforms and e-commerce services. This is called demand analysis, and it’s a key activity in producing a digital marketing plan.
For buy-side e-commerce, a company also needs to consider the e-commerce services it suppliers offer: how many offer services for e-commerce and where they’re located.

Question 30

• Demand analysis

Answer 30

A key factor driving digital business strategy objectives is the current level and future projections of customer, partner and internal access and usage of different types of digital technology platforms and e-commerce services. This is called demand analysis, and it’s a key activity in producing a digital marketing plan.
For buy-side e-commerce, a company also needs to consider the e-commerce services it suppliers offer: how many offer services for e-commerce and where they’re located.

Question 31

Assessing competitive threats

Answer 31

Michael Porter’s classic 1980 model of the 5 main competitive forces that affect a company still provides a valid framework for reviewing threats arising in the digital business ere.
The main difference from the 5 forces model of Porter in a digital business context is the distinction between competitive threats from intermediaries on the buy-side and sell-side.
* Competitive threats
1. Threat of new e-commerce entrants.
2. Threat of new digital products.
3. Threat of new business models.
* Sell-side threats
1. Customer power and knowledge.
2. Power of intermediaries.
* Buy-side threats
1. Power of suppliers.
2. Power of intermediaries.
The extent of threats will be dependent on the particular market a company operates. 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.

Question 32

• Competitive threats

Answer 32

1. Threat of new e-commerce entrants.
2. Threat of new digital products.
3. Threat of new business models

Question 33

• Sell-side threats

Answer 33

1. Customer power and knowledge.
2. Power of intermediaries.

Question 34

• Buy-side threats

Answer 34

1. Power of suppliers.
2. Power of intermediaries

Question 35

Competitor analysis.

Answer 35

Competitor analysis is a key aspect of digital business situation analysis, and is also a key activity in producing a digital marketing plan that will feed into the digital business strategy.
* Resource-advantage mapping
It’s useful to map the internal resource strengths against external opportunities to identify, for example, where competitors are weak and can be attacked. To identify internal strengths, definition of core competencies is one approach. Lynch (2000): core competencies are the resources that provide a particular benefit to customers or increase customer value relative to competitors. Deise et al. (2000): customer value is dependent on product quality, service quality, price and fulfilment time. To understand core competencies we need to understand how the organisation is differentiated from competitors in these areas. Benchmarking e-commerce services of competitors is important here. The cost-base of a company relative to its competitors is also important, since lower production costs will lead to lower prices. Lynch (2000): core competencies should be emphasised in objective setting and strategy definition.

Question 36

• Resource-advantage mapping

Answer 36

It’s useful to map the internal resource strengths against external opportunities to identify, for example, where competitors are weak and can be attacked. To identify internal strengths, definition of core competencies is one approach. Lynch (2000): core competencies are the resources that provide a particular benefit to customers or increase customer value relative to competitors. Deise et al. (2000): customer value is dependent on product quality, service quality, price and fulfilment time. To understand core competencies we need to understand how the organisation is differentiated from competitors in these areas. Benchmarking e-commerce services of competitors is important here. The cost-base of a company relative to its competitors is also important, since lower production costs will lead to lower prices. Lynch (2000): core competencies should be emphasised in objective setting and strategy definition.

Question 37

Strategic objectives

Answer 37

Defining and communication an organisation’s strategic objectives is a key element of any strategy process model since:
1. The strategy definition and implementation elements of strategy must be directed at how best to achieve the objectives;
2. The overall success will be assessed by comparing actual results against objectives and taking action to improve strategy;
3. Clear, realistic objectives help communicate the goals and significance of a digital business initiative to employees and partners.
Usually, objective setting is done in parallel with strategic analysis.

Question 38

Defining vision and mission

Answer 38

Lynch (2000): corporate vision in ‘a mental image of the possible and desirable future state of the organisation’. Defining a specific company vision for digital business is helpful since it contextualises digital business in relation to a company’s strategic initiatives and its marketplace and gives a long-term emphasis on digital business transformation initiatives.
Vision or mission statements are a concise summary defining the scope and aims of digital channels in the future, explaining how they’ll contribute and support customers and interactions with partners. Jelassi and Enders (2008): developing a mission statement should provide a definition of:
* Business scope (where?);
* Unique competencies (how?);
* Values (why?).
* VMOST
VMOST analysis: simple model that can be used to outline key elements of the business and help determine strategy.
Many organisations have a top-level mission statement used to scope the ambition of the company and to highlight the success factors for the business.
Vision statements can also be used to define a longer-term picture of how the channel will support the organisation through defining strategic priorities. Disadvantage with brief vision statements: can be generic, so it’s 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 high-level goals.
Scenario-based analysis is a useful approach to discussing alternative visions of the future prior to objective setting. Lynch (2000): scenario-based analysis is concerned with possible models of the future of an organisation’s environment: “The aim is not to predict, but to explore a set of possibilities; scenarios take different situations with different starting points”.
Lynch distinguishes qualitative scenario-based planning from quantitative prediction based on demand analysis. In a digital business perspective, scenarios that could be explored:
1. One player in our industry becomes dominant through use of the Internet.
2. Major customers don’t adopt e-commerce due to organisational barriers.
3. Major disintermediation in our industry.
4. B2b marketplaces do or don’t become dominant.
5. New online entrants or substitute products change our industry.
Better understanding of the drivers for different views of the future will result, new strategies can be generated and strategic risks can be assessed.
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’s important to communicate this to staff and stakeholders.
The impact of digital technology will vary in different industries. Kumar (1999): way to review the impact when:
1. Customer access to the Internet is high;
2. Internet can offer a better value proposition than other media;
3. Product can be delivered over the Internet;
4. Product can be standardised.
If at least two of these conditions are met, there may be a replacement effect. The extent to which these conditions are met will vary through time.
A company can have a vision for how online procurement and e-enabled supply chain management will complement of replace paper-based procurement and SCM.
Box 5.1: Example vision or mission statements from digital businesses

Question 39

Jelassi and Enders (2008): developing a mission statement should provide a definition of:

Answer 39

• Business scope (where?);
• Unique competencies (how?);
• Values (why?).

Question 40

VMOST

Answer 40

VMOST analysis: simple model that can be used to outline key elements of the business and help determine strategy.
Many organisations have a top-level mission statement used to scope the ambition of the company and to highlight the success factors for the business.
Vision statements can also be used to define a longer-term picture of how the channel will support the organisation through defining strategic priorities. Disadvantage with brief vision statements: can be generic, so it’s 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 high-level goals.
Scenario-based analysis is a useful approach to discussing alternative visions of the future prior to objective setting. Lynch (2000): scenario-based analysis is concerned with possible models of the future of an organisation’s environment: “The aim is not to predict, but to explore a set of possibilities; scenarios take different situations with different starting points”.
Lynch distinguishes qualitative scenario-based planning from quantitative prediction based on demand analysis. In a digital business perspective, scenarios that could be explored:
1. One player in our industry becomes dominant through use of the Internet.
2. Major customers don’t adopt e-commerce due to organisational barriers.
3. Major disintermediation in our industry.
4. B2b marketplaces do or don’t become dominant.
5. New online entrants or substitute products change our industry.
Better understanding of the drivers for different views of the future will result, new strategies can be generated and strategic risks can be assessed.
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’s important to communicate this to staff and stakeholders.
The impact of digital technology will vary in different industries. Kumar (1999): way to review the impact when:
1. Customer access to the Internet is high;
2. Internet can offer a better value proposition than other media;
3. Product can be delivered over the Internet;
4. Product can be standardised.
If at least two of these conditions are met, there may be a replacement effect. The extent to which these conditions are met will vary through time.
A company can have a vision for how online procurement and e-enabled supply chain management will complement of replace paper-based procurement and SCM.

Question 41

Kumar (1999): way to review the impact when:

Answer 41

1. Customer access to the Internet is high;
2. Internet can offer a better value proposition than other media;
3. Product can be delivered over the Internet;
4. Product can be standardised.

Question 42

How can digital business create business value?

Answer 42

Chaffey and White (2010): much of the organisational value created by digital business is due to more effective use of information and technology to deliver new value-adding services and integrations between processes across the value chain. Main methods:
1. Adding value. Incremental revenue is delivered through providing better-quality products and services. Information can be used to understand customer characteristics and needs, their satisfaction, and 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. Companies can use sense and respond communications.
2. Reduce costs. Cost reduction through information is achieved through making the business process more efficient- efficiency is achieved through using info to source, create, market and deliver services using fewer resources.
3. Manage risks. Marchand (1999): it has created functions and professions such as finance, accounting, auditing and corporate performance management.
4. Create new reality. To refer to how info and new technologies can be used to innovate, to create new ways in which products or services can be developed.
Case Study 5.1: Arriva Bus redesigns its m-ticket app and boosts revenue by over 17%

Question 43

Objective selling.

Answer 43

An effective strategy development process links general goals, strategies and specific objectives and performance measures. One method of achieving this linkage is through tabulation. Each of the objectives should have specific KPIs to ensure progress to the more general goal and a timeframe in which to achieve these objectives. Some of the goals that require processes to be re-engineered can’t be achieved immediately. Digital business objectives should be SMART and include efficiency and effectiveness measures.
Efficiency = doing the thing right. Effectiveness = doing the right thing. There’s a tendency to focus on the efficiency metrics but such measures often don’t capture the overall value. Effectiveness measures will assess how many customers or partners are using the digital business services and the incremental benefits that contribute to profitability.
Box 5.2: Setting SMART objectives
Box 5.3: Conversion modelling

Question 44

• The online revenue contribution

Answer 44

By considering the demand analysis, competitor analysis and factors such as those defined by Kumar (1999), an online revenue contribution (ORC) objective can be set. This states the percentage of company revenue directly generated through online transactions. An indirect online contribution can be stated where the sale is influenced by the online presence but purchase occurs using conventional channels.

Question 45

• Conversion modelling for sell-side e-commerce

Answer 45

Experienced e-commerce managers build conversion or waterfall models of the efficiency of their digital marketing, to assist with forecasting future sales. This approach can help determine the success of a company in potentially achieving a share of a particular market. Conversion optimisation can then be created to convert as many potential site visitors as possible into actual visitors, and then convert these into leads, customers and repeat customers.
So, to assess the potential impact of digital channels it’s useful to put in place tracking or research that assesses the cross-channel conversions at different stages in the buying process.
The digital channel service contribution gives an indication of the proportion of service-type processes completed using online channels.
ROPO: Research Online Purchase Offline.
An equivalent buy-side measure to the online revenue contribution is the proportion of procurement achieved online. This can be broken down into the proportions of electronic transactions for ordering, invoicing, delivery and payment. Deise et al. (2000): the 3 business objectives for procuring materials and services should be improving supplier performance, reducing cycle time and cost for indirect procurement, and reducing total acquisition costs.
Case Study 5.2: Setting the Internet revenue contribution at Sandvik Steel

Question 46

• The balanced scorecard approach to objective setting

Answer 46

Integrated metrics such as the balanced scorecard have become widely used as a means of translating organisational strategies into objectives and then providing metrics to monitor the execution of the strategy.
Harvard Business Review article by Kaplan and Norton (1993): response to over-reliance on financial metrics and a tendency for these measures to be retrospective rather than looking at future potential. Main areas of the balanced scorecard:
1. Customer concerns. Time, quality, performance, service and cost.
2. Internal measures. They should be based on the business processes that have the greatest impact on customer satisfaction: cycle time, quality, employee skills, productivity. Companies should also identify critical core competencies and try to guarantee market leadership.
3. Financial measures. Traditional measures
4. Learning and growth. Innovation and staff development.
For each of these areas, management teams will define objectives, specific measures, targets and initiatives to achieve these targets. Olve et al. (1999): the scorecard doesn’t solely focus on outcomes, but also considers performance drivers that should positively affect the outcomes.
It provides a useful tool for aligning business and IS strategy.

Question 47

Main areas of the balanced scorecard

Answer 47

1. Customer concerns. Time, quality, performance, service and cost.
2. Internal measures. They should be based on the business processes that have the greatest impact on customer satisfaction: cycle time, quality, employee skills, productivity. Companies should also identify critical core competencies and try to guarantee market leadership.
3. Financial measures. Traditional measures
4. Learning and growth. Innovation and staff development

Question 48

Strategy definition

Answer 48

Strategy definition is driven by the objectives and vision referred to in the previous sections. As strategy is formulated based on vision and objectives, so it’s necessary to frequently revisit and revise them.

Question 49

Selection of digital business strategy options

Answer 49

There’s a range of possible strategies and digital business service alternatives to be evaluated. Limited resources will dictate that only some applications are practical. Typical options for an organisation that has a brochureware site might be to implement:
* transactional e-commerce facility;
* online catalogue facility;
* eCRM system – lead generation system;
* eCRM system – customer service management;
* eCRM system – personalisation of content for users;
* e-procurement system for office supplies;
* partner relationship management extranet for distributors and agents;
* social network or customer forum.
Portfolio analysis to select the most suitable digital business projects. Daniel et al. (2001): potential e-commerce opportunities should be assessed for the value of the opportunity to the company against its ability to deliver. McDonald and Wilson (2002): evaluations based on a matrix of attractiveness to customer against attractiveness to company.
Tjan (2001): matrix approach of viability (ROI) against fit for digital applications. Metrics for ‘fit’:
* alignment with core capabilities;
* alignment with other company initiatives;
* fit with organisational structure;
* fit with company’s culture and value;
* ease of technical implementation.
Metrics for ‘viability’:
* market-value potential (roi);
* time to positive cash flow;
* personnel requirement;
* funding requirement.
Chaffey’s’ ‘Econsultancy’ (2008) report: recommended a form of portfolio analysis as the basis for benchmarking current e-commerce capabilities and identifying strategic priorities. 5 criteria used for organisational value and fit:
* Business value generated (0-50). This should be based on incremental financial benefits of the project. These can be based on conversion models showing estimated changes in number of visitors attracted, conversion rates and results produced. Consideration of lifetime value should occur here.
* Customer value generated (0-20). This is a softer measure, which assesses the impact of the delivered project on customer sentiment.
* Alignment with business strategy (0-10). Projects that directly support current business goals should be given additional weighting.
* Alignment with digital strategy (0-10). Likewise for digital strategy.
* Alignment with brand values (0-10). And for brand values.
The cost elements for potential digital business projects are based on requirements for internal people resource (cost/time), agency resource (cost/time), set-up costs and technical feasibility, ongoing costs and business and implementation risks.

Question 50

Metrics for ‘fit’:

Answer 50

• alignment with core capabilities;
• alignment with other company initiatives;
• fit with organisational structure;
• fit with company’s culture and value;
• ease of technical implementation.

Question 51

Metrics for ‘viability’:

Answer 51

• market-value potential (roi);
• time to positive cash flow;
• personnel requirement;
• funding requirement.

Question 52

5 criteria used for organisational value and fit:

Answer 52

• Business value generated (0-50). This should be based on incremental financial benefits of the project. These can be based on conversion models showing estimated changes in number of visitors attracted, conversion rates and results produced. Consideration of lifetime value should occur here.
• Customer value generated (0-20). This is a softer measure, which assesses the impact of the delivered project on customer sentiment.
• Alignment with business strategy (0-10). Projects that directly support current business goals should be given additional weighting.
• Alignment with digital strategy (0-10). Likewise for digital strategy.
• Alignment with brand values (0-10). And for brand values.

Question 53

8 decisions

Answer 53

Decision 1: Digital business channel priorities (* The diversification of digital platforms)
Decision 2: Market and product development strategies (market penetration, market development, product development, diversification)
Decision 3: Positioning and differentiation strategies
Decision 4: Business, service and revenue models
Decision 5: Marketplace restructuring
Decision 6: Supply chain management capabilities
Decision 7: Internal knowledge management capabilities
Decision 8: Organisational resourcing and capabilities

Question 54

Decision 1: Digital business channel priorities

Answer 54

The digital business strategy must be directed according to the priority of different strategic objectives.
* The diversification of digital platforms
Businesses have to decide on the prioritisation of investments and support for different digital platforms. Decisions have to be taken about which combination of platforms has the highest level of consumer usage and will give the best commercial rewards. Some key prioritisation decisions:
* Investment and support for mobile applications;
* Within mobile platforms, investment in mobile-optimised desktop sites against responsive designs and platforms supported for mobile sites;
* Investment in social media platform support.

Question 55

Decision 2: Market and product development strategies

Answer 55

Deciding on which markets to target through digital channels to generate value is a key strategic consideration. Model on Ansoff (1957): still useful as a means for marketing managers to discuss market and product development using digital technologies. The market and product development matrix can help identify strategies to grow sales volume through varying what’s sold and who it’s sold to. Specific objectives need to be set for sales generated via these strategies, so this decision relates closely to that of objective setting.
1. Market penetration. Involves using digital channels to sell more existing products into existing markets. Main ways in which Internet can be used for market penetration:
* Market share growth.
* Customer loyalty improvement.
* Customer value improvement.
2. Market development. Online channels used to sell into new markets, taking advantage of the low cost of adv internationally without the necessity for a supporting sales infrastructure in the customer’s country.
3. Product development.
4. Diversification. New products are developed that are sold into new markets. The Internet alone can’t facilitate these high-risk business strategies, but can facilitate them at lower costs than previously. Options:
* Diversification into related business.
* Diversification into unrelated business.
* Upstream integration – with suppliers.
* Downstream integration – with intermediaries.
A closely related issue is the review of how a company should change its target marketing strategy. This starts with segmentation, or identification of groups of customers sharing similar characteristics. Targeting then involves selectively communicating with different segments. Examples of customer segments commonly targeted online:
* The most profitable customers.
* Larger companies (b2b).
* Smaller companies (b2b).
* Particular members of the buying unit (b2b).
* Customers who are difficult to reach using other media.
* Customers who are brand-loyal.
* Customer who are not brand-loyal.

Question 56

Decision 3: Positioning and differentiation strategies

Answer 56

Once segments have been identified, organisations need to define how to best position their online services relative to competitors’ according to 4 main variables: product quality, service quality, price and fulfilment time.
Chaston (2000): there are 4 options for strategic focus to position a company in the online marketplace that remain relevant today; these should build on existing strengths, but can use the online facilities to enhance the positioning as follows:
* Product performance excellence.
* Price performance excellence.
* Transactional excellence.
* Relationship excellence.
These positioning options remain relevant since they share much in common with Porter’s competitive strategies of cost leadership, product differentiation and innovation. Porter has been criticised: to remain competitive it’s necessary to combine excellence in all of these areas. The same is true for sell-side e-commerce and the experience of the brand is particularly important. These aren’t mutually exclusive strategic options; they’re prerequisites for success.
The type of criteria on which customers judge performance can be used to benchmark the proposition. The retailers with the best overall score, are perceived as market leaders and are strong in each of the scorecard categories.
Plant (2000): identified 4 different positional digitally enabled strategic directions: technology, service, market and brand leadership. These are not exclusive; he doesn’t see price differentiation as important, rather he sees brand and service as important to success online.
We’ll see how the differential advantage and positioning of an e-commerce service can be clarified and communicated by developing an online value proposition (OVP) based on the seven Ps of the marketing mix.

Question 57

Chaston (2000): there are 4 options for strategic focus to position a company in the online marketplace that remain relevant today; these should build on existing strengths, but can use the online facilities to enhance the positioning as follows

Answer 57

• Product performance excellence.
• Price performance excellence.
• Transactional excellence.
• Relationship excellence.

Question 58

Decision 4: Business, service and revenue models

Answer 58

A further aspect of Internet strategy formulation closely related to product development options is the review of opportunities from new business and revenue models. Constantly reviewing innovation in services to improve the quality of experience offered is also important for digital business.
Evaluating new models and approaches is important, since if companies don’t review opportunities to innovate then competitors and new entrants certainly will. A willingness to test and experiment with new business models is also required.
Less radical changes to revenue models that are less far-reaching may nevertheless be worthwhile, examples:
* Transactional e-commerce sites (es: Tesco) can sell adv space or run con-branded promotions on-site or through their email newsletters or lists to sell access to their audience or third parties.
* Retailers or media owners can sell-on white-labelled services through online presence such as ISP, email services or photo-sharing services.
* Companies can gain commission through selling complementary products.
* Brands manufacturers can sell direct or encourage purchase through integrating a marketplace or where to buy service. These systems require deep integration between manufacturer and retailer systems.
Case Study 5.2: Innovation in the Dell business model

Question 59

Decision 5: Marketplace restructuring

Answer 59

Digital communications offer opportunities for new market structures to be created through disintermediation, reintermediaton and countermediation within a marketplace.

Question 60

Decision 6: Supply chain management capabilities

Answer 60

The main digital business strategy decisions that need to be reviewed are:
* How should we integrate more closely with suppliers?
* Which types of materials and interactions with suppliers should we support through online procurement?
* Can we participate in digital marketplaces to reduce costs?
Case Study 5.3: Zappos innovates in the digital marketplace

Question 61

Decision 7: Internal knowledge management capabilities

Answer 61

Organisations should review their internal digital business capabilities and how knowledge is shared and processes are developed. Questions to ask:
* How can our intranet be extended to support different business processes such as new product development, customer and supply chain management?
* How can we disseminate and promote sharing of knowledge between employees to improve our competitiveness?

Question 62

Decision 8: Organisational resourcing and capabilities

Answer 62

Decisions on how the organisation should change to achieve the priorities set for digital business.
Different aspects of organisational capability that should be reviewed and changed to improve the ability to deliver digital business strategies include:
* Strategy process and performance improvement.
* Structure.
* Senior management buy-in.
* Marketing integration.
* Digital marketing focus.
* Partnering with other organisations.

Question 63

Strategy implementation

Answer 63

Strategy implementation includes all tactics used to achieve strategic objectives

Question 64

Failed digital business strategies

Answer 64

There are few companies that want to have their mistakes detailed in public, but the names of failures are well known.
There are usually more fundamental problems resulting in failure of online companies. Miller (2003): has reviewed these misjudgements from an analysis of many digital failures; he believes that the biggest mistake companies made was to massively overestimate the speed at which the marketplace would adopt dot.com innovations. Furthermore, it was assumed that new innovations would rapidly displace existing product offerings. Other reasons:
* Timing errors.
* Lack of creativity.
* Offering free services.
* Over-ambition.
We can also point to classic mistakes that start-up and existing businesses have always made:
* Situation analysis.
* Objective setting.
* Strategy definition.
* Implementation.

Question 65

Digital business strategy implementation success factors for SMEs

Answer 65

An assessment of success factors for digital business strategy implementation in SMEs has been produced by Jeffcoate et al. (2002); 11 critical success factors:
1. Content.
2. Convenience.
3. Control.
4. Interaction.
5. Community.
6. Price sensitivity.
7. Brand image.
8. Commitment.
9. Partnership.
10. Process improvement.
11. Integration.
Case Study 5.4: Boo hoo – learning from the largest European dot.com failure

Question 66

Aligning and impacting digital business strategies

Answer 66

How information systems strategy supports change. Willcocks and Plant (2000): the leading companies were astute at distinguishing the contributions of info and technology, and considering them separately; competitive advantage comes not from technology, but from how info is collected stored, analysed and applied.
An established aspect of info systems strategy development is the focus of IS strategy on business impact or alignment. In the business-alignment approach, a top-down approach is used to review how info systems can be used to directly support a defined business strategy.
The importance of alignment is stressed in the digital channel strategic initiative business case prioritisation investment matrix. Linking info systems to objectives and critical success factors is one way of using the alignment approach. Another is the use of business systems planning methodology, which focuses on deriving data and applications needs by analysis of existing business processes.
In the business-impacting approach, a bottom-up approach is used to determine whether there are new opportunities from deploying info systems that may impact positively on a business strategy. New hardware and software technologies are monitored by the IS manager and other manager to evaluate whether they can achieve competitive advantage.
The impacting approach may involve redesigning business processes to integrate with partners. Sultan and Rohm (2004): different forms of aligning Internet strategies with business goals, with their framework identifying these strategic objectives:
* Cost reduction and value chain efficiencies.
* Revenue generation.
* Channel partnerships.
* Communications and branding.
Value chain analysis can be used for the impact approach. This technique not only considers internal use of IS, but also how they can be used to integrate with external organisations, perhaps through innovative methods.
The impact and alignment techniques need not be mutually exclusives. During initial development of a digital business strategy, a business-alignment approach can be applied to ensure that IS strategy supports digital business strategy. A business-impacting approach is also useful to see which new opportunities IS produce.
Perhaps the ultimate expression of using IS to impact business performance is through business process re-engineering.
The application of an impacting or aligning strategy with respect to IS and business strategy is dependent on the importance attached to IS within an organisation.

Question 67

The impacting approach may involve redesigning business processes to integrate with partners. Sultan and Rohm (2004): different forms of aligning Internet strategies with business goals, with their framework identifying these strategic objectives:

Answer 67

• Cost reduction and value chain efficiencies.
• Revenue generation.
• Channel partnerships.
• Communications and branding.

Question 68

Elements of information systems (IS) strategy

Answer 68

Ward and Griffiths (1996): IS strategy plan contains 3 elements:
1. Business information strategy. How info will support the business.
2. IS functionality strategy. Which services are provided?
3. IS/IT strategy. Providing a suitable technological, applications and process infrastructure.
The advent of digital business increases the strategic importance of IS resources of an organisation. Developing an IS strategy to achieve digital business goals is complex because it can be viewed from many different perspectives.

Question 69

Investment appraisal.

Answer 69

Investment appraisal can refer to:
1. Overall levels of spending on IS to support digital business.
2. Decisions about which business applications to invest in (portfolio analysis).
3. Assessment of the cost/benefit for individual applications.
* Decisions about which business applications to invest in
A portfolio analysis can also be used to decide priorities for application by selecting those that fall within the strategic and turnaround categories for further investment. Relative priorities and the amount of investment in different applications can also be assisted if priorities for digital business objectives have been assigned.
Investments in IS have been categorised according to their importance and contribution to the organisation. Robson (1997): 4 types of business IS investment:
1. Operational value investment.
2. Strategic value investment.
3. Threshold investment.
4. Infrastructure investment.
Companies can prioritise potential IS investments in the above categories according to their impact on business. A similar approach is to specify the applications portfolio described in the section on situation analysis. Priority should be given to applications that fall into the strategic and high-potential categories.
* The productivity paradox
Productivity paradox. Brynjolfsson (1993) and Strassman (1997): little or no correlation between a company’s investment in IS and its business performance measured in terms of profitability or stock return. Strassman: random relationship between IT spending per employee and roi.
Carr (2003): IT has become commoditised to such an extent that it no longer delivers a competitive advantage. Although IT investments may help in increasing productivity, this doesn’t necessarily yield a competitive advantage if all competitors are active in making similar IT investments.
Brynjolfsson and Hitt (1998) and Mcafee and Bryjnolfsson (2008): refute the productivity paradox and conclude that it results from mismeasurement, the lag occurring between initial investment and payback and the mismanagement of IS projects. To use digital technology to support competition, the mantra should be: Deploy, innovate and propagate.
“The value of IS staff and staff training was also quite apparent and exceeded that of computer capital. This confirms the positions of several authors, that the effective use of IT is far more important than merely spending on IT”.
The 10:1 ratio between total investment in new information management practices and IT shows that applying technology is only a small part of achieving returns.
Research into the productivity paradox highlights the importance of considering the info, people and technology resources together when planning for digital business strategy and implementation. It also suggests that digital business contributes to productivity gains only when combined with investments in process redesign, organisational change management and innovation.

Question 70

Investment appraisal can refer to

Answer 70

1. Overall levels of spending on IS to support digital business.
2. Decisions about which business applications to invest in (portfolio analysis).
3. Assessment of the cost/benefit for individual applications.

Question 71

• Decisions about which business applications to invest in

Answer 71

A portfolio analysis can also be used to decide priorities for application by selecting those that fall within the strategic and turnaround categories for further investment. Relative priorities and the amount of investment in different applications can also be assisted if priorities for digital business objectives have been assigned.
Investments in IS have been categorised according to their importance and contribution to the organisation. Robson (1997): 4 types of business IS investment:
1. Operational value investment.
2. Strategic value investment.
3. Threshold investment.
4. Infrastructure investment.
Companies can prioritise potential IS investments in the above categories according to their impact on business. A similar approach is to specify the applications portfolio described in the section on situation analysis. Priority should be given to applications that fall into the strategic and high-potential categories.

Question 72

Robson (1997): 4 types of business IS investment:

Answer 72

1. Operational value investment.
2. Strategic value investment.
3. Threshold investment.
4. Infrastructure investment.

Question 73

• The productivity paradox

Answer 73

Brynjolfsson (1993) and Strassman (1997): little or no correlation between a company’s investment in IS and its business performance measured in terms of profitability or stock return. Strassman: random relationship between IT spending per employee and roi.
Carr (2003): IT has become commoditised to such an extent that it no longer delivers a competitive advantage. Although IT investments may help in increasing productivity, this doesn’t necessarily yield a competitive advantage if all competitors are active in making similar IT investments.
Brynjolfsson and Hitt (1998) and Mcafee and Bryjnolfsson (2008): refute the productivity paradox and conclude that it results from mismeasurement, the lag occurring between initial investment and payback and the mismanagement of IS projects. To use digital technology to support competition, the mantra should be: Deploy, innovate and propagate.
“The value of IS staff and staff training was also quite apparent and exceeded that of computer capital. This confirms the positions of several authors, that the effective use of IT is far more important than merely spending on IT”.
The 10:1 ratio between total investment in new information management practices and IT shows that applying technology is only a small part of achieving returns.
Research into the productivity paradox highlights the importance of considering the info, people and technology resources together when planning for digital business strategy and implementation. It also suggests that digital business contributes to productivity gains only when combined with investments in process redesign, organisational change management and innovation.