The purpose of this report was to design a start-up strategy and IS infrastructure for Ruth & Luke (R&L) Crowdsource’s business. Research for this report identifies the focus (target market), opportunities and threats in entering the market and provides a detailed business model.
This report incorporated recent statistical data in relation to online social media, various journal articles and books obtained online.
Research for the target market indicates that the seekers comprise of mainly businesses of a variety of sizes that are familiar with the practice of crowd-sourcing. In regards to the solvers, findings suggest that university students and academics will be the dominant target market for R&L Crowdsource’s business.
Using the five-forces model to identify new market entrants, substitute products and services, customers, suppliers, and competitive rivalry, overall there is a medium-high level of threat in entering the market.
Further research recommends that R&L Crowdsource should focus more on achieving an easily accessible system with availability to an extensive range of audiences while raising reputation and credibility by advertising through online social media, the ‘Google’ search engine and newspapers. The efficiency and effectiveness of R&L Crowdsource’s business operations will be dependent on the amount of investment into the appropriate information systems, which may be financed through revenue obtained by charging a fee to seekers.
Target markets (seekers/solvers)
R&L Crowdsource will be commencing the online business initiative for clients who are seeking for their business problems to be solved through outsourcing the business solution. To identify potential target markets R&L Crowdsource needs to consider following characteristics:
Type of clients : R&L Crowdsource needs to determine the type of business that their client conducts i.e. retail companies or IT companies. Online and offline research needs to be undertaken to see which sectors of these markets need R&L Crowdsource’s business solution services. This is because a variety of companies encounter different levels of difficulty within the businesses operations. As this is a relatively new type of service, it has not widely adopted it yet. Therefore, R&L Crowdsource should focus more on those who have used this service previously or are in the same industry where their competitors have used due to the fact that they are more likely to be interested (Alzawahreh & Khasawneh, 2011). This can be done through online research and surveys.
Size of clients : Online research conducted primarily from Innocentive.com (www.Innocentive.com) suggests that the size of clients should not be prioritised. The research revealed that regardless of whether they are operating internationally or domestically, a variety of different sized companies are likely to favour outsourcing their business problems. Examples of these companies include P&G (Spradlin, 2012).
In order to target the market for seekers effectively, the directors of R&L Crowdsource should reflect on their experiences as past seekers. Primarily, different participants will conduct each project and depending on the characteristics of the projects, it may require more time and work. People who already have a full-time job are not likely to desire spending their spare time on additional works unless it has either a high level of reimbursement or it is an area of interest. Therefore, R&L Crowdsource should initially seek university students and academics that are qualified in certain fields so that the outcome will be more reliable.
Implementation of 5 forces model
New Market Entrants
This type of business initiative is fully based on the supplier and they are free to participate and exit for the given challenges. The company will have a middleman role, which connects the suppliers to its clients. There are few economies of scale in place because there is no significant capital investment required and specialised technology is not required. The company will likely encounter other competitors coming into the market when it commences sooner or later. However, its strong brand development achieved by successful and stable customer relationship established will lead to a low threat of new entrants in the market.
Substitute products and services
Those who request these services would be less concerned about the process, caring only about the outcome. The assumption based on this initiative is that “the wisdom of crowds” will come up with optimised ideas for the challenges. Furthermore, clients who are considered as conservative will have a tendency to solve the business problems with internationally well-recognised business consulting companies as they can work collaboratively. They provide more systematic ways of solving problems and can work interactively with the companies as their group of employees will work for the company with well-trained and qualified human labours while it costs more. This may result a high level of client satisfaction rate. Furthermore, there is the likelihood that large sized companies would substitute this type of service by using their internal resources. This means that there is a medium to high level of threats of substitute services.
At the present, the bargaining power lies with the customers until R&L Crowdsource has built up a reputable audience consisting of both seekers and solvers. The main feature of this business initiative is that clients do not know who will be participating in the task and this will seem unattractive to more conservative companies due to the fact that they would be prefer to spend their resources on reputable companies and individuals instead of taking a risk through Crowdsourcing.
Suppliers will be those who are willing to attempt given challenges with other people collaboratively to discover the ideal solution. Since the business has a fundamental idea that collaborative work with other people who have different background will come up with better ideas, supplier bargaining power will be considered as relatively lower in this business type. This is because development of Internet accessibility has allowed a large number of users to facilitate a variety of internet resources regardless of their geographical location. Therefore, we assume that there will be a large number of potential participants who would like to take challenges with certain level of reimbursement.
This type of an online business is not widely recognised so far and only few existing competitors have provided the services. However, this does not benefit the R&L Crowdsource’s business because it also has a disadvantage, which is the lower level of switching costs for clients. A differentiated feature of this business from its potential competitors in the market is that the business problem will be worked on by a group of people who have different background knowledge rather than one individual. Therefore, even though this business market is considered as a blue-chip business, there is medium to high level of industry rivalry between competitors.
R&L should utilise a click only strategy to assist their online business. The strengths of an online business lie with the low start-up capital and overhead costs, consisting of mainly purchasing a domain, designing the website and promoting the business. In this case, however, we will be promoting the business mainly through online social media which no cost. In order to gain exposure or popularity, something essential for every business, after designing the website, marketing should be invested in to find potential customers.
Re-iterating the target markets from above, solvers would primarily consist of people who may not have full-time jobs and for people who may be full-time studying. However, knowing the target market will not increase website traffic, advertisements and other methods should be used in establishing R&L’s company’s reputation. R&L should advertise firstly with ‘Google’s AdWords’. As ‘Google’ dominates the search engine market, with 83% of search users using ‘Google’ and just under 1 trillion uses per year it emphasises its popularity. This online advertising program would allow for R&L’s advertisements to appear on ‘Google’ and its partner websites and will only charge R&L when someone clicks their ad.
Using online social media is another method they should undertake in order to attract more seekers and solvers. Creating a page on ‘Facebook’ will allow R&L to announce co-creation projects and communicate with the public. If, for example, a large business ‘likes’ this page, it will be opened to a greater number of people, increasing credibility and reputation. Other sites such as twitter may also be used for announcements and increasing popularity.
Advertising on newspapers or magazines should also be considered. Placing advertisements on the business section of newspapers may appeal more to
seekers whereas advertising on other sections may appeal more to solvers. However, this may be less effective in finding solvers if we consider our target market for solvers to be full-time students in comparison to advertising on ‘Google’ and online social media websites.
Once a Crowdsourcing project is established and seekers are found, if the project is successful, R&L should attempt to increase popularity and credibility through their client’s business in an attempt to continue the network effect mentioned earlier.
Mainstream and emerging Web 2.0 technologies and applications have greatly enabled users to share with and communicate to the broader world through online media. By advertising R&L’s business through social media, there is a higher potential to develop and expand this business. This business strategy relies partly on the network effect, as it will be dependent on the amount of users. As more users participate, the network will grow exponentially. Statistics also reveal that 60% of social media users are willing to post about products/services on ‘Facebook’ if it is of interest and that 91% of experienced social marketers see improved website traffic due to social media campaigns .
As seen from these statistics, it is evident that the use of online social media such as ‘Facebook’ and ‘Twitter’ will be of benefit in increasing website traffic and exposure to the broader population.
Also, in order to establish this liaison system, many applications or programs of web 2.0 should be employed to enable the operations of the business. As they are just starting the business, the use of free web-based tools such as ‘Google Docs’ and ‘eGroupWare’ will enhance the ability for the solvers to collaborate as any work submitted or edited will be updated automatically for everyone to read. As with any content management systems, roles must be set in order to maintain an efficient workplace. Having editors who can only edit material and administrators to watch over the work and behaviour of the editors will dissuade solvers from abusing their editing privileges. Using web based email clients such as ‘Gmail’ or ‘Hotmail’ will allow for seekers and solvers to communicate with R&L in regards to any problems outside of the work. As these web-based clients have options to organise emails into separate areas or folders, the emails won’t be as cluttered and be easier to deal with.
An organisation’s business model is essentially the blueprint of their business logic and ideologies (Ludeke-Freund, 2013). As such, it is critical that an effective business model is both established and adhered to. Osterwalder’s business model canvas is explained in nine different pillars.
Source: Alexander Osterwalder
RL Crowdsource needs to provide a universal crowd sourcing service, which connects solvers and seekers alike. The competitive advantage that RL Crowdsource should be striving for is an easily accessible system, which provides access to an extensive range of audiences. Whilst crowd sourcing is freely available on the Internet, R&L should implement a system that easily connects a seeker directly to the best available solvers. In an increasingly global generation, RL Crowdsource should also have the ability to bypass language issues, which would normally stop a seeker from outsourcing work.
The presence of RL Crowdsource as an intermediary will also enable easier transactions. Payment and reward incentives would be transacted through RL Crowdsource, decreasing the possibility of fraud and enabling peace of mind for many users. Other solvers may be motivated by the social benefits derived from creations that benefits society greatly. Some others may not be motivated by recognition or monetary incentives but instead, choose to “free reveal” ideas (Krogh, 2006). R&L Crowdsource should endeavour to harness these different sources of motivation by being the delivery system for any rewards and incentives.
The communication and collaboration between solvers and seekers in the project should produce greater satisfaction and results. It should be noted that the satisfaction and results were facilitated through RL Crowdsource’s C2C business system, and thus forms part of the value proposition to R&L Crowdsource’s clients. Pathak (2009) articulates this through emphasising the efficient nature of platforms, which allow consumers to cooperate and collaborate with each other in real time. RL Crowdsource will conduct advertising and recruiting activities on behalf of the client. This is particularly important because a large part of RL Crowdsource’s target audience will have little or no expertise and experience in this area.
To successfully enable the value propositions stated above, R&L Crowdsource must establish a system to connect consumers. A key element of that aspect would be a search RSS feed that connects a solver’s characteristics and qualifications with that of a seeker’s. The feed should have different categories alongside a onsite search engine. De La Torre-Diez (2013) educates that an RSS Feed is an extremely effective method for sharing frequently updated information on the Internet. It is also a low-cost method of creating universal access to the offerings of the firm through the Internet (Ning et al., 2008).
A customer relationship management system and a multilingual search engine within the company’s website would also be useful for developing customer relationships and achieving the value propositions. The implementation of these systems would be dependant on the availability of capital. As the firm invests in these information systems, the key is for quicker and more accurate connections between seekers and solvers. This will thus create more value for everyone as more users use the site.
Capital is clearly the most important resource. It will enable R&L Crowdsource to obtain technological requirements such as computers, networks, databases and customised ERP systems. A physical location to store these items will need to be available as well. As the value propositions are primarily based online, R&L Crowdsource should mitigate a lot of resource expenses attributed to traditional brick and mortar businesses (Pure-Play e-Business Development, 2000).
The key partners of a firm are those who support and aid the firm’s success on a professional level (Clark, Osterwalder & Pigneur, 2012). As such, R&L Crowdsource should consider its I.T department or outsourced I.T consultants to be a key partner. This is because the firm’s value propositions rely entirely on the ability of its information systems. The design and accessibility of the system will also determine the success of the system. Other key partners could include large business customers whose reputation can give credibility to R&L Crowdsource’s legitimacy. Likewise, R&L should consider all users as a key partner simply because it relies on its users to create the value proposition for other users.
Managing customer relationships is critical for every business that aspires to attain a competitive advantage. The nature of a customer relationship is defined by how responsive, attentive, personalised and customised it is (Bankston 2013). A key aim to maintaining customer relationship is therefore to increase efficiency and effectiveness for every seeker or solver. Due to the low switching costs attributed to many businesses based primarily online (Pure-Play e-Business Development, 2000), customer loyalty is often defined through the value and customer service attained by the customer. Therefore, R&L Crowdsource must continue investing in the key resources defined above to maintain customer loyalty. Other methods to enhance customer loyalty can be through discounts and lower pricing.
Communication between the firm and its customers is a vital element. For a firm whose value proposition is primarily based online, it is rational to have communication channels based primarily online as well. Milburn (2004) states that the challenges faced by companies, involves encouraging a behavioural change to electronic communication. This makes sense for the company because electronic communication is often the method of communication with the lowest cost as well (Milburn, 2004). Methods such as email and enquiry forms on the website should be used. The advantage of electronic communications lies in the fact that it is accessible at any time of the day. However for electronic communication to be successful, it must be quick, responsive and easy to navigate (Bernier, 2013).
R&L Crowdsource should be creating value for both seekers and solvers. It is paramount that both segments of the market see value in order for R&L Crowdsource to deliver its value propositions. The most important customers are the customers who generate the most revenue for the firm. These typically include organisations that use R&L Crowdsource extensively .
The most important costs in this business model involve the business systems that deliver the value proposition to our clients. This includes the database (which needs to be constantly updated), alongside server bandwidth and RSS Feed design. These resources are likely to be the most expensive as it also incurs a constant maintenance cost. Legal support will also be required to make sure R&L Crowdsource abides by national and international legislation in its activities.
The revenue streams for R&L Crowdsource should be primarily from the
seekers. An example of this can be seen by eBay.com, where the seller pays a percentage of the final sale price to eBay, alongside administration fees. This is a model that R&L Crowdsource should adopt. Bonakdar et al. (2012) educates that misguided revenue gaining ideals will hurt all business models. Therefore, R&L Crowdsource should refrain from charging fees on solvers. This will allow the number of solvers to increase because the service is free to them. Revenue will thus rise naturally as the number of seekers increases.
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Overview of the Report
The main purpose of the assignment is to illustrate how our client should commence their own business initiative into a viable business venture with our recommendation as a team of Information System consultants. Basically,
we had to design a ideal and optimized business model for our client with reasonable explanation and how Information System will accelerate their business initiative.
During our preparation for the group project for INFS1602, we started from reviewing the lecture notes and prescribed text book individually for the brainstorming stage. This was suggested by Justin as we did not fully understand all concepts and theories that the lecturer explained during the week 1 to 5 lectures. This idea was an absolutely good starter for our group work and we were able to find the right direction and it gave us a clear way of completing the work
After the brainstorming stage, we had to discuss more details regarding of the assignment as none of us had the identical idea such as which target market we should decide as well as how we can recommend which business model Ruth and Luke should adopt. Throughout the brainstorming process, we came up with a variety of different ideas for potential target markets and Porter’s competitive forces model described in the text book was used in order to justify why we chose the target markets for the client’s business. This textbook resources were quiet useful, however, we needed to do further researches since it illustrated mainly generalized ideas and we wanted to see how actual Porter’s competitive forces model is adopted in practice.
Therefore, we found some samples of the Porter’s model and this gave us very clear ideas about the first part of the assignment. When we were doing the second part of the assignment which is describing how our client should use information systems and technology to create value and how mainstream and emerging Web 2.0 technologies and applications could be used to enable the strategy and operation of the business, we referred to our textbook mainly from chapter 3 to chapter 4. Some case studies from the text book were significantly helpful to understand how actual information system is working for existing companies. Particularly, in terms of answering how the business initiative can generate revenue, the case study in chapter4 was a time-saver as we discussed these issues during workshop and various different opinions and perspectives from classmates stimulated when we were doing the brainstorming.
In conclusion, while we were doing the group assignment, we encountered some conflicts as they had different point of view for the same issues and we effectively solved those issues cooperatively. Workshops, textbook and the lecture notes were the main resources that we used and a bit of supportive online researches were conducted in order to verify our recommendation for the client. Also we all agreed that information system is a combination of all different business knowledge and can maximise a business strategy if we can apply properly.