Evaluating E-Commerce Strategy Development within Organisations Essay
Evaluating E-Commerce Strategy Development within Organisations
The news about the “New Economy” has triggered many entrepreneurial ventures to exploit on the electronic commerce (e-commerce) opportunities. Ventures such as Amazon and eBay have received significant media attention and investor optimism about the potential of e-commerce. Now that the smoke has settled, both management and academic research have become interested on the impact of e-commerce on those companies that have supplemented their brick-and-mortar outlets with e-commerce initiatives.
Several researches have emerged on effect of e-commerce on organisational strategy. Tapscott et al (1998) discusses the organisational changes created by B2B e-commerce and the benefits of deploying e-commerce within the organisation. O’Connell (2000) discusses the effect of e-commerce in the organisational structure in light of the resource-based view and transaction cost theory. E-commerce has been seen as improving efficiency, communication and lowering costs across business processes (O’Connell, 2000; Krovi et al., 2003; Garicano and Kaplan, 2001).
In addition, researches have also shown the influence of e-commerce on brand management. Wind & Mahajan (2001). discuss how the competitive environment is changing with the increasing number of Internet users and how the new technology is redefining the marketplace. The research presented a conceptual framework delineating the drivers and outcomes of marketing strategy in the context of competing in both physical and electronic marketplace. Part of the emergence of electronic marketplace is the ability of organisations to offer highly customized products to consumers, and the capability to build and to manage customer relationships (Brown, 2000).
The aim of the research is to investigate the way in which an organisation develops its electronic commerce strategy over time in light of existing strategic approaches and development found within related literature. The research particularly looks into Marks & Spencer e-commerce strategy as the case study for the research. The research looks into how Marks & Spencer has developed and implemented its e-commerce strategy.
Drawing from strategic management theories, the research specifically focuses on the how an e-commerce strategy is grounded on reducing transaction cost within the organisation and across the value chain. Furthermore, the research also looks into the importance of relationship marketing and how e-commerce is providing organisations with the necessary technology to achieve seamless exchange of information and reduced costs. Strategically, the adoption of e-commerce within an organisation hinges on these two important strategic management theories.
In addition, the research is confined within the business-to-consumer (B2C) market, since business-to-business (B2B) relations are frequently characterized by a small number of customers and a strong emphasis on personal contacts between customers and salespeople as their means of marketing communication. Therefore, the research focuses on how consumers view their shopping experience within an e-commerce site, particularly Marks & Spencer.
The Overview of the Study
The remainder of this study is as following statement:
Chapter 2, Literature Review, will provide a concise concept and explanation of electronic commerce within retail organisation. The review of related literature discusses the concept and application areas of e-commerce within organisation. The review will also tackle the important strategic management concepts such as transaction cost theory and relationship marketing and how e-commerce is enabling organisations achieve increased efficiency, improved communication, and lower costs across its value chain.
Chapter 3, Methodology, will describe the research design of this study. The research design of this study is empirical research method using secondary data for quantitative analysis.
Chapter 4, Results, will demonstrate the results of this study. At first, the descriptive statistical data such as maximum, minimum and mean, on the consumer’s perspective on the different service attributes of e-commerce site for Marks and Spencer.
Chapter 5, Summary, Conclusion and Recommendations, the “Summary” section will first provide a comprehensive summary of the major findings of this study. The “Conclusion” section will highlight the implications of the research findings. Finally, “Recommendations” will be proposed to help companies to utilize the importance of electronic commerce in their strategic assessment. In next chapter, related researches in electronic commerce will be reviewed
CHAPTER 2: LITERATURE REVIEW
According to the International Engineering Forum, e-commerce is “an emerging model of new selling and merchandising tools in which buyers are able to participate in all phases of a purchase decision, while stepping through those processes electronically rather than in a physical store or by phone (with a physical catalog). (online International Engineering Forum)” E-commerce enables a customer to access product information, select items to purchase, purchase items securely and have the purchase settled financially.
While the notion of e-commerce as the ability of organisations or a person to sell over the Internet is very popular, the research paper will adopt the definition of Organisation for Economic Co-Operation and Development (OECD). E-commerce can be defined as “the total of all applications that pertain to online communications and transaction (OECD, 2000).” The definition better suit our purpose of discussing e-commerce in the context of strategic management. The research views e-commerce holistically, which encompasses the communication between organisations and customer over the Internet, the completion of one-time or on-going online transactions, and e-CRM systems.
The emergence of e-commerce in the retail sector is one of the most widely adopted and anticipated development in the industry. Following the success of Amazon, many brick-and-mortar retailers jumped into the dot com bandwagon and established their online presence in the World Wide Web. Many have adopted e-commerce capabilities out of a fear of falling behind competitors or as a result of the general momentum to expand the use of an existing Internet presence. Nonetheless, the main value proposition for organisations adopting an online presence is the prospect of increasing revenue from new markets and using a lower-cost, electronic-distribution channel (online International Engineering Forum).
With a strong demand from organisations in creating an online presence, internet service providers (ISPs) have begun to offer electronic-commerce hosting services. ISPs often position as a outsourced service provider of the customers’ electronic-commerce capabilities, managing the networking and server aspects of the initiatives. Such services are important consideration for the roll-out e-commerce sites as it allows organisations to leverage on the expertise of ISPs and allows organisations to concentrate on their core businesses (online International Engineering Forum).
From the customer’s perspective, the main benefit of an e-commerce system is the convenience it brings to consumers, who are constrained by busy schedule and numerous activities. The e-commerce system enables a customer to locate and purchase a desired good or service over the Internet when the customer is ready to make the purchase. Its function is synonymous to a virtual store (online International Engineering Forum).
From the merchant’s perspective, the e-commerce system enables the organisation to take advantage of the strengths of online store and increase revenues. One of the key benefits of implementing an online store is the capability to cover greater market reach and a complementary distribution channel to its existing brick-and-mortar stores. However, in order to effectively implement an e-commerce strategy, the e-commerce system must recreate or utilize existing data and business processes.
The merchant must recreate the same shopping experience in its online store providing in-store assistance, secure payment process, catalogs and prices about the products and services, inventory management, and transaction capabilities (including credit authorization, tax computation, financial settlement, and shipping) (online International Engineering Forum).
Furthermore, e-commerce not only allows merchants to take advantage of market reach, but it also enables merchants to redefine and enhance an enterprise’s brand strength, customer-service capability, and supply-chain efficiency. An e-commerce site is one of the areas of an enterprise infrastructure that is open to customers via the Web, but it is linked with other information system of the enterprise value chain (online International Engineering Forum).
In implementing an e-commerce site, provision of the basic system requires an Internet connection, a Web-application server and e-commerce application software, and a personal computer for the shopper. Figure 1 illustrates the basic economic drivers and application requirements of an e-commerce marketplace. On the buyers side, consumers are driven to the online retail store through advertisements, interesting features, needed information, and directory. On the sellers side, merchants are driven to the online space because of its ease of entry, increasing website traffic, ability to sell and integrate marketing messages (online International Engineering Forum).
Figure 1. Business Drivers in e-commerce strategy
E-Commerce Strategies and Business Drivers
A number of initiatives implemented within an organisation are driven by a market need. All industries are characterized by trends and new developments that gradually or speedily produce changes important enough to require a strategic response from participating firms. The popular hypothesis about industries going through a life cycle helps explain industry changes but is still incomplete (Porter, 1980 p. 157-162). The life-cycle stages are strongly keyed to changes in the overall industry growth rate (which is why such terms as rapid growth, early maturity, saturation, and decline are used to describe the stages). Yet there are more causes of industry change than an industry’s position in the life cycle (Porter, 1980 p. 157-162).
While it is important to judge what growth stage an industry is in, there’s more analytical value in identifying the specific factors causing fundamental industry and competitive adjustments. Industry and competitive conditions change because forces are in motion that create incentives and pressures for change (Porter, 1980 p. 162). The most dominant forces are called driving forces because they have the biggest influence on what kinds of changes will take place in the industry’s structure and competitive environment.
The Internet and e-commerce opportunities are unquestionably spawning a sweeping business revolution that altered industry boundaries, opens up all kinds of new business-to-business (B2B) and business-to-consumer (B2C) market opportunities and threats, sparks competition from new and entirely different breed of enterprises and mandates fundamental changes in business practices (Thompson and Strickland 2001).
In his book The Business of E-Commerce: From Corporate Strategy to Technology, Paul May discusses four business drivers for adopting an e-commerce strategy. First, organisations have the compulsion to catch up with competitors or to gain competitive advantage by being early adopters of the new technology. Organisation’s constant pursuit to gain competitive edge in the marketplace is a primary concern and part of a survival component in the business strategy. Second, organisations need to develop a credible e-commerce channel from its current online portfolio.
Third, organisations are constantly looking for ways to reduce cost and increase efficiency within its value chain. E-commerce can be a creative force in delivering reduced transaction cost, increased communication and coordination, and improve business processes. Fourth, e-commerce enables organisations to improve its value chain by creating strategic supplier partnership and delivering customized customer solutions. It allows organisations improve business’ infrastructural capabilities to play as an extended enterprise and not merely a single business entity delivering greater value to its customers (May, 2000).
Each of these drivers can be harnessed as a propulsive force for the business, rather than a deflective or immobilizing one (May, 2000).
Application areas of E-commerce
Six key emerging application areas in electronic commerce can be identified. It can be organized into two important domains: business-to-consumer (B2C) and business-to-business (B2B). The application areas include categories in consumer retailing to real-time business-to-business collaboration (May, 2000).
Retailers were the first adopters of the business-to-consumer e-commerce. Retailers found selling products and services online as a promising channel of distribution for its products and reaching new markets. Nonetheless, B2C e-commerce is now more diversified and classified into three application areas which include retail, auction, and advice (May, 2000).
The three application areas of B2C e-commerce are retail, auctions, and advice. Although each has its own distinguishing characteristics, and dynamics, a consistent theme underlies the development of all three. This is the increasing “busy-ness” of consumer lifestyles: the extension from work life into private life of a culture of ever-decreasing time-frames and ever-increasing obligations. Lack of time and complexity of choice drive the growth of products and services in each of these areas (May, 2000).
Business-to-consumer is a term that stresses the direction of delivery: B2C e-commerce is supposedly something done by business to consumers. Yet this domain is founded on intense customer focus. Insight into the conflicting desires and pressures affecting consumers is a powerful ally in building successful strategies in this highly competitive area (May, 2000).
Business-to-business, on the other hand, is the umbrella term used to refer to transactions between businesses conducted online, and the business networks and supply chains that make these transactions possible. While B2B activity has always, taken place, the Internet brings with it a new framework, B2B companies no longer need to depend on the traditional one-to-one model for business transactions (Michel, 2003).
Procurement, inventory exchange, and real-time collaboration are relatively obscure categories of application, which have the potential to flip many businesses inside-out. Procurement introduces process improvements in the buying functions of organisations and also points the way to a more competitive environment in inter-company trading. Inventory exchange introduces the mechanism of the market to smooth out supply and demand inefficiencies across entire value chain, potentially lowers transaction and carrying costs, and focuses on improving exchange of supplier information. Real-time collaboration allows organisations to cooperate as fluid colonies of actors, undermining the stability of companies who prefer hands-off relationships or who prefer their reality-checks to be presented monthly (May, 2000).
e-Commerce application in Retail Industry
Retailers are now increasingly adopting electronic commerce as another distribution means of selling products and services. Online channels have also proved increasingly popular amongst retail companies within other formats such as hypermarkets or catalog retailers, who have attempted to expand into the sector to escape from stale growth within their respective markets (Datamonitor 2006).
Datamonitor estimates the global Internet retail sector valued at $656.4 billion in 2005, representing a compound annual growth rate (CAGR) of 30.3% over the 2001-2005 period. The estimate is based on the total revenues generated through the sale of retail goods via online channels, valued at retail selling price, with any currency conversions calculated using constant 2005 annual average exchange rates (Datamonitor 2006).
With the number of Internet users increasing exponentially year-on-year, the industry has experienced strong global growth within the global Internet retail sector. Much of the demand for online purchases is due to the escalating number of working mothers and time-starved consumers who are conveniently seeking ways of shopping without the hassle of driving to a retail store and falling in-line (Datamonitor 2006).
At present, drugs and health & beauty aids are the sector’s most lucrative segment in 2005, accounting for a total of $154 billion in total revenues or 23.5% of the retail sector’s total value. Computer, hardware, software, and supplies contributed significant revenues in 2005, generating $114.9 billion in revenues or 17.5% of the sector’s total value (Datamonitor, 2006).
While analyst do not see a similar spectacular growth in the global Internet retail industry, experts still is optimistic the pace of revenue expansion for the next four years. Industry experts project to the expansion of industry to remain strong valuing the industry at $1.169 trillion by 2010. This translates to 12.2% CAGR over the 2005-2010 period (Datamonitor, 2006).
In terms of revenues generated per region, Datamonitor reports that Europe has the largest market share in the global Internet retail sector with 44.4% of total value, followed by the United States and the Asia Pacific with 22.5% and 21.7% respectively (Datamonitor, 2006).