LEARNING FOR "WHAT IS IMPLEMENTING A DIGITAL ENTERPRISE? "

In this piece of learning, we'll investigate some of the specific strategic issues that electronic strategies cause organisations to consider. We'll do this by:

  • Looking at which specific theories have an impact in the Internet Age
  • Investigating how the different theorists have developed strategic ideas
  • Exploring some of the tools that can be used in the strategic analysis of electronic opportunities
  • Looking at how organisations create and implement electronic strategies
  • Thinking about how organisations manage change when they implement electronic strategies

This learning only gives an overview of strategic thinking. If you want to find out more about corporate strategy, you need to consider studying on a module that covers the subject in more detail.

Specific Theories in the Internet Age

There are several different ways of thinking that dominate strategic management in the Internet Age. Some of the theorists in this area are also widely used within the general field of business strategy.

The main players who are important are:

  • Porter, and his theories on business advantage and strategic planning
  • Mintzberg, and his 5P strategy theory
  • Hamel, and his theory of innovative business ideas
  • Szulanski and Amin, and their theory of creative and artistic business strategy
  • Eisenhardt and Sull, and their concept of exploiting the state of confusion in the Internet World

Michael Porter's work features heavily in many course on business strategy, and you might like to look at some of his work more closely later on.

How have the Different Theorists developed Strategic Ideas?

A question you may have to consider when creating an electronic venture is which approach to developing your strategy will you adopt? The following commentators have mature theories which you need to consider.

Boisot suggests that a digital enterprise needs to be good at gathering and analysing data from the internal and external business environment, in order to develop a strategy. His process relies on a top-down hierarchical approach to managing a business. But he accepts that the digital enterprises work in a turbulent environments, so people who work "at the coalface" must be able to make important decisions when they need to operate flexibly to meet prevailing conditions. This requires a level of initiative and innovative spirit (known as entrepreneurship) normally found in visionary "start-up" type people. On top of this, the enterprise requires the development of a long term mission and vision based upon the collective beliefs and attitudes of those who work there.

Porter thinks it's important to consider making what the e-Business does different than anybody else (this is based on his original and now classic views of "differentiation"), rather than just trying to be the cheapest or the biggest. He promotes the idea that some organisations have to think about not being in certain types of business and limiting what they do ("sticking to the knitting"). Within this he advocates that organisations should try and develop activities that are integrated and cohesive. He also suggests that in the rush to grasp the electronic opportunity, many organisations have forgotten about their business strategy, and that they should try and get back to strategic thinking by investigating distinctive, profitable and differentiated business.

Porter also suggests that "competitive strategy" is not the same as "operational effectiveness". Operational effectivness is about the use of management techniques and tools to perform better then the competitors.  A good example is JIT (Just in Time) and Japanese manufacturing in 1970s and 80s.  Operational techniques are easy to imitate and this type of strategy may have a short life.  Competitive advantage is to achieve sustainable advantage over the competitors through performing a different activity than the competitor or performing similar activity in a different way to define a unique position and maintaining it with discipline and continuity.

Porter also argues that Internet tends to reduce Economic Value (the difference between price and cost) and so it can not be a blessing for the business as it tends to alter the industry structures.  Strategic thinking will therefore become important in the Internet age.

Hamel, through the development of his "Business Concepts Innovation" model (BCI) considers the importance of having a proper core business strategy, ensuring that consideration is given to how the enterprise uses its resources, contemplates how it deals with its customers, and how it deals with its partners. Through the use of the BCI, and digital enterprise can consider improving the benefits it provides to customers, creating an infrastructure that supports its business mission, and deciding which things it will do as a business and which things it will source from other organisations.

In addition to these three main commentators, there are other theoretical approaches that may be appropriate to the development of your electronic strategy.

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Tools that can be used in the strategic Analysis of digital enterprise opportunities

There are a variety of tools used in strategic thinking that have a particular value to the analysis of electronic opportunities. We can think about using:

  • The SWOT Matrix
  • The Value Chain Model
  • Critical Success Factors (CSFs)
  • Return on Investment models (ROI)

SWOT analysis

In SWOT analysis, we try to work out what a company is good at, in terms of its internal competences. Weaknesses may well represent deficiencies (strengths that are required but absent) or activities the organise does, but prove to be problematic.

We also look at the company in terms of its external environment. Opportunities represent things the organisation may regard as a business prospect, such as a new market or product, or a weakness in a competitor. A threat represents something that could hinder the company from outside. Sometimes it's difficult to differentiate an opportunity from a threat.

Advanced users of SWOT attempt to identify

  • Strengths that allow advantage to be taken of opportunities (SO strategies)
  • Weaknesses that can be minimised by taking advantage of opportunities (WO strategies)
  • Threats that can be avoided through the use of certain strengths (ST strategies)
  • Threats that can be avoided through the minimisation or removal of weaknesses (WT strategies)

 

  • Now do Task 2 from the Tasks Page

Value Chain Analysis

In value chain analysis we attempt to identify elements and activities within a business that have costs and that generate value.

The bottom 5 sections are called primary activities. These represent the activities a business does to generate revenue. The top four activities are called secondary support activities. These represent non-strategic components of the business that are required to support the everyday running of the organisation.

In a digital enterprise, we will look to see how the digital enterprise (and associated technologies and processes) can have an impact on value added at each of the primary activity stages, or how it can improve the efficiency or cost of any of the activities.

Critical Success Factors (CSFs)

CSFs are important key components of a digital enterprise that relate directly to the overall success of the organisation. If CSFs are positive, it is anticipated that the organisation can operate successfully.

CSFs can be established at the industry level, the corporate level, the enterprise level and the managerial level.

Commonly used CSFs within electronic business include:

  • The commitment of the top management levels
  • The relationship with customers
  • The quality of the website
  • The competition in the market
  • The integration of corporate backend information systems with specific e-Business systems
  • The communications infrastructure
  • The security controls

Return on Investment ROI

ROI is a very fashionable concept in the development of electronic ventures. ROI refers to the amount of benefit (financial and other) gained from a given financial investment. The most often used ROI approach is the "Balanced Scorecard" which combines tangible, quantitative components with less tangible but equally important components.

Important components in digital enterprise ROI tests include the obvious cost-benefit ration related to growth in financial revenue, the measurement of customer acquisition and retention rates, the appraisal of internal business activities, and highly qualitative issues such as personal and organisational development.

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How do I create and implement electronic Strategy?

Eisenhardt and Sull suggest 5 simple rules to abide by when creating an electronic strategy in the first instance;

1.      Hows - These rules should define "how" the e-Business will carry out its processes in a unique fashion.

2.      Boundaries - These rules establish the environment that the e-Business will operate in, which opportunities the business will pursue.

3.      Priorities - These rules establish the order for the provision of resources in the e-Business.

4.      Timing - These rules establish the timetable and deadlines for activities within the business.

5.      Exit - These rules describe the circumstances that would cause an organisation to dump an activity.

All digital enterprisesneed to generate sets of policies and procedures. Typical organisations have policies that cover the creation and maintenance of their technological infrastructure, security and privacy issues, contingency planning, HRM, and measures of effectiveness.

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When creating the infrastructure for the digital enterprise, it is important to have the following components:

  • A service the encompasses all of the needs of customers
  • An integrated value chain
  • Back-office systems that are integrated with business processes
  • A business structured to facilitate communication
  • An effective HRM system

There are a number of issues to consider when considering the technological development to bring the digital enterprise online. Developing the technology in-house is time-consuming and requires the recruitment of the necessary expertise. This produces bespoke systems, which may confer some kind of advantage if they are distinctively unique. The opposite alternative is to outsource all development, but this may leave the enterprise open to vulnerabilities caused by relying on another organisation, and may merely leave the enterprise with a technological solution mirrored by competitors. Developing a solution from ready made components is an approach used by many electronic ventures. Systems will appear standardised, but tailored for individual solution needs.

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How do Organisations manage Change when they implement electronic Strategies?

When digital enterprises are implemented, particularly in traditional bricks-and-mortar businesses, some significant change will occur, and this change needs to be carefully managed. The biggest barrier to success is the temptation to veer strongly towards a hard approach (focussing on economic or financial issues) or towards a soft approach (taking time to help the culture of an organisation move). The best approach is to allow both to be considered - shareholders will always need to be considered, as will the needs of employees.

  • Now do Task 6 from the Tasks Page