Activities identified in the firm’s value chain include those activities that can provide a competitive advantage for a firm; such activities should have economics of scale or scope Competency-based thinking allows companies to align its strengths with the business opportunities and eliminate weaknesses in order to avoid threats creates a ‘strategic fit’ between its internal competencies and the external environment. The competence-based thinking allows businesses to investigate and understand the entire picture of the organizational structures and actual practices in order to understand the current situation.
It can improve and enhance the current practice and further plan for the future. Competency development can take place over a period of time if the company has measures in place to ensure that employees learn and develop the competencies as their careers progress. Competency-based thinking in e-business strategy can be an effective model for businesses to use also. Small business owners must be able to develop technical competencies to thrive in the field of e-business.
One of the primary barriers that many small business owners face in e-business is the lack of know-how in the development of effective websites and marketing strategies used to develop a web presence. Managers and business owners need to constantly update their knowledge of the Internet and the effective measures used by other companies to develop their business. The competence-based approach looks at how the resources and capabilities of a firm interact across different functions and activities. The core competencies of a firm are comprised of individual activities; therefore, the activities of a firm are also addressed in this approach.
The activities-based approach, on the other hand, considers only the individual activities of a firm. It neglects to fully consider the processes and resources of a firm (Jelassi & Enders, 2008, p. 86). 2) Think critically of possible applications of the virtual value chain concept within specific industries and business sectors. Are there some specify business sectors where this concept fits better than in other sectors? The virtual value chain is useful in many different industries and business sectors. For instance, e-businesses operating in the online retail industry can benefit immensely by developing a virtual value chain.
Customer information can be used to help make a more personalized experience for the customer. An e-business retailer could provide product recommendations based on previously purchased or view items; enable the customer to view order status and order history; and develop personalized sales based on spending habits. For example, Old Navy emails advertisements and sale information to customers based on past purchases. Also, if a customer has an Old Navy credit card, they can view history of items they purchased in the store through Old Navy’s website.
Another industry in which the virtual value chain is applicable is the credit card industry. Credit card companies allow customers to view transaction history and statements through secure websites. They also allow customers to make payments and update their personal information all in one place. Customers can monitor their spending limits intermittently before they receive their statement through the mail. Transaction information is available through a credit card’s website as soon as a sale is made. Both customers and the credit card companies, themselves, have benefit greatly by utilizing such information.
Customers can now access information via the Internet, rather than call a customer service representative on the phone. The medical industry is another field in which the virtual value chain can enhance a customer’s experience. Healthcare providers are now creating personalized records for their customers online. Information gathered via claims sent to the insurance company is being used to update an individual’s personal health record on the Internet. This enables the customer to easily maintain medical records, receive updates when they are due for routine visits and tests, and keep track of prescription refills.
The virtual value change is particularly useful for the sales and marketing business sector. Sales and marketing activities can go a long way by utilizing the virtual value chain. Customer information gathered in a number of industries can be used for virtual marketing efforts. Advertising can be accomplished on the web and through email. Companies can filter through customer databases to segregate their customers into different groups, such as existing customers, prospect customers, or inactive customers. Such information can be utilized to tailor specialized marketing efforts based on a customer’s status, preferences, etc.
Although the virtual value chain provides a vast amount of benefits to most industries, it fits better in some business sectors than others. For example, the sales and marketing sector can better utilize the virtual value chain than the construction and engineering sectors. While information gather about customers in the construction and engineering sectors are valuable; there are not many applications to provide benefits to individual customers via the virtual marketspace. As well, the virtual value chain is more appropriate for industries and business sectors with repeat customers.
Business sectors that tend to have one-time customers, based on the nature of the business, cannot receive much benefit from the virtual value chain. The virtual value chain is a powerful tool; however, it can be put to greater use in some industries over others. 3) Explain critically assess the ICDT framework and pinpoint its shortcomings. The ICDT framework was conceptualized by Albert Angehm. This model provides companies with a tool to assess the virtual market space and the range of activities they can utilize to interact with their customers (Jelassi & Enders, 2008, p. 7). Such interactions help an e-business to enhance their customers’ overall experience, which in turn, can increase their market share. A breakdown of the ICDT framework follows. The ICDT framework provides companies with a systematic approach to developing effective e-business strategies. The model was developed for traditional bricks-and-mortar companies looking to expand into the virtual market space. The model enables a company to evaluate the opportunities within the virtual market space and develop ways in which they can benefit from such opportunities.
According to the ICDT framework, there are four dimensions and types of activities which an e-business can offer to its customers, as follows: Information activities: Information activities lay within the virtual information space. Information activities consist of marketing and knowledge sharing via the Internet. Companies can use the virtual information space to implement marketing and advertising campaigns, post information about their products and services, and enable customers to view the availability of products (Jelassi & Enders, 2008, p. 87).
Many companies now integrate their online information activities with their offline activities. For example, when on Target’s website, a customer can find out if a certain product is in stock at their local Target store. Communication activities: Communications activities take place in the virtual communication space. Communication activities consist of two-way communication between customers and businesses, businesses and businesses, and customers and customers. Such activities include email communication, message boards, and live chats (Jelassi & Enders, 2008, p. 9). For example, when a customer has been on Sandal’s website, a vacation provider, for a couple of minutes, an instant message will appear on the screen asking if the customer has any questions or needs assistance. Transaction activities: Transaction activities occur in the virtual transaction space via e-commerce. Transaction activities involve the online placement of orders and online payment processing (Jelassi & Enders, 2008, p. 89). Examples of transaction activities include the purchase and payment of cable television services on Comcast’s website.
As well, most utility bills can be paid via the provider’s website. Distribution activities: Distribution activities take place in the virtual distribution space. They include the electronic distribution of digital goods, such as music, television shows, movies, e-books, and software (Jelassi & Enders, 2008, p. 90). An example would be the online streaming of movies through Netflix’s website and television shows via Hulu. com. The virtual market spaces, as presented by the ICDT framework, provide a vast amount of opportunities for businesses to expand their opportunities to the Internet.
Despite the apparent advantage of these virtual market spaces, each virtual market space also has its shortcoming. Information activities are most valuable to customers when they provide real-time, up-to-date information. When e-business first became popular, most e-businesses only provided static information. In order to successfully interact with customers via the virtual information space, companies must fully integrate and link their information activities to warehouse, production, and offline activities (Jelassi & Enders, 2008, p. 87).
Communication activities are fairly straightforward; however, the drawback of communication activities is that companies must provide timely responses to their customers. Online communication activities can quickly escalate; therefore, many e-businesses have developed automatic response systems to answer routine questions. Transaction activities, on the other hand, can be difficult to carry out. Customers tend to be leery about the websites they perform transactions over. The e-business must have a secure website and also be a reputable company.
As e-commerce continues to progress, customers are getting more comfortable with online transactions (Jelassi & Enders, 2008, p. 90). For instance, many e-commerce allow customers to perform payment transactions via PayPal, a trusted online payment facilitator. Additionally, most transactions have typically been limited to credit transactions. The shortcoming to credit transactions is that it is not economically feasible to accept credit transactions for low-priced goods. To overcome this pitfall, online micro-payment systems have been developed to facilitate the transaction of low-priced goods (Jelassi & Enders, 2008, p. 0). Distribution activities are limited to the online capacity and capabilities of both providers and customers. It is not feasible to distribute goods to a customer with a 56-k modem. DSL and cable internet technologies have presented a mechanism to distribute digital goods online (Jelassi & Enders, 2008, p. 90). As more customers and businesses become equip with broadband technology, more goods will be offered in digital form. 3) Explain how an Internet can help a company to achieve a competitive advantage in the marketplace through (a) cost leadership and (b) differentiation.
Illustrate each case through an actual example, other than those mentioned in this module. A cost leadership strategy is one in which a company attempts to lower their operating costs in order to provide their products and services at low prices to customers. In order to effectively gain a competitive advantage through a low cost strategy, the company must provide the minimum required benefits to customers, which are known as threshold features. Such features are required for a customer to consider a product (Jelassi & Enders, 2008, p. 98).
There are several ways in which an e-business can utilize the Internet to achieve a cost leadership strategy, as follows: Economics of scale: By increasing their level of production, a firm will decrease their unit production cost. The Internet enables an e-business to reach a large market of customers, typically larger than they could reach as a traditional bricks-and-mortar company. Therefore, the company can increase their output and lower their costs. Economics of scope: Economics of scope are achieved by expanding the variety of products and services offered by a firm, while utilizing the same assets for each offering.
In other words, the company leverages their assets to spread their fixed cost over a wider range of goods and services (Jelassi & Enders, 2008, p. 102). An e-business can achieve economics of scope by extending into new markets and reaching out to new customer groups via the Internet. Factor costs: Factor costs are the sum of all costs incurred when producing a product or service. In order to achieve a cost leadership position, an e-business can use the Internet to lower their factor costs. By reaching a larger group of customers over the Internet, an e-business can purchase raw materials or other inputs in bulk (Jelassi & Enders, 2008, p. 02). Learning effects: After a company has been established for some time, they can lower their costs by improving their efficiency. They can use accumulated knowledge to increase productivity. The Internet can be used as an effective tool to achieve a cost leadership position. An example of an e-commerce company that has proved to be a successful cost leader is Overstock. com. Overstock. com is an online retailer which offers a wide range of products. The company’s low cost strategy includes economics of scope and a reduction in factor costs. Economics of scope are recognized by the variety of products offered by the company.
Overstock. com can reach a large number of customers by offering a diverse range of products. All of the products offered on the site utilize the same assets. As well, the company purchases their products in bulk from their suppliers, which also significantly decreases their costs. Overstock. com sells their products well below the suggested retail price, which entices customers to buy from their site. A differentiation strategy, on the other hand, is one in which a company attempts to differentiate itself from competitors by offering unique and/or higher quality products.
Unlike the low cost strategy, the differentiation strategy requires a company to incur higher costs and charge a higher than average price to customers. Customers are willing to pay a higher price due to the superior quality of the offering. When using a differentiation approach, it is important that the company clearly defines its market segment in order to recognize the elements which are of true value to their target audience (Jelassi & Enders, 2008, p. 103). The Internet can also be used to achieve a differentiation strategy.
To do so, an e-business must provide tangible sources of benefits which include: high product/service quality, product or service customization, convenience, fast speed of delivery, and a wide product range (Jelassi & Enders, 2008, p. 104). Because e-business firms exist in the virtual world, each of these tangible sources of benefit can be recognized. Products can be built to order, as they do not need to be stock in a physical stock; the customer can go on one site to accomplish a variety of tasks or purchase a range of products; and orders can be quickly turned around and delivered to the customer.
In addition to tangible sources of benefit, a differentiation strategy must also offer intangible benefits to the customer. These include brand and reputation. The Internet can be used to effectively leverage the brand name of an existing bricks-and-mortar company. Internet start-ups, on the other hand, must build through brand from the ground, which they can accomplish by marketing via the Internet. Reputation is also plays a major role in a differentiation strategy because customers incur less risk when purchasing from a trustworthy company (Jelassi & Enders, 2008, p. 105).
The Internet has been used to provide an effective differentiation strategy for Zappos, an online shoe retailer. The e-commerce site is known for its reputation, high level of customer service, convenience, speed of delivery, and product selection. Zappos has a wide product selection. They have vast amount of shoes available in all different fashions. They provide quick order processing and typically upgrade customers to overnight shipping for free. When returning or exchanging a product, they provide the shipping label and pick up the costs. Zappos has continued to differentiate itself from competitors by branching ut into television advertising. In 2010, they released a series of quirky, eye catching television commercials which have generated a lot of attention on the Internet. Their ads can be found on YouTube, as well as spoofs of their ads. This has drawn attention to Zappos, increased awareness of their site, and heightened their reputation. The Internet is a powerful tool which can be used to build effective cost leadership and differentiation strategies. Many e-business companies have achieved competitive advantages by exploiting the capabilities of the Internet.
As technology and the Internet continue to evolve, it will be interesting to see how e-businesses will use the Internet in the future. 5) Describe how a company can look for new market spaces outside its own industry. Numerous e-business firms have successfully implemented competitive advantage strategies via the Internet. Such strategies typically include a cost leadership and/or differentiation strategy. Many e-business firms have attempted to exploit the capabilities of the Internet to achieve both types of advantages.
In other words, they achieve neither a cost leadership or differentiation position and project a confusing image to their customers. Many companies fall victim to the challenges of implementing both a low-cost and differentiation strategy. A low-cost strategy typically requires a company to forgo superior quality and enhanced features in order to provide a lower cost than competitors; whereas, a differentiation strategy requires a company to charge higher costs due to the increased costs of producing high quality goods or services.
The low-cost and differentiation strategies have a tendency to conflict with one another; therefore, when many companies try to achieve a competitive advantage by implementing both strategies, they can easily get stuck somewhere in the middle (Jelassi & Enders, 2008, p. 105). Such companies end up being perceived as average, run-of-the-mill companies that do not provide any increased benefits to their customer. When developing a strategy, a company is required to make tradeoffs. They may have to trade high quality for a low cost, or vice versa.
However, current research has shown that when a company has the right factors in place, they can effectively accomplish both a low-cost and differentiation strategy simultaneously. This is known as an outpacing strategy. An outpacing strategy can be accomplished by developing new technologies, reducing wastefulness and increasing efficiencies, achieving economies of scale, and exploiting learning effects (Jelassi & Enders, 2008, p. 108). Over the past decade, many e-business firms have utilized the Internet to achieve effect outpacing strategies and decreased their risk of getting stuck in the middle.
The Internet provides ways for companies to increase their production levels by streamlining many of their processes. They can utilize new technologies which allow them to provide higher quality goods at low costs. Dell Computers is a great example of a company that has utilized both a cost leadership and differentiation strategy. Dell links their supply directly to demand. They build computers after the customer has placed their order. Their order process and logistics have been streamlined due to information technologies.
Dell has a strong brand, a solid reputation, superior customer service, and offers innovative products all at a low cost to customers. Both differentiation and cost leadership have been the focus of Dell’s strategy. They have proven that a company can successfully implement an outpacing strategy without getting stuck in the middle, as long as the right technology and factors are in place. References Jelassi, T. , & Enders, A. (2008). Strategies for e-business: Creating value through electronic and mobile commerce. (2nd ed. ). London, UK: Prentice Hall.