Strategies Used byCompanies to Create Value for E-Businesses
Category : Business Strategies, E-Business Strategy
Strategies Used by Companies to Create Value for E-Businesses
The integration of the Internet and business operations has changed the international business environment. Now more than ever, globalising business involves heightened competition putting pressure on the business firms to develop their competitive advantage relative to their direct and even indirect competitors. Competitive advantage refers to a position within which “a firm successfully formulates and implements a value-creating strategy” (2003). Generally, two value-creating strategies exist. First is cost advantage that arises when a business firm gains the ability to sell products and services for a relatively lower price (1998). Dell Inc. is one example of a firm that is able to achieve competitive advantage through cost leadership. In the global market, Dell’s closest competitors are Hewlett-Packard, IBM and Gateway. In 2001, Dell Inc. achieved the position of having the highest revenue earnings from its global marketing operations placing the company as the world leader in computer sales. Its cost advantage is achieved by its ability offer computer models, similar to its competitors, at half the price by saving on costs in its supply chain and supply chain strategies. Second is differentiation advantage that refers to the delivery of commodities that exceed those of competitors ( 1998). The Body Shop, prior to its merger with L’Oreal exemplified a firm that gained advantage by differentiating itself as a ‘green company’ that advocated against animal testing and for corporate responsibility relative to the large cosmetics companies. In the new e-business environment, these value-creating strategies constitute the ultimate goal. However, specific strategies have emerged that apply mainly to the context of e-businesses.
E-Business Value Creating Strategies
Seven value-adding strategies specific to e-business exist, which are: 1) strategy and planning; 2) strategic alliances; 3) business development; 4) in-depth consumer insights; 5) rational business models; 6) cultural compatibility; and 7) technology and design. E-businesses that failed to reach high levels of competitiveness have either missed one or more of these value-adding strategies or unsuccessfully integrate these strategies towards the achievement of its targeted competitive position.
Strategies and planning  pertains to the integration of theory, techniques, implementation details, operation specifics, market management, and consumer feedback (2001; 2004)
. This e-business strategy is different from the traditional value-creation model that considers these factors as isolated or independent areas of expertise [See Figure 2 in Appendix]. Moreover, this e-business strategy involves innovation since the e-business should apply the strategy in a manner that fits its needs, objectives and competitive environment contexts. In addition, strategies and planning in e-business also applies flexibility by allowing the firm room to adjust its plans during the implementation to meet emerging issues. This means that with a rapidly changing e-business global environment, firms need to engage in the continuous cycle of strategising, implementing plans, reporting of results and consideration of feedback loops. Integrated strategies and planning contribute value to the firm and its consumers by allowing the firm to adjust easily to changes in the supply chain or the demands of consumers based on a continuous assessment of its operations and feedback from its supply partners and consumers.
Strategic alliances pertain to the necessary move of e-businesses to reinforce their strength in facing strong competition in the global market (2001;2004). Successfully engaging in alliances involves the careful selection of partners. Some of the considerations that the firm should consider include parallelism in cultural characteristics, potential value contribution, and alliance evolution . Moreover, partners should offer strengths that complement the goals of the company. Alliances could be quantum or functional partnerships, with quantum collaboration meeting the goals of growth and competitiveness while functional collaboration addressing particular relationships, processes or factors. Successfully engaging in alliances requires the firm to meet the various and changing goals of a number of individuals or organisations. (2005) Strategic alliances support the value creating activities of the firm by allowing the company to enhance its core strengths when its partners complement its strengths and help address its weaknesses. The partnership between Dell Inc. as a computer manufacturer and software companies constitutes a strategic alliance because Dell Inc. gains the market of the software company and its technical support services. This partnership adds value to consumers by providing an integrated channel for hardware/software needs and technical support services.
Business development pertains to the continuous process of shifting focus of shareholder value creation to meet concurrent changes in a fast-changing e-business environment (2001; 2004). Successfully developing an e-business that maximises consumer value involves the close alignment between the various changes occurring in the business and the new factors or groups affecting purchasing decision. This is best achieved by developing the multiple networks of the company including various industry and economic players and consumer influences. Moreover, the e-business should also manage critical interrelationships by integrating emerging and traditional influences in strategies directed towards customer satisfaction and retention. (2003) Business development adds value to consumers in two ways: by allowing the company to determine all the new factors that affect consumer decisions and by providing e-businesses with the means of aligning organisational management, operations and marketing with these influencing factors. The result is an updated firm that can easily adjust to changing market demands.
In-depth consumer insights serve the important role of providing e-businesses with the means to develop multiple connections with their target consumers. A stronger relationship emanates from accurate information and results to the creation of a consumer base for the firm. (2001; 2004) E-businesses aware of the issues and concerns of their target market by meeting these needs and demands creates value through the perception of consumers that the company is concerned with the welfare of its market. To achieve detailed and in-depth insights of consumers, the firm should comply with these following steps: 1) observe the behaviour of consumers as they use the firm’s or competitor products; 2) experience the environment within which consumers use the firm’s products or that of its competitors; 3)experience changes in the utilisation of the product by consumers; 4) establish contact points with consumers to draw information on their cognitive processes resulting to actual purchases; 5) gather the opinions of customers through open-ended questions to allows room for the expression of thoughts and emotions; 6) identify non-verbal cues since consumers may not consciously be thinking about their preferences but these are observable through their purchasing behaviour; 7) identify subtle messages referring to different contexts within which consumers utilise products as basis for implications on product research and development; 8) conduct spontaneous or informal observations to collect non-verbal cues from consumers; and 9) employ flexibility to recognise and include in the information collection process all new and emerging information ( 2004). By considering verbal and non-verbal insights from consumers covering their actual product use, product use environments, cognitive processes underlying purchases, and purchasing decision influences, the firm should be able to have a complete knowledge of the changing needs and requirements of consumers as basis of product development and marketing activities. Gathering verbal and non-verbal cues from customers creates value for consumers because the firm is able to match the need of its target consumer and maybe more through product development.
Understanding and addressing problems of e-businesses usually depend on in-depth consumer insights. Companies engaged in online networks transact with consumers through the Internet and fulfil their obligations such as product shipment through networked functions. As online payment transactions proliferated, cyber crime also developed such as the stealing of account information through cookies and other information accessing or saving mechanisms. This resulted to concerns on the part of consumers over the degree of security that e-businesses selling online provide. Recognition of the problem came from consumer insights on transactions in their bank accounts that they do not recall making. These insights were collected through customer feedback and contact options integrated into the company websites. As the number of complaints increased, e-businesses recognised the problem and developed security solutions. Now, the online security is a growing industry sector that constantly adjusts to actual and potential threats.
Cultural compatibility refers to the consistency in the organisational culture of the various subsidiaries in different geographical locations together with the development of an international perspective that incorporates various market cultures. In the case of the e-business, cultural consistency happens in the international, national, industry and corporate levels. (2001; 2004) This means that cultural consistency should start at the corporate level and communicated or practices in the contexts of the industry, national and international operating environments. Compatibility involves two processes simultaneously implemented by the firm. First process is understanding the cultural direction of the international e-business firm (2004). This means that the firm should determine its targeted cultural communication in the international market and the direction it wants to move to achieve this target. Second process is weaving the values, competencies and activities of the firm and its various operating levels to achieve cultural compatibility (2004). This implies the application of change management covering corporate values to align cultural characteristics of its various operations. This aspect creates value for consumers through a consistent message communicated to consumers around the world influencing consumers to perceive the firm or its brands and products as consistently embodying assurances of quality and price worthiness.
With regard to the market culture compatibility, this involves the establishment of linkages between the e-business and multi-cultural markets (2001; 2004). As much as the firm needs to have a clear and uniform cultural communications, there is also need to fashion its specific communications based on different cultural contexts. By doing so, cultural recognition develops perceptions on the trustworthiness of the firm and its prioritisation relative to its competitors. The speed with which business firms understand different cultures and fashion their value communications to different cultures determines the growth rate of the firm.
Technology and design pertains to the shift of e-businesses to technological competencies as critical driver for innovation, leadership and value creation (2001; 2004). As such, technological capabilities of companies constitute a differentiating factor. Technology allows firms to develop products and values that offer more than competitor provisions as well as allow e-businesses to save cost from automation. (2001) Technology should be partnered with business expertise since rapid changes in technology also create a throng of businesses opportunities that the experience of e-businesses should be able to recognise. E-businesses should also be always updated on the changes in technology that affects the firm’s competitive positions and its consumers. This is because technology leadership is a differentiating factor that constitutes the competitive advantage of the company. This creates value for consumers because a company leading in technology represents a trustworthy and reliable firm from which to purchase technologically advanced products. Microsoft Corporation, as a leader in computer software, exemplifies this. Although, the company has been charged with its monopolisation of key software, it achieved this capability by becoming a leader in computer software innovation so that for a long time since its establishment, its products such as Windows has experienced widespread utilisation by the global market spanning households, business firms, and government offices.
Since e-businesses operate in a different business environment, there is need to consider value-creating strategies that facilitate the leadership position of e-business firms by creating value for consumers. Although the seven value creating strategies for business firms are discussed separately, the optimisation of benefits from the application of these strategies lies in their integration into a single and cohesive competitive strategy that allows e-business firms to achieve cost leadership, differentiation or a combination of both. Amidst the development and implementation of an integrated value-creating strategy arises the need to consider the specific context of the e-businesses to determine the appropriate manner of integrating these value creating strategies as well as development of best practices to guide e-businesses in their long-term operations.
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