E-Business & Competitive Forces

What is E-Business?

     Technology has changed the way most companies do business.  Even if a company does not have an online store, they are likely using the internet or other networks to enable various types of business activities and find customers.  Many people have heard of the term “e-business” before, but the actual meaning of the term might be surprising.  The term “e-business” and “e-commerce” are sometimes used interchangeably; however, they are not the same.   The term “e-business” was initially coined by former IBM CEO Lou Gerstner (Marakas & O’Brien, 2011).  E-business is defined as using the internet, networks, and information technology to help promote e-commerce, collaboration and communication, and web-enabled business processes (Marakas & O’Brien, 2011).  E-commerce falls under the e-business category; however, e-business also includes internal processes such as inventory management, finance, production, knowledge management, human resources, and a plethora of other business processes (Bartels, 2000).

(Towson University, 2013)

     In 1997, IBM launched a campaign to convince the world that the internet was great a place to conduct their business and make money (“IBM to Launch Ad Campaign”, 1997).  The advertisements contained logos that were created to resemble the “@” in order remind the viewers that these ads pertained to activities that could be conducted over the internet.  

(“Transforming the World”, n.d.)

(“Transforming the World”, n.d.)

Types of E-Business Systems

     As noted earlier, there is much more to e-business than just e-commerce.  Various other systems use the Internet and other networks to help firms collaborate and communicate.  A few examples of these systems include customer relationship management (CRM), supply chain management (SCM), enterprise resource planning (ERP), transactional processing systems (TPS), human resource management systems (HRM), accounting and finance systems, and manufacturing information systems (Marakas & O’Brien, 2011).  E-business has changed the way companies manage inventory, support and recruit employees, perform daily processes, and interact with their customers.  E-business systems provide companies with new ways of gaining a competitive edge in an increasingly competitive market.

E-Business Systems and Competitive Forces

(Porter, 2008)

     Using an eye test, all varieties of industries appear to be different on the surface, but the behind the scene motivating factors of profitability are the same. Companies must navigate the competitive waters of rivals within their industry, but the term competition is just a blanket overview of the ever changing dynamics involved in business. Established rivalries are a basic competitive factor, but other influences include customers, suppliers, prospective industry entrants, and substitute or generic products; all are industry drivers companies must successfully juggle in order to become profitable. (Porter, 2008)

                                                                                                  

     The emergence of e-business has not been immune to the influences of competitive forces.  An understanding of the effect that these five competitive forces place on a business will benefit a company in developing a strategy for a long-term business plan that anticipates changes and allows for flexibility when market patterns fluctuate or new competition emerges. Although the predominate competitive force varies by industry, the ability to determine which has the greatest impact allows a company to have direct influence on their competition and control their capability for profit. (Porter, 2008) Anytime a competitive advantage is gained, the new market position can easily be copied by a rival. The consistent competitive forces placed on business makes any competitive advantage temporary at best and requires e-businesses to consistently evaluate their venture and strive to achieve better business practices. (Serbanica, 2008)

How are E-Business Systems Being Used?

     When IBM first informed the public about the wonders of e-business in the 1990’s, they described the ways that e-business will change the world.  The company talked about how consumers could make purchases in virtual stores and have money immediately deducted from their bank accounts, and how retail companies would be able to use the internet to manage purchase orders and keep inventories stocked for consumers (“Transforming the World”, n.d.).  IBM’s vision was right on track.  Now e-business is changing the ways that companies operate.  The use of e-commerce is probably one of the easiest examples to show how e-business has changed companies competitive positions.  Smaller companies are looking to the internet to find more opportunities and a larger customer base (Root III, n.d.).  The threat of new entrants is now becoming very real for many companies.  Interacting on an internet platform helps “level the playing field”, and even the smallest companies can compete with the largest and industry leading companies (Root III, n.d.).  E-business has decreased many barriers to entry that once existed and have made it easier for smaller companies to gain a foothold in the market. 

        Customer relationship management systems and other marketing information systems are helping to promote product and service differentiation and improve the company’s competitive position.  CRM systems help companies identify their best customers and can help the company customize services based on the customer’s needs (Marakas & O’Brien, 2011).  Customers can now immediately and conveniently access real-time account information from anywhere, at any time, through the use of e-business systems (Root III, n.d.).  Marketing has also been revamped through the use of e-business.  Many consumers look to the internet to find information about companies, items, and services.  Using e-business to get their information to potential consumers gives companies the opportunity to find a whole new market of customers (Root III, n.d.).  Using e-business tools to offer customers what they need as soon as they need it influences competitive forces by helping to increase brand identification and reputation (Porter, 2008).

       Companies are also now able to save money, reduce sales staff, and spend time finding new customers by allowing legacy clients to place their own orders through real-time inventory software (Root III, n.d.).  Offering convenience to customers helps increase the power of the supplier in the competitive forces.  While there might be an influx of other suppliers in the industry, do they all offer the same convenience and ordering options as those who fully utilize the power of e-business?  Also, developing an inventory system with companies can potentially create switching costs, which can also increase the power of the supplier.  

            It is also obvious that the emergence of e-business has also increased the power of the buyers.  E-business has given consumers more access other undifferentiated products.  Buyers can quickly and easily find alternatives, influencing competitive forces (Porter, 2008).  E-business also makes it easier for consumers to use the internet to research and access substitute products (Porter, 2008).

Examples of E-Business Systems Success

In today’s competitive market, some type of e-business has almost become a requirement for a company to remain successful. If properly implemented, some of these new innovative forms of e-business can help separate a company from the competition resulting in increased business success. Walmart serves as one of the best examples of the possible benefits of e-business systems and how it can vastly improve a company’s competitive position in the market. Walmart was one of the earliest adopters of e-business systems and it was one of the main reasons they were able to increase their sales numbers from $8.4 billion to $118 billion in just a 12 year span and establish themselves as one of the top companies in the North American retail market (Cecil Buffington Enterprises, n.d.). Walmart chose to implement e-business in an attempt to revamp their procurement process and find a better way to coordinate with their suppliers. The supply chain management (SCM) system they implemented gave them a huge competitive advantage in the market and completely transformed the way today's companies manage their supply chains. This SCM system allowed them to accurately monitor all of their inventory real-time and use this sales data to analyze trends and produce accurate purchasing forecasts. They used these tools to develop a “pull” supply chain approach where inventory levels are driven by customer demand (iTeam Technical Solutions, n.d.). This system allowed Walmart to free up capital by reducing inventory and at the same time, made them more capable of handling fluctuations in customer demand. By reliably providing the customer with any items desired, Walmart was able to quickly grow to the dominant retail company it is today.

(Amazon.com, Inc, n.d.)

Although e-business is one of the main contributors to Walmart’s early success, in recent years it has introduced competition new entrants using new forms of e-business. The company currently posing the biggest threat to Walmart is Amazon.com, another great e-business success story (Manjoo, 2012). In only 20 years since its launch in 1994, Amazon.com has grown to one of the largest retailers in the world with almost $89 billion dollars in sales for 2014 (Amazon.com, Inc., n.d.). Amazon did this through the use e-commerce applications and is widely considered the pioneer of online retailing (History of Amazon.com, Inc., n.d.). Amazon’s customer relationship management (CRM) system provides the customer with a personalized shopping experience where they can purchase almost any item they could want. Amazon's focus on customer service has brought them increased popularity among consumers, allowing the company to grow at an unprecedented rate (Amazon.com, Inc., 2013). Over the last ten years, Amazon’s sales have increased from $6.92 billion to $88.99 billion and today they are the leading online retail company in the United States (Amazon.com, Inc., n.d.). Their innovations in e-business have transformed the online shopping industry and have brought success to many companies who have modeled their e-commerce platforms off of Amazon’s. Some of the most notable of these companies include Gap, Dell, eBay, and BustBuy; all of which provide additional real world examples of the success a company can experience with the right e-business system.

Works Cited:

Amazon.com, Inc. (2013, June). Overview. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-mediaKit

Amazon.com, Inc. (n.d.). Quarterly Results. Retrieved from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsother

Amazon.com, Inc. (n.d.). Amazon Home Page. Retrieved from Amazon.com Web Site: http://www.amazon.com/

Bartels, A. (2000, October 30). Computerworld. The difference between e-business and e-commerce. Retrieved February 26, 2015, from http://www.computerworld.com/article/2588708/e-commerce/the-difference--between-e-business-and-e-commerce.html

Bhushan, A. (n.d.). Top Most Popular E-Commerce, E-Business or online retailer Websites Reviews. Retrieved from CEO World: http://ceoworld.biz/ceo/2010/03/25/top-most-popular-e-commerce-e-business-or-online-retailer-websites-reviews

Cecil Buffington Enterprises. (n.d.). The History of Wal-Mart. Retrieved from Cecil Buffington Web Site: http://cecilbuffington.com/photo3_38.html

Hamel, G. (n.d.). Examples of E-Business. Retrieved from Small Business: http://smallbusiness.chron.com/examples-ebusinesses-15758.html

History of Amazon.com, Inc. (n.d.). Retrieved from Reference For Business Web Site: http://www.referenceforbusiness.com/history2/35/Amazon-com-Inc.html

IBM to Launch Ad Campaign For E-Business. (1997, September 7). Telecompaper . Retrieved February 26, 2015, from http://www.telecompaper.com/news/ibm-to-launch-ad-campaign-for-ebusiness--119248

iTeam Technical Solutions. (n.d.). Wal-Mart: An E-Business Success Story. Retrieved from http://www.childcareworldwide.ca/articles/ecommerce/Walmart_an_eBusiness_Success_Story.php

Manjoo, F. (2012, December). Walmart's Evolution From Bix Box Giant To E-Commerce Innovator. Retrieved from Fast Company: http://www.fastcompany.com/3002948/walmarts-evolution-big-box-giant-e-commerce-innovator

McNeil, K. (n.d.). Push vs Pull Supply Chain Models. Retrieved from Advantage Internation Web Site: http://www.advantageinternational.com/www/content/default.aspx?cid=921&

Porter, M. E. (2008, January). The Five Competitive Forces That Shape Strategy. Retrieved from Harvard Business Review: https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1

Root III, G. (n.d.). Chron.com. What Are the Benefits of E-Business Technology? . Retrieved February 26, 2015, from http://smallbusiness.chron.com/benefits-e-business-technology-4048.html

Serbanica, D. (2008). Competitive Advantage By Integrated Business In Supply Chains: A Strategic Approach. Retrieved from Academia: http://www.academia.edu/2417663/COMPETITIVE_ADVANTAGE_BY_INTEGRATED_E-BUSINESS_IN_SUPPLY_CHAINS_A_STRATEGIC_APPROACH

Towson University. (2013, October 26).  What is E-Business?  Retrieved February 26, 2015, from https://www.youtube.com/watch?v=1VQMpr5fI8Q

Transforming the World. (n.d.). IBM - Canada. Retrieved February 26, 2015, from http://www-03.ibm.com/ibm/history/ibm100/us/en/icons/ebusiness/transform/

Business Intelligence & Its Implementation

Business Intelligence:

In modern business, it is imperative that organizations move away from numerous team members working independently on a common goal and become more efficient through unity when it concerns moving a business forward. The goal of a business organization is to work towards completing one mission. Throughout history, business departments have operated as individual islands, working autonomously on projects, all taking their own routes to one end-point. Business Intelligence (BI) has increased an organization’s ability to communicate effectively and efficiently amongst each other, allowing users equal opportunity to contribute ideas essential to streamlining projects, saving both time and money. BI is an all-encompassing term for an assortment of software which can be used to analyze and organize raw data for an organization. “BI as a discipline is made up of several related activities, including data mining, online analytical processing, querying and reporting.” (Mulcahy, 2007)

Benefits:

Business Intelligence software allows an organization to enhance their decision-making processes, reduce expenses, and identify potential new business ventures.  BI helps promote success within an organization by integrating data mining, analytical processing, querying, and reporting in one program (Mulcahy, 2007).  Besides identifying new opportunities, BI programs are also able to identify business processes that are inefficient and need to be either re-engineered or cut out altogether (Mulcahy, 2007). According to Cristian Burcur, Business Intelligence provides several opportunities for business growth by offering the following abilities to increase efficiency:

Cristian Burcur’s Business Intelligence Efficiency Opportunities: Identification of market opportunities Understanding consumer behavior Identification of deficient market segments Determining which products get maximum profit Determination of unsustainable cost processes Analysis of sales and distribution costs on different types of reports (about the     distribution, customers, transactions, time periods) Identifying potential business segments Identifying opportunities for earning and saving costs Determining the exact state of affairs on sales, commissions paid, volume of sales Determine the key indicators for measuring performance Improving decision making Analyze large amounts of historical data to identify trends that may affect business Monitoring the market effects of the strategies decided Exact profitability of operations Determine at any time of the situation and indicators of a company Reduce time spent on regular reporting activities Reducing the role of IT departments in reporting activities Shortening the period of taking a decision Chart by: (Bucur, 2012)

Costs:

With Business intelligence, there is a perception that implementing BI comes at a high cost with no guaranteed returns, and many organizations are unsure how or if they can achieve any value with BI. Without specific knowledge of a business’ size, structure, or the nature of BI system, the best answer to the fiscal cost of implementing a BI system is best described by Boris Evelson as, “It depends.” Evelson states that any number of factors such as “scope, requirements, technology used, corporate culture, and at least a few dozen or more dimensions” will influence the economic costs to an organization (Evelson, 2011).

Evelson suggests costs can best be estimated using the 80/20 rule:

Components: ~20% for software, hardware, and other data center and communications infrastructure ~80% for full time employees, outside services (analysis, design, coding, testing, integration, implementation, etc.), new processes, new initiatives (governance, change management, training) Initial software costs (~80%) vs. On-going software license maintenance costs (~20% / year)

Direct (~20%) vs. Indirect costs (~80%) Direct ~20% Data integration for reporting and analysis Data cleansing processes for reporting and analysis Reporting and analytical data bases such as Data Warehouses, Data Marts Reporting / querying / dashboards OLAP (Online Analytical Processing) Analytical MDM (Master Data     Management) Analytical metadata management Data mining, predictive analytics BI specific  SOA (Services Oriented Architecture) or other types of EAI (Enterprise Application Integration) Indirect ~ 80% Data integration for operational purposes Operational databases (ODS) Operational data quality processes Portals Collaboration Search, knowledge management Operational master/reference data management Operational metadata management Performance management (scorecards, metrics management) Text mining / text analytics

Initial Design and Build of Data Integration (~80%) vs. Reporting and Analytics (~20%)

Ongoing Support of Data Integration (~20%) vs. Reporting and Analytics (~80%) Chart by: (Evelson, 2011)

Beyond the initial software purchase, annual licensing agreements, and data integration, there are several other costs that are difficult to budget. Organizations must account for hidden or soft costs that are needed to adequately install, sustain, and update the BI system.  These additional costs may be greatly higher than an organization was initially led to believe. In Lauren McKay’s article “The 4 Hidden Costs of Business Intelligence,” David Hatch outlined four possible financial dangers that coincide with implementing a BI system.  Hatch breaks the costs down into three organizational categories based on the organization’s response to change; the three business organization categories are best-in-class, average, and laggard. (McKay, 2009)

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1. Year-after-year budget increases: The typical best-in-class company sees a drop in year-after-year BI budgetary costs. Average and laggard companies, however, can witness increases in BI expenses that range from 2 percent to 9 percent.
2. Cost per user: Best-in-class companies lower per-user costs by 4.3 percent whereas average performers and laggards often see increases ranging from 1 percent to 7 percent.
3. Time to complete projects: Best-in-class achievers complete BI projects, on average, within 14 days. Average performers take nearly three times as long (approximately 39 days) to complete a project, and the typical laggard company takes more than 12 times as long (177 days).
4. Modifications to BI software: Altering a BI program takes less than a day for best-in-class companies; three days for average performers; and up to eight days for laggard organizations.

(McKay, 2009)

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Hatch also notes that best-in-class organizations do not utilize BI systems as just report generators, but view these systems as a core business asset. (McKay, 2009)

Cultural Issues:

Some companies have built a culture that resists change.  Resistance from employees can undermine the implementation of BI projects. For example, some employees might reject a new system because it is different from their tried and true ways. Trying to convince members of an organization to depart from their “excel culture” and move forward with business intelligence can pose a challenge (“Gartner Reveals”, 2008). Some organization’s cultures focus on making decisions based on the “gut feeling” of managers and leaders.  In order to properly implement a business intelligence system, "gut feeling" cultures needs to be updated to reflect a culture that values information and focuses on “data-based decision-making” (James, 2011).

Companies must work towards building a culture that values BI. Organizations can create a culture that values BI by promoting how data can be used to benefit the organization as a whole.  In order to help promote the adoption of business intelligence products, companies should make the tools seem less intimidating and convey information about the system in terms that all users can understand. Businesses should educate all employees about the business intelligence system.  Employees should be aware of the importance of the data the system uses and the information that the data provides. A clear understanding of the system promotes acceptance of the system and idea generation. (All, 2011)

Risks:

A common risk involved in the implementation of BI systems is the new technology having a negative effect on the organization's employees. This negative reaction typically occurs when BI technology is used as a public ranking system available to all company employees. Although this may motivate some to work harder and move up the employee rankings, for others it can have the complete opposite effect. It can cause these employees to become discouraged in their abilities and begin to resent other employees who are consistently above them in the rankings. (Marr, 2015)

Another risk of BI implementation is that employees will not adopt the new system, and it will go unused. As we discussed earlier, people are often hesitant to change, and many employees would prefer to keep things status quo. To get all the benefits of implementing a BI system employees need to be equipped with the knowledge and desire to use it. If a company installs a system without properly training workers on the system's purpose or explaining how to use it, the system will likely intimidate the employees and make them resistant to the new idea. If a company purchases an expensive BI system and the employees resist the system, it would be a big financial hit for any company. (Marr, 2015)

Implementation Issues:

One issue with the implementation of BI systems is possibility of having to manually enter years of company data. Not only does it take a lot of time and manpower to input all of this data into the new system, but it is also difficult to locate all the required data. This issue is due to data silos between departments and different branches of the company storing their data in different formats than other branches. In order for all this data to be used properly in the new system and provide the desired analysis, it must all be first converted into one format so the data analytics software can sort through it properly. Then once all this is complete it also must be properly maintained. There must be protocol in place to maintain the integrity and quality of the data getting put on the server. (Marr, 2015)

Another common barrier is finding a way to integrate new BI systems with the other information systems in place. Often, BI tools cannot handle every aspect of a business's operation. The majority of times these BI systems must be used in conjunction with current systems in place. In order for both systems to operate successfully, they need to be compatible to transfer data with each other. Without compatibility, both systems would not have full access to all the available data, and efficiency would be diminished. (Marr, 2015)

Measuring Performance of BI Through Success:

After the implementation of business intelligence, companies should measure the performance of the business intelligence system. A company can begin determining the return on investment of one of these products by evaluating results. Organizations can  review the time that it takes to answer user queries and questions, compare the usability and comprehensiveness of the information obtained from the BI tool, and determine the amount of quality decisions that were the made using the information obtained from the BI product. Companies should also review sustained adoption rates, frequency of product access, feedback from users, and the general productivity level of the employees. (James, 2011).

One organization that has utilized BI is the 

Image by: (Cincinnati Zoo, 2015)

Cincinnati Zoo and Botanical Garden. With $30 million dollars in annual operation, the zoo’s executive committee began looking for ways to implement a BI system for the purpose of analyzing their yearly memberships, admissions, and food and merchandise sales. The goal was to analyze this information down to a personal level so they could better understand their visitors’ behavior. The Cincinnati Zoo was already a top 10 zoo attraction nationwide, but by implementing IBM’s Cognos in 2010, the zoo saw an immediate Return on Investment. Within the first week, the analytical software noted that 90% of a $90,000 annual out-of-area discount promotion that the zoo had been running for 10 years was being used by people living within 15 miles of the zoo. John Lucas, the Zoo's director at the time of implementation, estimates the zoo lost just under $1 million because they were unaware of where their visitors lived. The initiative to analyze the data paid for the Cognos program within the first three months, and saves the Cincinnati Zoo more than $738,000 per year (approximately 2.5% of the annual budget). By adapting to the suggestions made by IBM’s Cognos and matching customer demand patterns, the zoo has boosted its annual attendance by 50,000 visitors, increasing revenues dramatically, and subsequently earning an annual ROI of 411 percent. ("The Case", 2013)

What has the zoo done on an organizational level to reach these new levels? The program was persuasive to the point where the zoo trained every employee on the importance of gathering the information (such as documenting the visitor zip codes, monitoring visitor behavior during particular weather patterns, and which attractions were visited) to ensure that they have proper data. John Lucas believes everyone, from the top down, must be a pertinent part of the business intelligence analytical process, whether they see an actual business report or not.  The key Lucas states, is “allowing out project to be steered by the people who are influential in the organization,” and at the Cincinnati Zoo and Botanical Garden, that is everyone. (Schultz, 2011)

 

Video Courtesy of:

(IBM Business Analytics, 2012)

Works Cited:

All, A. (2011, June 21). IT Business Edge. Creating a Business Intelligence Culture. Retrieved February 13, 2015, from http:// www.itbusinessedge.com/cm/blogs/all/creating-a-business-intelligence-culture/?cs=48976 

Bucur, C. (2012, February). Implications and Directions of Development of Web. UPG Bulletin. Retrieved February 13, 2015, from  http://www.upg-bulletin-se.ro/archive/2012-2/9.%20BucurC.pdf  

The Case for Business Analytics in Midsize Firms. (2013, January 22). IBM. Retrieved February 13, 2015, from http://www-03.ibm.com/innovation/us/engines/assets/ibm-business-analytics-case-study-1-22-13.pdf 

Cincinnati Zoo. (2015). Cincinnati Zoo and Botanical Gardens. Retrieved from Cincinnati Zoo: http://cincinnatizoo.org 

Evelson, B. (2011, March 1). Does The Good Old 80/20 Rule Work For Estimating BI Costs? . Forrester Blogs. Retrieved February 13, 2015, from http://blogs.forrester.com/boris_evelson/09-02-03-does_good_old_8020_rule_work_estimating_bi_costs 

Gartner Reveals Nine Fatal Flaws in Business Intelligence Implementations. (2008, October 10). Gartner Inc.Retrieved February 13, 2015, from http://www.gartner.com/newsroom/id/774912 

IBM Business Analytics. (2012, February 12). Cincinnati Zoo Improves Customer Experience, Operations with IBM Business Analytics. YouTube.  Retrieved February 13th, 2015 from  https://www.youtube.com/watch?v=IlNu15rVKSg 

James, L. (2011, April 8). Yellowfin Business Intelligence. Business Intelligence: Drivers, challenges, benefits and ROI. Retrieved February 13, 2015, from http://www.yellowfinbi.com/YFCommunityNews-Business-Intelligence-Drivers-challenges-benefits-and-ROI-103783 

Marr, B. (2015). What is Business Intelligence (BI)? Advanced Performance Institute.  Retrieved February, 13, 2015, from  http://www.ap-institute.com/Business%20Intelligence.html 

McKay, L. (2009, June 1).The 4 Hidden Costs of Business Intelligence.   CRM Magazine . Retrieved February 12, 2015, from http://www.destinationcrm.com/Articles/CRM-News/Daily-News/The-4-Hidden-Costs-of-Business-Intelligence-53941.aspx 

Mulcahy, R. (2007, March 6). Business Intelligence Definition and Solutions. CIO Retrieved February 13th, 2015 from: http://www.cio.com/article/2439504/business-intelligence/business-intelligence-definition-and-solutions.html 

Schultz, B. (2011, October 18). Weaving BI Into the Corporate Fabric. Computerworld. February 13th, 2015 from: http://www.computerworld.com/article/2550138/business-intelligence/weaving-bi-into-the-corporate-fabric.html