Assess of the strategies and processes as compared to traditional bricks and mortar businesses - Essay Example

INTRODUCTION In his book Business at the Speed of light, Bill Gates1 mentions that The Web Work style Eases Geographic Constraints. He explains thatbefore the before the Web, most workers were confined by geography. Web communication is changing the requirement that you have to live close to work. Within a few years telecommuting will not only become more common, but its essence will change. Today, most telecommuters do tasks that do not require a physical presence at the office-writing or analysis, for instance. E-mail and phone provide some interaction with colleagues or customers, but most of the remote work is solitary. In the future, videoconferencing, electronic collaboration on documents, and the integration of the phone and PC will create a telepresence at the office that is impossible today for home workers. These technologies are already removing geography as a barrier to work. This excerpt from the book makes us understand the real scale of change that is happening around us in the way in which business is going to be done in future. The ways in which people think, act and decide are going to change. These changes are also obvious in the way in which the business operations are carried out. The business processes that are required to carry out the everyday operations in a business are changing rapidly across the world. Hence, this essay is written to understand the differences between the traditional business models and the e-businesses with respect to the various activities such as the marketing, procurement, payment systems, security, logistics and supply chain management are discussed in this paper. The objective of this analysis is to understand better the way in which internet has changed business operations and for this purpose, www.amazon.com is selected for analysis. REVIEW OF LITERATURE To compare and contrast the business models in the real world and the virtual world, first we have to understand what a business model is. According to Magali Dubosson-Torbay2 and other fellow researchers, business model means the architecture of a firm and its network of partners for creating, marketing and delivering value and relationship capital to one or several segments of customers in order to generate profitable and sustainable revenue streams. The eBusiness Model framework suggested by them is therefore divided into four principal components. (1) The products and services a firm offers, representing a substantial value to a target customer (value proposition), and for which he is willing to pay. (2) The relationship capital the firm creates and maintains with the customer, in order to satisfy him and to generate sustainable revenues. (3) The infrastructure and the network of partners that are necessary in order to create value and to maintain a good customer relationship. And last, but not least, (4) the financial aspects that can be found throughout the three former components, such as cost and revenue structures. Hence, the authors mention that, it is important that business organizations that are operating in the internet should concentrate on the aspects such as product innovation, customer relationship, infrastructure management and financial aspects. When a business is considering to adopt a business model it has to consider the following aspects which are mentioned by Tapscott3, et al, that The user role : How is the client or the prospect is considered by the company As a client or as a provider of a product / service that other clients may want to buy from, or as a participant to whom nothing is sold but information or services are offered against information about the participant - Interaction pattern : Is the service provided by one or many people / companies to one or many people / companies - Nature of the offerings : Is the company offering information, services or products to its visitors In some cases, the company but is giving away its content for free against information gathering and/or is getting money from ads. Another option could be that the company does not want to sell on the web but just want to use its site as a promotion tool. - Pricing system : Is the user paying according to its usage rate, to a fixed subscription to get access to the service, to a fee system (percentage or fixed amount), to a price list or to a dynamic price mechanism (i.e. auction and reverse auction) - The level of customization : This level is ranging from mass content to customized content. - The economic control : It goes from self-organizing (no single company drives the content of its transactions or the economic outcomes) to hierarchical (some webs have a boss who controls the content, the pricing, and flow of transactions) The above literature shows how the considerations are different when we are designing the operations. When we are in business in the real world, we have the 4 Ps to consider in the traditional way. The price, product, place and promotion have to be determined after taking into account the internal and external factors that are prevalent in the business environment. But when we are designing the business architecture for ebusiness, then the factors that are mentioned above should be considered. The 4 Ps of marketing changes in the context and content. It is highlighted in the discussion Paper submitted by Bill Tulskie and Sugato Bagchi 4 Based on the analysis of over 600 e-business initiatives (as of October, 2000) implemented by companies around the globe and in diverse industries, they have identified the following building blocks for making the ebusiness model: 1. Online information exchange 2. Electronic execution and delivery of services 3. Customized (or personalized) services 4. Resource pooling 5. Business intelligence 6. Online collaboration 7. Offering aggregation In information exchange the authors mention that increased breadth, diversity, depth of information, increased frequency of information updates, increased availability of information, increased places where accessible, improved means of searching, improved flexibility of analysis, improved means of interpretation, better matched to user needs, more interactivity, simple access to complex analysis through easy to use interface for the customer and it reduces overall load on staff supporting the recipient, provides data on the usage of the information by the recipient, electronic storage, manipulation, and delivery of data results in lower incidence of errors, Cheaper channel for dissemination of information, more frequent information updates can be made, ability to reproduce information items at close to zero cost, ability to store information items in electronic form, transaction security and privacy, gather and analyze user profiles, mining of usage data for patterns and to better understand the user. The other aspect of Ebusiness the electronic execution and delivery of services which is vital for the success of the business will have lower transaction costs for routine, high volume transactions, reduced transaction time, faster access, broader service availability (time and place), service better customized to recipient wants and needs, better accommodation of service timing (suspend/resume), reduces overall load on staff supporting the recipient, off loads mundane support tasks, allows staff to focus on more complex tasks, allows staff to focus on exceptions instead of routine tasks, provides expanded data for analysis of support improvements, attracts more clients through better quality of support, wider variety of information, reduces rework due to lower incidence of errors, learning effects and process integration increases partner switching costs, better management of uncertainty or variability in partner relationship and processes, provides basis for collecting valuable usage information, increased learning to the firm, better economics for increased service availability. With respect to customized/ personalized services, ebusiness is able to reduce transaction time and cost, information is organized according to preference, alerts and reminders are made for specific events, recommendations and promotions tailored to recipient's interests, no need to provide the same data on multiple occasions, access to recipient wants and needs (at the level of individuals rather than segments), more targeted promotions and cross-sells (for customers), increased switching costs for partner, increased likelihood of repeat transactions, simultaneously cater to diverse segments, offer differentiated pricing. Also the authors mention that in ebusiness model in the organization will be able to pool in resources through single point of contact within the firm, better quality of service due to centralized expertise, more reliable service ,better quality of service due to aggregation of information across firm, lower costs of operations through resource sharing, free up resources to focus on more specific tasks, better sharing of information, better management of knowledge through centralization, better coordinated interaction among related departments. The firm can also acquire Business intelligence through the collection, synthesis/integration and analysis of data to identify useful patterns in past events that enable the identification of areas for process improvement or prediction of likely future events. This will help in the Proactive identification of needs based on a more comprehensive integration of facts, communication better targeted to interests (less noise) , communication better directed to knowledge level (more understandable), less wasted effort on low probability opportunities (weak associations), better opportunity selections, better returns on selected opportunities, better relationship with BI target (customer, supplier, etc), better information for distribution within the firm, less ambiguity in decision support and coordination within the firm, better information for sharing with partner, data gathering, data synthesis/integration, analysis (data mining, filtering, searching) technologies, identification/classification of targets (customer, suppler, etc ) by profiles. This is a comprehensive piece of evidence about how the business management will have to encompass the basic business development in a more sophisticated method. In the coming pages, the analysis of the working of amazon.com and the comparison of its business strategies with that of a book store in the real world is undertaken. www.amazon.com When amazon.com was launched in 1995, the motive was to "grow big fast". It acquired other websites and extended its products available and amazon.com was launched in other countries like France, Canada and United Kingdom. If we analyze the internal strengths of the company for this success, the main reason is the focus on brand image. Building a brand image in was drawn from two areas: a large product selection complimented by additional product information about these products and the pricing policy which offers considerable discounts for many of its products.(Fred. R. David, 2005)5. When we analyze the e-marketing at Amazon and the marketing for a book store, in marketing the main focus was to develop the brand image for Amazon. This was because there were large number of competitors and there was nobody dominant in the market and selling books on the internet was also a new concept. First when it comes to product, the company as able to give extensive book titles with some added features. Next the prices were cheap with discounts offered. In the promotion aspect, the company spent a lot of money in advertising and brand building. What is the crucial factor that has contributed to the success of the company with respect to marketing. The difference lies in the lack of geographical borders. When the geography does not become a barrier, the products sold reaches the global market and hence, the availability of a wide range of products is possible. Cost with respect to the building, infrastructure cost and other operations cost with respect o running a book store is virtually nil, except for the cost of maintenance of the website and hence, the company an offer cheaper rates and more discounts. Hence, the company is able to grow at a faster rate than the real world book stores. In procurement, a bookstore in the real world will have tie-ups with the publishers. This relates to the number of titles that are sold in the store. But amazon.com, has developed a very successful B2B business model, whereby, amazon.com operates as two groups, number one Amazon Advantage, which offers services for publishers and Amazon Associates, which deals with the book resellers. Online retailing is a low margin affair and the ease with which the prices can be compared between the competitors, will always keep the prices low. In a low margin business, the companies that ultimately succeed are those that can keep the operating costs to the minimum. Hence, bulk buying from the suppliers. This cost savings it can pass on to the customers which will ultimately benefit the company. (Fred. R. David) In the real world book store, this kind of bulk buying and tie-ups with extensive nature will not be done because it will add tot eh cost of operations and create stock build ups. Hence, for the virtual company B2B business models are different compared to the real world businesses. Security and payment systems The payment systems at the amazon.com are made better, more secure and more technically updated every day. Now Amazon has introduced the electronic currency payments systems in France and Denmark. According to Caroline Paunov (consultant) and Graham Vickery6, in their report have analyzed the features and advantages and disadvantages of various online payment system. In their report they have explained that " Online cash systems are software-only electronic money instruments based on -signed money". Consumers have to perceive an advantage in this system over available alternative options. There are different costs for prepaid card and smart card systems. Prepaid accounts such as scratch-cards have physical card and distribution costs as well retailer commissions. For smart cards there are additional installation costs for consumers, as specific software and hardware are generally necessary for online use. Both electronic currency systems may also require large databases to prevent abuse such as double spending, adding a further overhead cost. Overall, these systems potentially have large transaction costs that may limit their use in some applications. Electronic currency systems potentially allow anonymity in the same way as paper currency in offline transfers. However, providers may require consumer registration and undermine the potential for anonymous payment of these systems. Out of all the systems of payment available for the ecommerce businesses, the company should choose the kind of payment system based on factors such as the nature and distribution of the consumers and the kind of technology needed. These kind of security issues and technical problems need not be encountered in a "brick and mortar" business. The payment options and security options are limited and the risks of fraud are very less. In case of a eBusiness company, the reliance on the technology for its operations especially with respect to receiving payments and managing its supply chain is high. This is a crucial distinguishing factor that has to be kept in mind when we design a ebusiness model. Technology is the key for success, whatever may be the operations, whether it is procurement, customer service, payment systems, etc, etc. the more the development of the company the more is the dependence on technology. Distribution system The distribution and supply chain management should be very strong for a ecommerce business company. When the company tries to reach global consumers and if it sis not equipped to meet the demands through efficient supply chain then the image of the company will get affected. Hence, Amazon.com has invested heavily on its automated distribution centers across the United States and overseas and has the infrastructure to fill customer orders faster than the competitors, especially during the peak periods like the holidays. Analysts feel that this infrastructure give the company tremendous competitive advantage over other online competitors. Operating a handful of automated warehouses is still cheaper than operating a thousand retail stores. Also amazon.com as a very strong customer service set up. the company offers comprehensive help files on its websites and in addition to positive feedback, it seeks to maximize customized services by providing fast acknowledgement of orders and fast responses to customer queries. There is also a round the clock telephone service.(Fred. R . David). The company has got offshore outsourcing contract with Indian companies for customer service support. With its B2B and B2C business models, the company has created an extensive and effective way to increase the traffic to its site. To increase the volume of business, the company has built an extensive network of supplier with its site and this had facilitated the company to pass on the benefit to the customer. This in turn results in more profits. hence, ti forms a synergy and it adds to the competitive strength of the company. This in turn helps in more acquisitions and introduction of more products and services to the customers. CONCLUSION The number of internet users are increasing on high rate. it is believed by experts that 23000 new users are added every week to the internet across the world. The technology that is necessary for easy access of internet is getting improved in many countries especially in the African countries. Also, more number of countries are opening up the internet for use by its common man, for example Saudi Arabia has recently allowed its public to access internet. This growth rate will definitely fuel the growth of the ecommerce. Especially for companies like Amazon.com it will be a great advantage and more opportunities for growth will open up. But this will also attract competition. More stronger and focused competitors will start to emerge and the company has to devise stronger strategic plans for its continuous growth. REFERENCES 1. Gates, B(1999) Business At The Speed Of Thought, Warner Books, New York 2. Torbay, M. D, Osterwalder, A and Pigneur, Y (2001), eBusiness Model Design, Classification and Measurements, Thunderbird International Business Review, Volume 44, no. 1, pp 5 - 23 3. Tapscott, D., A. Lowi, D. Ticoll, (2000). Digital Capital - Harnessing the Power of Business Webs, Harvard Business School Press, quoted in Torbay, M. D, Osterwalder, A and Pigneur, Y (2001), eBusiness Model Design, Classification and Measurements, Thunderbird International Business Review, Volume 44, no. 1, pp 5 - 23 4. Tulskie, B and Bagchi, S (2000) "e-business models: Integrating Learning from Strategy Development Experiences and Empirical Research", paper submitted at the Annual International Conference of the Strategic Management Society, Vancouver, October 15-18 5. David, F. R (2005) Strategic Management: Concepts and Cases, Prentice Hall, New Delhi 6. Pauvnov, C and Vickery, G (2005) "Onlien payment system for eCommerce", organsiation for economic Co-operationa nd Devleopment, avalablea at http://www.oecd.org/dataoecd/37/19/36736056.pdf. 7. Frick, V., B. Gill, A. Lill, K. Murphy. (1999). "E-Business: opportunities, threats and paper Tigers", Gatner-Group R-09-8265 December. 8. Ushold, M., King, M. (1995) Towards a Methodology for Building Ontologies, Workshop on Basic Ontological Issues in Knowledge Sharing, held in conjunction with IJCAI-95, Montreal, August 20-25. Read More