This article is on the theoretical perspectives of the Positioning Approach, the Resource-Based View and the dynamic capabilities to aid the understanding of strategies for e-business in the digital world.
The positioning approach present the generic strategies, five forces and the value chain models as a basis for analysing the external and internal environments of firms that engage e-business activities as a means of creating a competitive advantage.
The resource-Based View as a means of identifying specific resources and capabilities that link online and offline activities. The dynamic capability theory focuses attention on the capacity of the firm to renew existing competencies in a rapidly changing environment.
The modern business environment is influenced and shaped by three dominant driversb- globalisation, collaboration and knowledge (including innovation). Each of them are enabled and enhanced by developments in information and communications technologies (ICTS) such as the internet, mobile and satellite communications and fibre optic cable.
These new technologies have contributed to the emergence of the digital economy which is characterised by the use of ICT to undertake business processes (e-business), effect transactions along the supply chain (e-commerce) as well as the coordination of entrepreneurial activities based on knowledge, creativity and innovation.
The business strategies of firms have changed so as to take advantage of the opportunities presented by the digital economy. Strategies for competitive advantage in this new economy are not based on mass production and cost reduction, but have now evolved to include firm’s ability to seek opportunities as well as adapt changes in market conditions, embrace change through innovation and embed learning in the organisation.
The Development of Digital Economy
One of the key characteristics of the 20th century was the technological advancement that changed the lives of people around the globe. The most significant event driving this change was the development of the World Wide Web (WWW) in the mid 1990’s. This allowed computer systems to connect on a global scale and ensured the commercial viability of the internet as a medium of communication.
The internet and other ICTs have played a vital role in transforming business by providing the means to increase efficiency, speed and quality of delivering products and services to customers. Some of the opportunities thrown up by these attributes include:
- Competitive advantage fostered by a mix of internet and ICT systems.
- Giving customers access to real-time information.
- Improved market share with efficiency in business functions.
- Business transactions beyond the boundaries of time and distance.
- New products and services through customisation/personalisation.
- New relationships with customers and suppliers in the connected world.
The use of internet to facilitate the above purposes was termed e-business. However, the use of e-business should not be confused for e-commerce. Whilst e-business is about electronic marketing, procurement, customer service, distribution, transaction fulfillment and the automation of business processes, e-commerce is concerned with buying and selling form of digital transactions.
When the internet is used for communicating and selling products or services to customers, it is called business-to-customer (B2C) trade. The sale of products or services to other businesses is termed business-to-business (B2B), The difference between the traditional economy and the digital economy are significant. For example, organisation structures have evolved from being hierarchical to network or virtual.
Many employees work remotely from the centres of business and use technology as a means of communication, collaboration and coordination in their work lives. Many activities and functions are undertaken by small groups of workers in various locations around the globe, all of whom rely on ICTs to communicate with partners and customers. The generation and sharing of knowledge dovetailed on the competitive drivers of innovation and creativity in a rapidly changing business environment.
Growth stems from the ability of firms to link innovation, knowledge and creativity to the speed and efficiency with which they can produce and sell high quality, value- added products and services to customers.
The Positioning Approach
The positioning approach can be used as a basis for discussion in the context of e-business. Porter’s models of generic strategy, five forces and value chain provide the theoretical undertones of the analysis. Generic strategies, as the name suggests, is applicable to many firms. The five forces model, as studied under the previous chapter is also generic and focuses on competitiveness and external factors. The value chain model, on the other hand, has an internal focus and can be applied to individual firms.
Generic Strategies for E-Business
The generic strategy model developed by Michael Porter (1985) was created to help firms overcome the constraints that emerge because of external environmental analysis. The model features strategies of cost leadership, differentiation and focus. Each can help firms achieve a competitive advantage.
Cost Leadership
Cost leadership refers to firms who are able to produce and sell products or services at the lowest cost compared to rivals. Porter argued here that a firm can achieve competitive advantage by being the least cost producer in the industry. In e-business however, this scope may be limited because of the intense competition in the internet economy. Other than this are numerous ways firms can seek a cost leadership position including the adoption of a broad market focus; minimising marketing costs and customer service; limiting the range of products sold; employing minimum number of staff; and investing in only cost reducing technologies such as information-based logistics. Cost leaders invariably imitate or benchmark existing and successful business models rather than incur the cost of creating new and innovative ones.
Differentiation Strategy
Differentiation strategy for competitive advantage is the ability of a firm to make the product or services different from those produced by rivals. The difference, called the unique selling point (USP) must add value to the customers. Many factors drive differentiations such organisational learning and scale and scope of activities. Some of the prominent as timing, location, partnerships, means of differentiating products or services in e-business include creating a strong brand and reputation; offering high quality website with ease of navigation and quick transactions and fulfillment; creating effective marketing campaigns; offering customized and personalized products and services; and offering delivery times better than rivals as part of superior customer service.
Focus Strategy
Focus strategy is the choice of market segment that firms aim their product or service at. Such market is called ‘target market. The choice may entail a narrow focus, whereby the scope of the market is detailed and clearly identified, or a broad focus where the scope of the market is defined by a group of segments. Firms may target a market segment based on age, incomes, geographical location, tastes, interests, gender and so on.
Firms resources are channeled to providing the types of products and services that meet customers’ needs and wants in those markets. For example, effective marketing and research into the market segment may reveal buying behaviour to product offerings that will inform the firm’s future strategy. Personalisation and customisation are featured strategy aimed at designing and producing products and services to match the needs of the target market. There are also cost benefits of targeting a small segment of the market referred to as niche rather than spreading resources more thinly across a large number of market segments or even the whole market. We will give a detailed discussion on generic strategies.
E-Business Value Chain
The e-business value chain is conceptualized around the virtual organisational structure. Porter, (1985) proposed a value chain model as a means of identifying those activities that form the basis of a firm’s strategy for achieving competitive advantage by driving down costs or differentiating the product or service. The four key steps to value chain analysis include:
- The definition of the strategic business unit under analysis
- The identification of key activities
- The definition of products or services
- The determination of the value attached to each identified activity.
The physical value chain activities as as illustrated below may include the actual distribution of the product to customers. This is evident in the virtual chain of online shopping of Jumia as given in the Mini case below.
One way the company succeeded in achieving this was to offer customers added value service by developing software that allowed Jumia to display products catalogue on the internet and track orders delivery to destinations. In many organisations, this is a vital added value as important functions and decisions may rely on the delivery times of goods. If customers can closely estimate the arrival time of goods, their brand loyalty increases.
Although this type of software is diffused throughout the industry now, Jumia is the first to market with the added value service and this gave it competitive advantage in the West Africa sub-region online shopping services industry.
Mini Case: Value Chain of Jumia Online Shopping Mall.
The core competence of Jumia is the efficiency of inbound and outbound goods that leads to superior service. The business model is built around the collection, storage and distribution of goods. The key to competitive advantage lies in bringing the products to customers quicker and more efficiently than rivals.
Though Jumia is new in this industry sector, but it has built a brand name and reputation that ensures a high level of brand loyalty within a short time. However, the company needs to continue to innovate and add value to customers to maintain that loyalty and improve on its market share with its competitive advantage.
The Resource Based View (RBV)
Internal analysis of a digital firm specific resource and the internal capabilities of a firm that allows it to compete in the industry include IT-specific tangible resources such as:
- Financial (cash flow, borrowings and equity)
- Physical (hardware, software and computers)
The intangible resources include:
- Technological (IT/IS applications)
- Organisational (processes and control systems)
- Human (IT expertise, skills, experience and knowledge)
- Innovation (creativity, innovative idea and technical aptitude)
- Reputation (quality, service, reliability and trust)
Organisational capabilities involve ability to leverage advantage from combining tangible and intangible resources. Strategic deployment of these resources and capabilities determines the performance of the firm and its unique value-added activities to create a competitive advantage. However, the challenge facing many firms is not just to create a competitive advantage, but to sustain it over a long period of time.
The RBV has been used as a basis for examining specific strategic issues relating to information technology (IT) and information systems (IS). For example, information systems as a resource feature in the study by Kettinger et al. (1994) into the sustainability of competitive advantage and firm performance; Prahalad (2000) takes a RBV in an empirical investigation into information technology capability and firm performance; Hamel (1995) examines measurements of information technology infrastructure from RBV perspective; and Porter (2005) adopt the RBV to link information technology and the performance of the customer service process.
Dynamic Capabilities in the Digital World
The dynamic capabilities refer to firms’ capacity to renew existing competencies within a rapidly changing and dynamic environment such as e-business.
The RBV failed to explain fully how some firms are able to gain competitive advantage in markets characterised by uncertainty and rapid change. Simply having access to appropriate value-adding resources is inadequate to sustain competitive advantage in such environments. However, dynamic capabilities can help gain a competitive advantage by reconfiguring current resources, gaining new resources, or making better use of other resources. Rindova and Kotha (2001) applied the dynamic capabilities approach to e-business and determined that to achieve competitive advantage, firms had to deploy their current resources in new and innovative ways and, in addition, they should continue to acquire new and valuable resources to maintain competitiveness.
Firms that are competing in the e-business domain needs to identify and deploy relevant dynamic capabilities to seek competitive advantage in the e-business environment. Daniel and Wilson (2003) propose a set of dynamic capabilities for e-business transformation to include:
- rapid strategic decision-making;
- acceptance of the need for strategic change;
- designing the value proposition to the e-business domain;
- re-configuration of the service process.Mobile Commerce
A key technological development that is affecting e-business is the emergence of the mobile wireless internet. This technology provides another channel for communications and transactions. Mobile commerce (m-commerce) is an interactive communication for undertaking business using mobile devices.
For it to be termed m-commerce that means there has to be some economic or business element to the communication. Watson et al highlights how m-commerce has changed the business view of time and space. The key underlying factors of m-commerce include ubiquity, universality, uniqueness and unison. Different types of technologies that can be installed in devices to facilitate m-commerce include Short Message Service (SMS), Bluetooth, Wireless Application Protocol (WAP), 3G, 4G and 5G services.
Market penetration for mobile phones has been contributed immersely in growth, fast paced and global in scale. As mobile telephone services reached saturation in leading markets such as USA, Europe, Japan and China, manufacturers sought competitive advantage by extending functionality and product differentiation through various designs. Additional functionality such as internet access, video streaming and photographic capability entered the value chain.
The M-commerce Value Chain
The value chain of m-commerce gives an insight into the role that each partner plays in the process and helps to reveal strategies for competitive advantage in the m-commerce environment.
This entails all maintenance of all operations equipment. The infrastructure vendor provides the necessary equipment that enables the service to consumers. This consists of servers, data management and systems integration hardware and software. The applications developers are responsible for converting internet-based content to the standards that enable wireless communications. The content developer provides the specific service demanded by consumers.
Finally, the mobile service provider maintains the links between all the players in the m-commerce value chain and the consumer. Firms that compete in the m-commerce domain are reliant on the partnership formed with the key players along the value chain.
The Importance of ICT in Contemporary Organizations
Organisational environments are increasingly complex and dynamic. Traditional bureaucratic organisational structures are no more very effective in such environments because they cannot change rapidly. Rather than be appalled by this fact, we would like to explore the reasons why organisations should embrace a loosely connected sub-systems, each of which operates more or less independently and can respond quickly to changing circumstances. Such sub-systems of networks which may involve internal as well as external units are linked together using ICT to ensure sufficient information sharing across the network. Some key features of ICT include:
- Decentralisation: Creation of semi-autonomous business units that not only focus on a particular market niche but also respond more flexibly and adaptively to the needs of the particular market niche.
- Flat structures: Less hierarchical structures that remove the middle managers and give individuals more autonomy in their work.
- Project teams: People are brought together to work in a cross-functional teams to encourage a faster response rate to projects rather than have each function work independently and then ‘pass over the next function in the process.
- Inter-organisational networking: Instead of choosing to integrate new required skills and competencies into the organisation hierarchy, organisations now work in collaborative alliances and partnerships with other organisations or using outsourcing arrangements to service particular internal arrangements. This encourages efficiency and quick innovation.
- Globalisation of business: Is based on organisations working across national boundaries. This has been achieved either through the acquisition of businesses in other countries, through partnership arrangements or through internal growth. This enables them to capitalise on global market opportunities and so potentially grow in size and profitability.
Enterprise Resource Planning (ERP)
Enterprise resource planning is a company-wide computer software system used to manage and coordinate all the resources, information and functions of a business from shared data stores and is often constructed. Gattiker (2004) identified three essential benefits that revolve around the ability to integrate business information across an organisation as:
Improving efficiency of work flow by reducing costly duplication of data. For example, administration costs are reduced because customer information has only one input. ‘Ghost workers’ challenge in Nigeria is being limited by the use of ERP in the public sector.
Providing opportunities for process innovation-based on exploiting the integrated data that is made available. For example, with customer data from sales feedback, an organisation can tailor marketing campaigns to the specific interests of customers and potential customers.
Improving quality service by having a full record of a transaction available. For example, a doctor treating a patient will have the full patient record available to them, which means that they can check whether other drugs the patient is already taking could contraindicate with the prescription under consideration. In recent times, people are more disposed to read or watch online video from a blog which solves personal problem than the conventional adverts.
Challenges Associated with ICT
The major challenge of ICT in organisation is that most organisations have not taking full advantage of its benefits. Moreso, the unethical practices involved in the use of ICT also calls for concern.
Strategic Implementation of ICT
The following strategies are advocated for implementing ICT in organisations.
Organisations should see ICT implementation as an ongoing and iterative process of design. A process that extends into the future, rather than as being seen as a single cycle. The organisation can choose when to upgrade based on its own needs.
Configure and customize the software so that it allows users to do what they could do in their previous environment. In addition to this, allow users a leeway of potential to do a lot more. This can significantly reduce resistance and may be a price worth paying.
Encouraging the emergence of community of practice where users share experiences and stories about their experience can be a really powerful mechanism to stimulate learning.
Provide users with an opportunity to experiment with the enterprise system (ES) so that they can begin to understand the system and its potentials. Care must be taken to avoid a new user corrupting the database or the workflow.
Organisation must recognize that some users may resist the use of ICT due to their different needs, perceptions and values. The organisation should however, create and design a unified system that is ‘good enough’ for various stakeholders within the system.
Conclusion
In summary, this article has introduced the development of strategic management thinking by highlighting theoretical models and frameworks that can be used to analyse business phenomena in the digital world. Three theories were used as a basis of explaining the development of strategies for e-business. The positioning approach underline a competitive environment within which many online firms operate.
The limitations of the model are exposed when one embraces a dynamic element to the analysis. The dynamic capabilities theory is designed to manage the fast changing and uncertain environment that characterises the e-business domain. The resources-based view reflected the wider range of resources and capabilities evident in e-business by taking into account intangibles as well as tangible resources.
The development of mobile wireless internet provides an additional platform for buying and selling (m-commerce). The competitive environment surrounding m-commerce is characterised by strategic alliances and partnerships to address the shortfalls in resources and capabilities of individual firms. The importance of ICT in all digital business was further stressed. ERP also looked at the use of computer software to manage and coordinate enterprise resources. Implementation of ICT strategy for digital economy sum everything up.