Investigation, critical analysis and formulation of e-business strategy for Under Study who manufacture, maintain, service and support scientific machinery and accessories.
To generate research and formulate an e-business strategy for the company by means of applying five analytical tools in strategic management.
Discuss the challenges of adoption of e-business and evaluate the critical success factors for e-business in relation to the company
Critically review the process analysis in relation to operations with a view to improving performance.
Executive Summary (Synopsis)
The aim of the project is to investigate the current state of the company with a view to investment.
The intention is to identify and set objectives for an e-business strategy.
The company under study has a workforce with over 150 years of experience in manufacturing, maintaining, service and support of scientific machinery and accessories. It is part of a larger group of five privately owned companies. The company aspires to expand its operations into new countries and produce innovative products with exceptional quality however it currently operates with dated and obsolete equipment with no long term business to business agreements, minimal profit margins and no e-business strategy.
The report will review a process analysis of the company in relation to expanding its operations into a new country with a view to improving performance.
The first part of this report applies five analytical tools in strategic management concluding with an evaluation of a proposed approach. The second part of this report details the challenges of e-business adoption ending with an evaluation of the critical success factors. The third part of this report is a critical review of the process analysis.
The objective of this task is to formulate a suitable E-business strategy for the company. Competition has always been central to the agenda of companies. Strategic planning has now become widely accepted as the important task of charting a long term direction for a company. Strategies offer a frame work for understanding position and the underlying forces of competition (M Porter). Reviewing Information Systems (IS) and Information Technology (IT) are used in business to add value and achieve objectives (McKay and Marshall, 2004). Identifying internal and external forces is essential to understanding and defining strategic goals and objectives. The rate of change in both internal and external environments of manufacturing firms is increasing, which necessitates that increased attention be paid to strategic planning and strategy formulation. The approach for this task will mirror that suggested by McKay and Marshal who recommended that internal and external analysis can create an e-vision. An appropriate devised e-business strategy can then be proposed.
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McFarlan’s Strategic Grid
In 1993 McFarlan and McKenney provided a strategic grid to examine the strategic role of information technology. The tool is useful in balance decision making. Analysing and understanding the company’s information technology and information systems will be vital in terms of how the company does its business currently and how its business model or e-business strategy is formulated for the future.
Factory: High operational impact, low strategic impact, this quadrant is about operational improvements that affect large portions of the firm, and are aimed at improving performance or decreasing cost.
Turnaround: low operational impact, high strategic impact. This quadrant is about exploiting new technologies to provide strategic opportunities.
Strategic: High operational impact, high strategic impact. IT organisations that have most projects in this quadrant understand that IT can both improve core operations of the firm while simultaneously generating strategic options.
Application of Model.
Figure 1.0 Illustrates the company’s position in the McFlarans’s strategic grid as strategic quadrant. The company has identified that information technology and information systems are an important part of their future. This has been identified by the company’s desire for an e-business strategy. If the company utilised IS & IT more then the business will perform more efficiently and potentially gain a competitive advantage. Future investment in IT & IS is a necessity for the company’s growth. It can not be ignored that the company is positioned close to the turnaround quadrant but on analysis the company has identified its needs for growth thus strategic planning is of higher importance.
When analyzing the macro-environment, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organization’s supply and demand levels and its costs (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993). The “radical and ongoing changes occurring in society create an uncertain environment and have an impact on the function of the whole organization” (Tsiakkiros, 2002).
Kotler (1998) claims that the PEST analysis is a useful tool for understanding market growth or decline, and as such the position, potential and direction for a business. A PEST analysis is a business measurement tool. PEST is an acronym for Political, Economic, Social and Technological factors, which are used to assess the market for a business or organisational unit. The PEST analysis headings are a framework for reviewing a situation, and can also, like SWOT analysis, and PorterHYPERLINK “http://www.businessballs.com/portersfiveforcesofcompetition.htm”‘HYPERLINK “http://www.businessballs.com/portersfiveforcesofcompetition.htm”s Five Forces model, be used to review a strategy or position, direction of a company, a marketing proposition or a proposal.
As PEST factors are essentially external, completing a PEST analysis is helpful prior to completing a SWOT analysis, a SWOT analysis – Strengths, Weaknesses, Opportunities, and Threats – is based broadly on half internal and half external factors.
PEST ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985). PEST is useful when a company decides to enter its business operations into new markets and new countries. The use of PEST, in this case, helps to break free of unconscious assumptions, and help to effectively adapt to the realities of the new environment.
The results can be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans (Byars, 1991; Cooper, 2000).
Application of Model
The company opening in new countries must consider political factors such as regulations and legalities; for example an e-business may not be eligible to trade or have premises in a new territory. Chinese regulations for example have limited Google’s search engine, excluding Google’s You Tube. In March 2010 China banned Google’s search engine only to lift the ban a day after.
The company must monitor the new Country’s policies or regulations to ensure the way it conducts business is politically acceptable and thus not limiting any future strategies or goals. Ensuring the selected country has a stable political environment will aid company stability. Many countries have restrictive polices which are designed to protect local manufactures from larger organisations. Such policies often hinder foreign companies from entering into these markets. The company should form a strategic alliance with a local company to circumvent any limitations in opening in a new country.
The industry is in growth, this is indicated by the company wishing to expand and develop an e-business strategy. Funding in new country’s can be affected by monetary and fiscal rates. Changing inflation rates and currency fluctuation can determine the profitability of the company.
A depressed economy will generally be a luxury which results in a number of organisations going out of business, it can provide opportunities for some (Robinson and et al., 1978; Thompson, 2002). If the company is restricted by political issues this would be considered if an alliance was required to set up operations in a new country. A depressed economy could also give an advantage on labour due to high unemployment.
Energy availability and cost will require analysing for suitability in the new country. This could affect the e-business strategy in a negative or positive way.
(S)ocio Cultural Factors
Recruitment in a new country will have to consider technology limitations due to education. Higher educational standards will raise the probability of technology advancement thus having a competitive edge.
Consumers attitudes towards online transactions may negatively influence the e-business strategy however if the new country is emerging as an online leader due to political influences such as investing in IT then this could gain a competitive advantage.
Cultural attitudes towards e-business across the globe may affect the company objectives.
Safer online transactions will aid online communication thus improving business to business communications and orders.
Internet accessibility can determine whether the company’s e-business strategy will work. Some locations may have limited services or none at all. This can also be a competitive advantage if the area is in development or an internet provider is expanding.
Technology advances could potentially aid the company in being more efficient and lean. Becoming a lean world class business will aid the company in being financially competitive. Government investment in technology and research will aid growth.
SWOT has an extensive history as a model of strategic and marketing analysis. It has featured in strategy books since 1972. SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats in a project or in a business venture. It involves identifying the internal and external factors that are favourable and unfavourable to achieve that objective. The technique is credited to Albert Humphrey
It advocates say that it can be used to gauge the degree of “fit” between the organisation’s strategies and its environment, and to suggest ways in which the organisation can profit from strengths and opportunities and shield itself against weaknesses and threats (Adams, 2005). The tool is relatively simple to use but its impact if used academically could be influential in a new business strategy.
A weakness is that SWOT, having been conceived in simpler times means it does not cope very well with some of the subtler aspects of modern strategic theory, such as trade-offs (De Witt and Meyer, 1998).
- Strengths: characteristics of the business or team that give it an advantage over others in the industry.
- Weaknesses: are characteristics that place the firm at a disadvantage relative to others.
- Opportunities: external chances to make greater sales or profits in the environment.
- Threats: external elements in the environment that could cause difficulty for the business.
Application of Tool
The tool has been applied to the company to establish the strengths, weaknesses, opportunities and threats.
- 150 Years workforce experience.
- Good company name.
- High quality production and service.
- Constantly lowering costs to compete.
- Informative website
- Desire to grow the business into new territory.
- Competent workforce
- Strategic growth into new country / territory
- Supply directly to customer
- After sales service
- Privately owned
- International customer base
- Service and support is world wide
- Limited resources.
- Website is designed for marketing, no transactions.
- Limited investment.
- Bricks and mortar organisation no web transactions
- Skills shortage or little innovation.
- Weak marketing with no e-commerce or e- business strategy.
- Dated processing of supply chain management, lack of information technology and information systems.
- Profit margins are set to compete for business
- Still using some dated equipment
- Competition is unwilling to take on less important projects.
- Mergers or strategic alliances in new country
- IS and IT improvements for competitive advantage enhancing a professional company image.
- Website sales developing market.
- International market
- LTA (long term agreements) with suppliers and customers.
- Educated general manager.
- Logistics / transportation.
- Up to date technology manufacturing.
- Potential to open new site.
- Development of new technology, processes and materials.
- Faster manufacturing with less power (competitive pricing)
- Environmental leader
- Unsaturated market
- IT director with 20 years’ experience in e-business
- Language barriers in potential new country
- Competitive rivalry in global market for larger contracts.
- Fluctuation in global monetary policy fiscal/interest rates could leave the company exposed (supply chain).
- Cheap labour abroad.
- Fierce competition from larger companies.
- Possibility of a competitor developing new technology.
Porters ‘Five Forces’ Model of Competition
The Porter’s Five Forces model is a simple tool that supports strategic understanding where power lies in a business situation. It also helps to understand both the strength of a firm’s current competitive position, and the strength of a position a company is looking to move into. Despite the fact that the Five Force framework focuses on business concerns rather than public policy, it also emphasizes extended competition for value rather than just competition among existing rivals, and the simpleness of its application inspired numerous companies as well as business schools to adopt its use (Wheelen and Hunger, 1998).
The original competitive forces model, as proposed by Porter, identified five forces which would impact on an organization’s behaviour in a competitive market. These include the following:
- The rivalry between existing sellers in the market.
- The power exerted by the customers in the market.
- The impact of the suppliers on the sellers.
- The potential threat of new sellers entering the market.
- The threat of substitute products becoming available in the market.
Understanding the nature of each of these forces gives organizations the necessary insights to enable them to formulate the appropriate strategies to be successful in their market (Thurlby, 1998).
Application of Tool
Rivalry Amongst Existing Firms
Strong amount of rivalry within the company’s chosen products/industry. Rivalry is evident by the presence of larger businesses in the same industry. Competitive pricing indicates fierce competition.
Bargaining Power of Buyers
Buyers can approach the company and the competition (larger companies) thus creating competition and fierce pricing strategies. Long term agreements are essential to long term stability. The company accepting minimal profit demonstrates the bargaining power of buyers. The company doesn’t hold a niche product thus the cost of a buyer switching supply will be minimal.
Bargaining Power of Suppliers
Suppliers could strategically integrate forward for example assemble the product and sell direct to customer.
The World Wide Web (www.) reduces the possibility of supplier’s rates being overpriced and uncompetitive. The company can access the www to research suppliers and costs to ensure the right price is being paid thus forcing the supplier to have less bargaining power.
If the cost of switching supplier is high e.g. switching from one component supplier to another though there is no evidence of this to the company, it shouldn’t be overlooked.
Threat of New Entrants
The high set up costs and technology reduce the risk of new entrants. This is indicated by larger organisations as competition. The desire to develop the business into a new country indicates that competition is minimal. Competitors could retaliate when made aware of the company establishing itself in a new country.
Threat of Substitute Products
The threat of a substitute product is high. The company are manufacturing dated products. New technology could eliminate the need for the dated product thus ending the majority of the company’s revenue.
The threat of the customer not needing the dated part, designed out of the end product. There is no evidence to support the threat but choosing to ignore it could be costly.
McKinsey 7S Model
The McKinsey 7S model was developed in the late 1970s and named after a consulting company, McKinsey and Company, which has conducted applied research in business and industry (Pascale & Athos, 1981; Peters & Waterman, 1982). The 7-S model is a tool for managerial analysis and action that provides a structure with which to consider a company as a whole, so that the organisation’s problems may be diagnosed and a strategy may be developed and implemented. The 7-S diagram illustrates the multiplicity interconnectedness of elements that define an organisation’s ability to change.
The Seven-Ss is a framework for analyzing organizations and their effectiveness. It looks at the seven key elements that make the organisations successful, or not:
- Strategy plan of action
- Structure dictates way the company operates and performs (Waterman, 1980)
- Systems user friendly as possible (Lynch, 2005)
- Style important in the performance of strategy (Martins and Terblanche 2003)
- Skill to maintain competitive edge in technology advancement
- Staff people make a business successful
- Shared values common goals working together to achieve them
Application of Tool
The company has a desire for growth by entering in to a new country and establishing an e-business strategy. Realisation of company’s business strategy and the group’s corporate goals requires substantial capital investment in the near future.
The structure of the company often dictates the way it operates and performs (waterman et al 1980).
No formal alliances.
Customer satisfaction the website offers a feedback mechanism
Local area network provides administration a range of functional applications. The wider area network enables access to email and the World Wide Web.
The company utilises computer aided design (CAD) and has a new stock control system which will drive forward control and the desire for efficiency.
The company prides itself on quality of products and services satisfying customers has a grate deal of focus. Over engineering a product to achieve superior quality may hinder effectiveness to compete in pricing. Utilising a competitive prising strategy to establish sales.
Over 150 years experience. Develops machinery from design to manufacturing with the use of computer aided design (CAD).
Educated and enthusiastic general manager
Appears to be a lack of creativity/innovation amongst the company’s workforce.
In house training offered to customers in all aspects of machinery and instrumentation demonstrates a high skill level.
New general manager has ethicised the need for a flexible work force and working environment. A new recruitment policy has been recognized as a driver for development.
Service support contracts with emphasis on creating quality products and services.
Good relationships with a number of organisations, sector manufacturers and developers.
E- Business Strategy Objectives
Strategy is designed to transform the firm from the present position to the new position described by objectives, subject to constraints of the capabilities or the potential (Ansoff, 1965).
The author recommends the following objectives for the company’s e-business strategy supported by the data provided from the analytical tools used; SWOT, Porters Five Forces, Mckinsey’s 7S, PEST and McFarlan’s Strategic Grid.
- To innovate new technology and efficiency through strategic investment, employee motivation and empowerment.
- Increase efficiency and effectiveness e-procurement
- Increase revenue from global markets
- Establish an long term agreement (LTA)
E-Business Strategy Evaluation and Alignment with Business Objectives
To remain competitive in today’s global economy, the company must decide what methods, processes, and technologies will best optimize their operations. They have to weigh the company analysis and take action quickly in this ultra-competitive environment. Innovations and faster product development can also often create a barrier for potential new entrants (Porter, 2004) .The Company’s dependence on obsolete products and lack of innovation has been analysed as a threat in Mckinsey’s 7S analysis and SWOT. The workforce has a wealth of over 150 years experience yet the business relays on obsolete components as its main revenue. It is essential to form strategic alliances with suitable organisations across the globe. Collaboration between the businesses will form the foundation for the development of new products. To aid the process of managing the change the author would recommend a well chosen project management technique or tool be applied especially in the planning stage. A suitable tool would be Critical Path Analysis which was originally created to benefit large defence projects.
Two models, SWOT and Mckinsey’s 7S identified a lack of creativity/innovation amongst the company’s workforce. It is important for the organisation to instil confidence among the employees about their future in the organisation and future career growth as an incentive for hard work (Purcell and Boxal, 2003) Emphasis is needed on hiring the best staff, providing them with rigorous training and mentoring support, and pushing personnel to their limits to achieve professional excellence. Creating professional excellence will gain competitive advantage over competitors. Empowered employees become more proactive with ideas and solutions. To overcome pockets of reluctance to change, the company’s vision for change must provide an atmosphere of communication where concerns about transformation are not seen negatively but rather welcomed. Achieving empowerment and employee motivation requires continuous articulation and communication of reporting results and monitoring each individual’s contribution and accountability to the overall company’s objective. Leading others to think innovatively and promoting the continual discovery of new solutions and technologies is essential for the company to achieve its goal.
Motivation is the art of getting people to do what you want them to do because they want to do it (Dwight Eisenhower)
In order to maximise efficiencies across the supply chain the company needs to invest in information technology and information systems, the SWOT analysis has identified efficiency gains in e-procurement. IS and IT efficiencies will offer a competitive advantage also enhancing professionalism of the company and its overall image thus being more attractive to potential customers. Information systems and information technology are used in business to add value and achieve objectives (McKay and Marshall, 2004)
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The data from SWOT and PEST indicate the company’s weakness of not utilising e-commerce thus missing an opportunity. The analysis demonstrates that the website is non transactional and therefore does not generate revenue from new or existing customers. To achieve an increase in revenue from global markets the company must form an e-commerce facility on its already established website. Search engine optimisation and key word density will ensure the company websites place on the World Wide Web. A recommendation would be for an external company to monitor the company website and scan competitor’s sites, frequently reporting results. Recruiting a specialist company would guarantee the site is in the top 10 results for the company’s sector. Engaging in e-commerce will positively reduce risk of falling behind the competition. To address complexities of change, each component must be aligned, along with the enabling technology, (Statoil’s Data Quality Manager; Hesterbrink, 1999). Product suitability will need to be established during the planning stage. The company needs to be cable of adapting its business to thrive in this ever-changing world of e-business.
In order to recoup costly investments in new production technologies the company needs to be assured that there will be income in the future to pay for the investment, as a way of reducing the risk in the investment decision. Establishing positive relationships and service are extremely important in winning business.
It would be clear with an LTA (long term agreement) that customer is committed to the company. The technology advanced product would be key to a successful business to business (B2B) relationship. The company vision shows the company is committed to delivering to the customer a high quality product, on time and at a competitive price which in its self and with the SWOT analysis shows the need to invest. Securing long term agreements will create a competitive advantage.
The objective of this task is to discuss the challenges of adoption of e-business and evaluate the critical success factors (CFS’s) for e-business in relation to the company.
Critical success factors are the essential areas of activity that must be performed well if you are to achieve the objectives. The concept was developed by D. Ronald 1961 and refined by John F Rockart 1981. The company faces various challenges in implementing e-business. Critical success factors can typically be identified for each individual objective.
The initial test is financing the change process. The company has previously restricted investment due to the unavailability of resources and the absence of commercial awareness of innovation. Positive changes have been put into operation to overcome the obstacles such as employing an enthusiastic, educated general manager and a IT director with over 20 years experience. Initial costs of implementing e-business are:
- Preparation or project management and communicating the strategy
- Consultancy fees for Information systems and Information technology
- Recruitment is costly when advertising for specialists
- Equipment and software installation including maintenance / service costs
- Reorganisation of business to ensure world class lean principles are applied
Implementing an e-business strategy will raise numerous issues within the workforce and business.
Essential training will need time allocating. The company will have to capacity plan the impact on the business.
Training the workforce to operate the new equipment / tools
Creation of new procedures is time consuming
Support, emotional and stress often employees dislike change
If an alliance is formed will both sites be utilised potential redundancies
A formal approach for managing change, beginning with the leadership team and then engaging key stakeholders and leaders should be developed early and adapted often as change moves through the organization the leaders themselves must embrace the new approaches first, both to challenge and to motivate the rest of the organisation. They must speak with one voice and model the desired behaviors.
Security is a prime concern for the successful adoption of e-business (Chaffey, 2007). Data utilized by the company requires safeguarding against:
- Fraud or theft
- Failures in the system data recovery and backups on or off site
- Electronic espionage
- Customer information
Firstly a suitable company needs to be identified for its qualities and business presence. The alliance company will need to compliment the company regards to vision and objectives. Organisational differences will need aligning for example one company may have a strong environmental stance when the other chooses to ignore the issues thus causing friction and possibly undermining already implemented procedures. Once the organisations have formed realignment or restructuring will need to be completed for example in lean world class manufacturing both sites would not require a human resource executive. The alliance formed must be mutually beneficial to both sides thus creating harmony between the two businesses.
Long Term Agreements
It would be clear with an LTA (long term agreement) that the customer is committed to the company. Developing innovative technology would be required to approach potential new and old customers with the objective of securing an LTA. The technology advanced product or products would be key to a successful business to business (B2B) relationship and long term agreement.
The company vision and the acknowledgment of a required investment demonstrates the company is committed to delivering to the customer a technology advanced high quality product, on time and at a competitive price which in its self and with the SWOT analysis shows the need to invest. Securing long term agreements will create a competitive advantage and a secure future.
Worldwide trading is a competitive market with numerous challenges. E-business will encounter cultural variances which will need to be overcome if the implementation is to be fully successful. Operating in a worldwide market will create a fiercely competitive environment. The United Kingdom is known for technology development but not mass production. Technology development is suggested to be skills related. Mass production is suggested to be low cost labour operating with proven processes if a suitable product is developed then a consideration must be applied for outsourcing production to a low cost labour facility which will allow the company to compete in the worldwide market.
Small and medium sized businesses are often reluctant to develop into e-business due to resource. The company will have to commit to resourcing the e-business strategy.
Implementation of the software will be challenging, adapting the workforce to an automated business process will be difficult. Employees are often reluctant to change. A transformational management style would be beneficial in impleme
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