Lecture 3 – The Strategic Framework and BPR for e-Business

Source:

1. SWOT Analysis: It’s time for a product recall, by Terry Hill and Roy Westbrook (1997)

2. A knowledge-based SWOT-analysis system as an instrument for

strategic planning in small and medium sized enterprises, by G. Houben, K. Lenie, K. Vanhoof (1999)

3. PEST Analysis – by D. Nobburn (1997)

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Lecture 3 – The Strategic Framework and BPR for e-Business

Strategic Framework

Strategic framework refers to mapping out of strategy for a firm. It considers a broader context of the firm, including both internal and external factors, together with the people involved in the business. By this management approach, the firm can choose the most optimum business strategy.  

PEST analysis and SWOT analysis are introduced in the lecture.

PEST Analysis

The diagram below shows the components and content of PEST analysis.

1. Political (P)

Usually refer to government issues. Examples of political factors include employment laws (minimum wage law in Hong Kong), tax policy, product labeling requirements and environmental regulations.

2. Economic (E)

Examples of economic factors includes changes of interest rates, inflation rates, GDP and consumer spending power

3. Social (S)

Usually refer to demographic and social-cultural issues. Examples of social factors include ethical and religious issues, age distribution of customers and living standards.

4. Technical (T)

Examples of technical factors include technical legislation, automation of systems, the Internet and change of technology needed.

Below is a useful video demonstrating the use of PEST analysis on animation industry.

SWOT Analysis

The diagram below shows the components and nature of SWOT analysis.

1. Strength (S)

Strengths often refer to a well-known brand name and reputation, products and services of high quality. Or more internally, strength of a company can also be a strong team of staff with strong management technique. Also, it may also refer to expertise or strong experiences in some particular aspect.

2. Weakness (W)

Some typical weaknesses in a company are inefficient inventory systems, a poor planning process, little innovation in products or services over a period of time, lack of expertise, weak marketing strategies and wrong allocation of company resources.

Strengths(S) and Weaknesses(W) are factors internal to the organization. By their nature, internal factors are possible to control and change. Firms can therefore grasp their areas of advantage and improve unsatisfactory areas. 

3. Opportunity (O)

Exploiting golden opportunities can help a company improve its profitability. One must-state example is use of e-Business and Smartphone apps. Most companies are using their websites to let customers know the details of their products and products online. Creating a Smartphone app is also an opportunity to find new customers. It also can cut business costs effectively.

4. Threat (T)

Threats for companies typically include international competition, market weakness, changes in customer needs, and environmental concerns. Market changes and environmental changes are main cause of threats. For example, most banks need to develop e-banking because they are afraid that their market shares will be lowered as their main competitors might have e-banking for years.

Opportunities (O) and Threats (T) are factors external to the organization. It refers to microenvironment analysis of a firm.

Below is a useful video to help you understand more about SWOT analysis.

E-Business Models

Below is a picture that clearly show the 4 most ordinary types of e-business models and its respective examples.  There are also more  e-business models like B2B2C or B2G models.

B2B (Business-to-Business)
Companies doing business with each other such as manufacturers selling to distributors and wholesalers selling to retailers. Pricing is based on quantity of order and is often negotiable.

B2C (Business-to-Consumer)
Businesses selling to the general public typically through catalogs utilizing shopping cart software. By dollar volume, B2B takes the prize, however B2C is really what the average Joe has in mind with regards to ecommerce as a whole.

C2B (Consumer-to-Business)
A consumer posts his project with a set budget online and within hours companies review the consumer's requirements and bid on the project. The consumer reviews the bids and selects the company that will complete the project. Elance empowers consumers around the world by providing the meeting ground and platform for such transactions.

C2C (Consumer-to-Consumer)
There are many sites offering free classifieds, auctions, and forums where individuals can buy and sell thanks to online payment systems like PayPal where people can send and receive money online with ease. eBay's auction service is a great example of where person-to-person transactions take place everyday since 1995.

Case study - McDonald's SWOT analysis

Strength

• more than 23,500 restaurants in 109 countries
• able to operate effectively during economic downturn due to the social need to seek out comfort food
• successfully adapt their global restaurants to appeal to the cultural differences
• Successful adoption of franchisees, 85% of McDonald's restaurant businesses world-wide are owned and operated by franchisees
• efficient and smooth food preparation process
• able to maintain food quality and freshness
• focus on food safety 
• pioneer to provide nutrition information of food

• Weaknesses

• high employee turnover --> High training costs
• problems with fluctuations in operating and net profits which ultimately impact investor relations. (Operating profit was $3,984 million (2005) $4,433 million (2006) and $3,879 million (2007). Net profits were $2,602 million (2005), $3,544 million (2006) and $2,395 million (2007)).

• Opportunities
• 
  

• healthy hamburger (people are now more willing to have a healthy lifestyle
• better restaurant settings to attract more upscale target market
• provide optional allergen free food items, such as gluten free and peanut free.

• 
  
• Threats

• critics on marketing issues targeting children is unethical
• blame for "unhealthy" products
• contamination of food during the food supply and production
• existence of strong competitors - Burger King, Starbucks, Taco Bell, Wendy's, KFC and other fast food restaurants

Case study - PEST analysis of Nike

Political factors

The government must create economic policies that will foster the growth of businesses. Nike has been benefited by the US policies which enable it to advance its products. The support accorded to Nike by the US government, particularly in the general macroeconomic stability, low interest rates, stable currency conditions and the international competitiveness of the tax system, form the foundation critical to Nike’s growth.

Economic factors

In economy, the biggest threat for Nike would be economic recession. During recession, Nike’s growth will be adversely affected. The US economy is experiencing a downturn right now. Consumer purchases are slowing down. Currently, Nike's feeling the pinch of the economic recession. The Asian economic crisis also affects Nike since its goods are manufactured in Asia. The labor costs and material prices are going up.

Nike's growth is not just affected by the local economy but also in the international economy. A weak Euro and an Asian recession could mean weak sales for Nike. The overall results in the sales generated by Nike in athletic footwear, however, remained stable. The global market makes up for the variances in sales particularly between peak and lean seasons.

Social factors

People are more health conscious nowadays. Diet and health are getting more prominence. Consequently, more and more people are joining fitness clubs. There is an accompanying demand for fitness products particularly exercise apparel, shoes and equipment. Nike is at the forefront of this surge in demand as people are looking for sports shoes, apparel and equipment.

Nike, however, failed to foresee problems brought about by a sweatshop expose pertaining to labor and factory conditions at production locations in Asia. This caused bad publicity and declining sales as society and consumers demand more socially responsible companies.

Technology factors

Nike uses IT in its marketing information systems very effectively. Nike applies marketing information systems to the economics of innovation, segmentation and differentiation for most of its businesses. Nike’s leadership status owes in large part to the use of extremely valuable Information Technology, and applying it to every aspect of the product from development to distribution.

~End of Week 3 Lecture Review~