E-Business Planning Audit: helping businesses make good on the promises and avoiding the pitfalls of electronic business.

Goodnight, Janelle

Abstract

Moving at harrowing speeds, businesses have been created and destroyed in the tumultuous e-conomy. The topic of e-business has been a major focus of all businesses as they strive to determine what is the best approach to developing a profitable e-business application. Given the results of the stock market and the number of dot-com companies going out of business during the year 2000 and first half of 2001, it is clear that businesses need to better plan for their electronic business ventures. This paper proposes an e-Business Planning Audit to help managers and entrepreneurs better plan the launching of new electronic applications. Drawing upon traditional planning audits from the academic and trade press literature, the proposed audit involves a comprehensive tool to guide e-business development from concept development through implementation.

 "It was the best of times, it was the worst of times, it was the age of
 wisdom, it was the age of foolishness, it was the epoch of belief, it was
 the epoch of incredulity, it was the season of light, it was the season of
 darkness, it was the spring of hope, it was the winter of despair, we had
 everything before us, we had nothing before us."

 Tale of Two Cities, Charles Dickens

The above quote seems to be an apt description for the e-commerce environment today. In a relatively short time, e-commerce has achieved some of the highest of highs, thought to be bullet-proof to the vagaries of the old economy and rewriting the rules of business as previously accepted, to the lowest of lows. The latter half of the year 2000 brought the dot-com party to an end and the sobering reality that there was more to this business than having a web site and a few fancy computers. In some respects, e-commerce has become a much more complex business, given the speed with which dot-com businesses can be up and running.

Traditionally businesses evolved slowly, taking time to develop their capabilities and customer base, and establish their value proposition and distribution infrastructure. However, in the virtual world, ideas can be put into action before thinking through the value proposition and distribution or logistics. While there has been much excitement over operating in cyberspace, some businesses have entered into e-business too quickly. In a recent interview with eCompany, Barry Diller, Chairman and CEO of USA Networks, said, A lot of companies were out there running a race where the winner didn't win anything. Many dot-coms have not had the chance to properly develop, capitalize, or establish a customer base.

Businesses have rushed to the virtual marketplace in order to be first. Armed with a web site and venture capital, adequate planning was sacrificed for immediate operations. When asked what his biggest mistake was, Marc Schiller, co-founder and CEO of ElectricArtists, responded (eCompany, 2001), Not evaluating every aspect of our business often enough. We should have, every month, dissected our business from the top down, but we were moving much too fast. Some existing businesses, however, moved slowly, hesitant to proceed into this new environment given their lack of expertise. This is not a bad move for an existing business according to Richard Branson, Chairman and founder of Virgin Group PLC (eCompany, 2001). Branson advises that for some existing businesses it makes sense to, hold off until someone else has it right. If you have a strong brand, you should do well.

Both types of businesses could benefit from conducting an e-business audit to help develop a sound business strategy before implementation. Currently, there are few tools to help business owners, managers and entrepreneurs to evaluate their abilities to engage in e-commerce. Some of the tools that do exist are proprietary to e-business consultants (i.e. Forrester Research), and others are published in trade books (Hartman and Sifonis, 2000). An e-business planning audit for businesses considering entry into cyberspace is proposed using the classic Marketing Audit (Kotler et al. 1977) as a starting point to help bring success in the implementation phase.

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Differences between Dot-coms and Traditional Businesses

Importance of the New Economy. While businesses still try to discern what works and what does not work in the new economy, there is no doubt it has had and will continue to have a tremendous impact on both the domestic and worldwide economy. Forrester Research projects $3.5 trillion in business to consumer (B2C) and business to business (B2B) sales by 2004 in this country alone, with over $7 trillion worldwide. B2B e-commerce is projected to account for $2.7 trillion of this amount. While there is still much growth in this sector and many profits to be made, managers need to determine how to successfully take advantage of this potential.

Clicks versus Bricks. There are some differences between the old and new economies. E-businesses move at the speed of a mouse click. Traditional businesses are built with bricks. While both are engaged in commerce activities, there are factors involved in e-commerce activities that provide unique challenges.

Traditional businesses have physical facilities that serve specific geographic regions. As businesses expand over time, they have the luxury of being able to experiment with different business models and to evolve. While mistakes are made, many businesses are able to compensate and learn. For example, businesses can develop organizational and logistic structures gradually to accomplish the various tasks required for success. Marketing functions are established to communicate with consumers and help develop direction for the company in terms of product and service development.

E-businesses live in a much more tumultuous and fast moving environment. It is referred to as spatial, not linear (Bishop, 1998). Dot-coms were created in cyberspace. Aside from the technology involved, many companies exist only as web sites. The virtual corporation has evolved (exhibit 1), where most of the business processes (manufacturing, supply, logistics and customer service) have been contracted out to supply chain partners. The critical management, research and development, and marketing activities are all that remain within the virtual corporation (Applegate and Gogan, 1995). To the casual observer, many of the early success stories, such as Amazon.com, Yahoo, and etoys, helped to perpetuate the belief that a successful dot-com was built only with new technology. Thus, a new business model was created. Armed with the Internet, business was supposed to be easier for both the entrepreneur and the consumer. However, recent market events reveal that even dot-coms have to be concerned about traditional bottom line profit issues.

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In a very high profile disaster, Toys R Us learned first hand that e-business success requires more than just taking orders over a web site. They learned, during Christmas 1999, holiday season, the expensive consequences of not delivering the product to customers on time.

Critical success factors are now beginning to emerge that will help dot-coms become more successful and long-lived. Businesses, both dot-coms and traditional, need to address the following issues when considering the jump to cyberspace:

Business Process: Long before creating the first web page of an e-business storefront, managers need to understand the fundamental business process currently used to deliver value to consumers (Afuah and Tucci, 2000). Dot-coms have learned that it is not fancy technology, but providing consumer value that counts. An extensive analysis of value creation is required. However, it is important to determine how the use of e-technology can actually add value to the customer over that which is already received from the bricks side of the business (Hartman and Sifonis, 2000). For example, Autobytel, Carpoint and other cyber intermediaries allow consumers to purchase cars and trucks on line. What value is added over and above that provided by traditional car dealerships? One Answer: Consumers can now enjoy a larger selection of vehicles from which to choose. This increases the probability of their getting a vehicle that exactly satisfies their needs without having to place a special order with the manufacturer.

Organizational Structure: One of the major differences between the dot-com world and traditional businesses concerns organizational structure (Hartman and Sifonis 2000, Windham 2000). Given the entrepreneurial nature of dot-coms, their organizational structures are relatively flat. This allows for flexibility and quick adjustments to environmental change, a critical strength when the industry is changing almost daily. In February 2001, Disney restructured its e-commerce initiative with Infoseek that created Go.com. The restructuring, brought about by poor revenue and profit performance, resulted in the elimination of the e-commerce division as a separate entity. Disney brought e-commerce in-house to better manage the business, its brand, and improve financial results.

Technological Resources: If a company does not have the technology, it cannot compete in cyberspace. However, having the technology does not mean a company will be successful. Napster was wildly successful in creating a new model of peer-to-peer exchange by allowing individual users to exchange MP3 music files.

The business had great technology, fantastic acceptance and penetration among high school and college students, but ran afoul of music industry copyright laws. The ensuing legal battle put the company out of business despite its technology and success. In the traditional business, technology, while playing an increasingly competitive role, is not as critical to the mission of the company as it is to dot-coms. Record stores do not need the most advanced technology to conduct business, whereas Napster did. Record stores, however, are still in business while Napster isn't.

Ability to Learn: With the advent of sophisticated information technology that helps create large data warehouses, businesses have increased their ability to learn. This is an objective critical for any business, traditional or dot-com. Businesses must learn about their consumers, competitors, environments, and other relevant influences on business practices (Kotler, 1977). In the traditional business, managers often rely on direct contact with customers, gathering information informally. This qualitative type of information helps to supplement more quantitative data collected through surveys and housed in the data warehouses. Remembering that virtual corporations often outsource product delivery, for many dot-coms the only interaction customers have with the company is through the web site. While there is an opportunity to collect significant amounts of personal information, customers are wary about giving that information to companies without guarantees of protection. Thus, data warehouses for dot-coms have become critical for success in the e-conomy. It is through the better understanding of customer needs that value added products and services can be created. E-business may also have great potential for a more depersonalized customer experience with the company. When customers are dissatisfied, they are more apt to send aggressive emails. However, this does not quite compare to the irate customer standing in a store demanding satisfaction. Amazon.com maintains an extensive data warehouse on its site visitors and customers. They use this information to personalize the customer experience, offering suggestions of books to read based on past purchases and offering complementary products.

Logistics: This long unglamorous aspect of marketing is finding a new level of respect from e-business. It is the procurement and distribution aspects of business that has become a critical success factor for companies doing business on the Internet (Gomolski 2000, Kleindl 2000, Krueger 2000). Wal-Mart has shown how distribution and logistics can create a substantial competitive advantage in the marketplace. However, Toys R Us has shown how logistics can prove problematic for even the largest of retailers during the 1999 Christmas season.

Toys R Us teamed up with Amazon.com (a relatively successful dot-com) to correct e-commerce logistics in the 2000 Christmas season. Logistics, while critical for brick and mortar businesses, was less problematic since most businesses worried about getting the product to the more geographically concentrated retailer. The consumer typically worried about getting the product home. Consumers have experienced tremendous change and complications because the company is now responsible for many individual and consumer orders as opposed to fewer and larger business orders.

Branding: Traditional marketing practices are anticipated to give way to new and better practices. Branding, however, has seen a resurgence of interest. Dot-coms are realizing that having very few tangible assets to show consumers makes it increasingly difficult to establish a clear image in customers' minds. Businesses like eToys did not have to invest millions of dollars in physical toy store locations like Toys R Us or Kay Bee Toys. However, eToys did have to invest tens of millions of dollars in traditional marketing communications to establish and position the brand in the mind of the consumer. It has been estimated that dot-com firms spend an average of 119% of revenues on advertising (Mowrey, 2000).

Creating a Dot-com

All of these issues are critical for businesses contemplating the jump to cyberspace e-conomy. Marketing becomes of particular importance to the firm conducting business in cyberspace because this is one area of the business not likely to be outsourced to some other partner (Applegate, 1995). Businesses can affiliate with manufacturers and distributors to provide products to sell. Partnerships can be developed with companies like FedEx and United Parcel Service to handle logistics and distributions. United Parcel Service (UPS) is moving aggressively to position itself as an e-business problem solver. Marketing, however, is often kept in-house because it does not have the physical investment requirements these other activities do. Marketing is also very important because the more a business is virtual, the more marketing is the business. Dot-com companies exist in cyberspace and consumer interaction takes place via the web site. This web site then becomes the embodiment of the business, and the brand becomes the business. Because of the increased importance placed upon marketing, there is increased need for businesses to assess their marketing abilities. Kotler et al. (1977) developed the classic marketing audit to help businesses assess their marketing capabilities and better develop marketing plans and strategies. There are also proprietary audits developed by research firms and private consultants. Some e-commerce readiness tools have been published in the trade press (Hartman and Sifonis, 2000).

However, despite these resources, very few tools are available to help managers assess their current activities and requirements for making the jump to cyberspace. To construct an e-business planning audit, it can easily be argued that the marketing audit is a good starting point. Further, Kotler et al. (1977) audit can be updated to take into account some of the unique characteristics of the E-conomy.

Kotler et al. (1977) outline six areas that firms should audit to determine marketing effectiveness. These areas are the environment, strategy, organization, systems, productivity, and functions. When a firm decides to conduct business on the Internet, similar areas are of importance to a firm's ability to succeed.

E-Business Planning Audit

The traditional marketing audit provides much guidance to the business with respect to assessing its marketing capabilities. However, there are unique characteristics to e-business that require the consideration of businesses contemplating conducting business on the Internet. It is argued in this paper that an e-Business Planning Audit that retains many of the relevant components of the classic Marketing Audit, but also addresses new issues important for success in the virtual economy, is important for e-business success. This will be of great value to the business seeking to conduct or that is already conducting business on the Internet.

The e-business Planning Audit consists of seven separate assessments (see Exhibit 2). These include assessments of the Environment, Value Creation, e-Strategy, Organization, Systems Infrastructure, Productivity, and Marketing Functions. Each of these areas will be examined more closely in the next section. A detailed list of issues to be addressed in the audit can be found in Exhibit 3.

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Environment Assessment: The environment in which a business operates exerts tremendous influence on business performance. For example, economic business cycles of recession and prosperity impact the success of a business. As stock markets fluctuated wildly throughout the year 2000 and consumer confidence waned, many dot-coms closed their virtual doors due to falling stock prices. Early 2001 saw major restructuring of dot-com businesses such as Disney and Amazon.com that resulted in employee layoffs.

Understanding how the political-legal environment affects business performance is also important. In the immediate future, e-managers must be concerned about taxation of Internet business transactions and privacy of consumer information. Legislation related to these areas can directly affect e-business performance.

The importance of socio-cultural issues, such as market penetration of computer ownership and Internet access, will continue in the new millennium. It is important to understand how this technology will continue to change consumer lifestyles and buying behavior. Wireless technology is expanding at a rapid rate and will affect both how consumers access the Internet and integrate technology into their lives. Marketers have to anticipate new technologies yet to be developed, their impact on e-business and consumer adoption.

E-competition as well as more traditional competition is an issue to which e-managers must pay particular attention. The use of the Internet has changed the competitive landscape for many industries. While there is a consolidation currently taking place among the dot-coms, competitors can enter e-markets at speeds traditional markets could never be entered into. Traditional automobile dealerships never anticipated how successfully the Internet could be used to sell cars before competitors like Autobytel.com and Carpoint entered the e-marketplace. The Internet and business models of companies like Dell Computer gave auto manufacturers the prospect of selling directly to consumers. The virtual e-conomy requires that businesses broadly define their potential competitors since the virtual corporation can more easily move into new and different markets with strategic alliances.

E-markets create new market issues as well for the enterprising business. Barriers to international business are more easily negotiated in the virtual world. Communication with distant markets is easier. In addition to understanding traditional factors behind market growth rates, e-managers must also be aware of the diffusion of computer technology in international markets. The rate of diffusion will have an impact on e-business access to markets. Emerging market segments and their adoption of new technology are thus important to monitor.

Value Creation Assessment: Having assessed the opportunities and threats present in the environment, e-managers must then understand how their businesses create value (Afuah and Tucci 2000, Hartman and Sifonis, 2000).

This issue is even more important for the virtual corporation that retains direct control over major management and marketing functions and out sources supply, production and distribution of its products and services. While value from the perspective of the business is important, this understanding must be from the consumer's perspective (Best 2000).

The type of value creation analysis used to evaluate the e-business model depends on the type of business. There are three different analyses (Afuah and Tucci, 2000): Value Chain, Value Shop and Value Net Work. First, a detailed analysis of how the product (service) is delivered to (created for) the consumer is conducted. All analyses identify the critical steps businesses go through to create products and services. At each point in the analysis an assessment must be made as to the value provided to the customer and actual or potential frustrations a customer may experience in the exchange process.

It is not enough, however, to just analyze the business process. A detailed analysis of the buyer behavior process for the e-business's product or service must also be conducted. This analysis begins with the point at which a potential customer becomes aware of the product to the post-purchase evaluation of product use. In the virtual world it is not sufficient to simply create awareness. E-businesses must quickly develop a consumer's confidence and trust to overcome consumer hesitation to purchase online (Windham, 2000). The e-marketers task then becomes one of designing a strategy that enhances value to the consumer and reduces potential frustrations in the purchase process to achieve repeat purchase and consumer loyalty.

E-Strategy Assessment: Once a business understands how value is created for the customer, and determines the points at which conducting business online can potentially increase consumer value, then an e-strategy must be developed and analyzed (Hartman and Sifonis, 2000). This analysis has four distinct parts, including defining the value proposition, defining the e-business experience, establishing e-business objectives, and developing e-business strategy.

The value creation analysis conducted above should identify how the business currently provides value to the consumer. At this point the business defines a value proposition, a statement of the key benefits that the product or service gives to target customers to satisfy their fundamental needs (Best, 2000), that identifies the value that the e-business application will provide to consumers in addition to that provided by the existing business.

Any electronic marketing application must provide additional value if consumers are to change their buyer behavior.

Defining the e-business experience is critical (Windham, 2000). Before anything happens online with consumers, managers should script the entire customer purchase experience. This is important to make sure that it delivers the value customers seek and the business intends. This experience is then integrated into the business objectives to help ensure the successful implementation of conducting business online. E-business objectives must go beyond classic qualitative, image-oriented accomplishments to include measurable performance indicators that will relate to sales and profits. Objectives that focus on customer satisfaction and retention, sales revenue and business profitability will be extremely important in creating successful new e-business initiatives. The ability to secure venture capital funding for new e-business initiatives will be increasingly difficult. These funding markets have suffered many losses over the last several years and will demand that new e-businesses be more cognizant of profitability and return on investment.

E-strategy assessment should help identify two possible motivations for conducting e-business. Managers must decide if their move to the online economy is for offensive or defensive purposes. Offensive strategies focus on growing existing markets or entering new ones with new revenue generation as its primary objective (Best, 2000). It helps the manager to examine e-business initiatives in terms of how important these initiatives are to the primary mission of the company and how innovative the e-business application will be to the organization. Companies can generate additional revenue by pursuing electronic applications that are innovative to the company and include Rational Experimentation and Breakthrough strategies (see Exhibit 4, Hartman and Sifonis, 2000).

An e-business engaging in Rational Experimentation uses its online capabilities to generate new revenue streams without exposing the business to unnecessarily high risks. Thus, a business may decide to use its web site to extend its geographic reach to consumers outside of local markets or test new products or services in new markets without jeopardizing its existing market position.

Breakthrough strategies, in contrast, are ones where a business re-invents itself to capitalize on the unique capabilities of the Internet and electronic tools to create growth.

For example, General Electric's strategy to expand its distribution of appliances to mass merchandisers through the use of electronic kiosks in stores could be just such a strategy. Under this plan GE would warehouse and distribute its appliances for stores like Wal-Mart. The retailer would not have to carry stock or worry about the extra costs involved with handling bulky, high priced items. GE would potentially increase market penetration and the retailer would increase its sales through commissions. Again, the objective of breakthrough strategies is to generate new revenue streams; however, there is a higher degree of risk involved to the existing companies if the strategy fails.

Defensive strategies are used when a company is trying to protect its market position or match competitor offerings (Best, 2000). One focus of a defensive strategy is to increase operational efficiency to drive down costs and boost gross margins. Hartman and Sifonis (2000) suggest two e-business strategies that focus on operational efficiency: New Fundamentals and Operational Excellence (see Exhibit 4). A New Fundamentals strategy is an easy way for companies to test the waters. While not particularly innovative, this strategy often involves webifying basic functions in the business to increase efficiency. Many companies achieve this by putting company directories on web sites to help customers find people within the organization without having place a phone call. Companies can also handle many common customer service questions by posting Frequently Asked Questions to a web site so customers can efficiently receive answers to their questions. This simple process also allows customer service personnel to concentrate on the customers with more serious or complex problems.

Operational Excellence is, in some respects, the pinnacle of efficiency strategies. This occurs when the company completely restructures to not only serve customers better, but also to streamline activities to the greatest extent to minimize costs. Operational excellence often becomes the industry standard (Hartman and Sifonis, 2000). Dell Computers' model for selling and manufacturing computers, while initially regarded as a breakthrough strategy, is generally regarded as an industry model for creating a pure pull business strategy. Dell does not distribute through retail stores; therefore, it does not produce computers in anticipation of demand. Rather, every Dell computer manufactured is the direct result of a customer purchase. Combine this strategy with just-in-time inventory processes and a business model is created that increases efficiency and lowers cost.

Systems Infrastructure Assessment: Technological innovations and trends were discussed in prior audit steps. It is necessary to assess the technological capabilities of the e-business for effective implementation (Hartman and Sifonis, 2000). While technology will not likely give a business a long-lasting competitive advantage, state-of-the-art technology is required for entry into the virtual economy. This assessment needs to be a candid evaluation of technological capabilities and the investments required to achieve specific e-business objectives through the e-strategies developed above. This includes the computing platforms, Internet access, network stability, as well as the e-business intelligence system.

Organization Assessment: Companies competing in the new economy evolved toward flat organizational structures (Modahl 2000, Windham 2000). Decentralized organizational structures allow for speedy reaction to market changes. Traditional hierarchical organizational structures often create barriers to quick strategy changes due to the layers of management involved in every decision. This assessment requires looking at the roles of senior management, the organization operation, and organizational structure. Managers must typically decide if their e-business initiatives should be developed within the context of the current organization, or if these initiatives should be developed as a separate division or entity (Gulati and Garino 2000, Modahl 2000). However, some companies, such as KB Toys, developed their e-business initiatives by entering into a joint venture with Brainplay.com.

Productivity Assessment: Three types of productivity metrics are important: profitability, operations, and customer-related metrics (Kotler et al. 1977, Hartman and Sifonis, 2000). For companies pursuing an offensive strategy, revenue generation is very important. However, those e-businesses adopting a defensive strategy may concentrate more on cost efficiency metrics.

Marketing Functions Assessment: Abstracting from Kotler et al. (1977) and extrapolating to e-business, the functions of specific relevance to e-marketers include branding, products/services, pricing, logistics, web site development and maintenance, and marketing communications. Branding and product and service assessments are critical, especially since for many e-businesses product creation will be outsourced to suppliers and manufacturers while the responsibility for branding the product will remain in-house. Effective relationship management of outsourcing alliances will be critical to the e-business to maintain a competitive advantage in the marketplace.

Pricing and the maintenance of profit margins will also be important to e-business success. Given the poor profit performance of many dot-com companies, large and small, investors now have a heightened awareness of bottom line performance. Managing prices and margins will be difficult, however, given the ease with which consumers can shop different e-business offerings. This practice has placed downward pressure on prices (Sinha, 2000).

For example, Buy.com used deep price discounting, which combined with the exorbitant cost of customer acquisition and the resulting narrow profit margins, affects company profitability.

Logistics and web site development takes the place of the traditional distribution function. It is likely that the e-business will partner with companies like FedEX or UPS to efficiently handle both warehousing and physical delivery services. In the virtual world, the web site becomes the transaction vehicle, separating the physical delivery of the product from the exchange function. E-Businesses will need to constantly monitor the cost efficiency of their logistical alliances. Web sites will require constant monitoring to ensure that they run smoothly and quickly, minimizing customer frustrations.

Finally, marketing communications will be critical to success. Consumers cannot purchase products from e-businesses if they do not have awareness. Marketing communications is important for driving consumers to the e-business web site. The cost of marketing communications for customer acquisition has proven to be both expensive and important to business success. Amazon.com's profitability has been directly impacted by the cost of customer acquisition, of which advertising plays a significant role. E-Business will need to carefully assess and monitor advertising costs for creating awareness and promotional costs to enhance trial and repeat purchase.

Conclusion

The current shakeout in the electronic economy highlights, now more than ever, the need for effective planning to develop successful e-marketing strategies. Excitement with new technology and the promise of a new e-conomy resulted in many businesses receiving venture capital for weak business plans with vague value propositions. As we now move into a period of more rational evaluation of e-business strategies, the E-Business Planning Audit will be an important tool in developing sound marketing strategies for e-marketing success.

The tools to help traditional businesses assess their capabilities already exist in both academic and trade press literature. Business success, in part, rests on the information collected by these tools to assess the environmental opportunities and threats and the strategies subsequently developed to meet business objectives. The e-Business Planning Audit attempts to build upon previous planning assessments to create a more comprehensive tool for the dot-com business.

Where do we go from here? Much work needs to be done to apply the e-Business Planning Audit and measure its impact on e-business success. Further refinement of the audit to account for new issues that will arise in the e-conomy will undoubtedly be required.

While the use of the e-Business Planning Audit appears to be a monumental task, the issues raised in the audit force dot-com managers to address potential problems before strategy implementation. It is now clear that e-businesses are not immune to the problems that plague traditional businesses. One of the important lessons is best said by Michael Dell, founder, Chairman and CEO of Dell Computer (eCompany, 2001), We're still in the early days of the Internet. However, I think a lot of people initially thought that the e in e-business was more important than the business part. The business side of e-business is as, if not more, important than the electronic side.

Exhibit 3

E-Business Planning Audit

ENVIRONMENT ASSESSMENT: A thorough analysis of the environment is
critical to understanding the uncontrollable factors that either
directly or indirectly affect your e-business strategy.

A. Economic

 1. What does the company expect in the way of inflation,
 material shortages, unemployment, and credit
 availability in the short run, intermediate run, and long
 run?
 2. What effect will forecasted trends in the size, age
 distribution, and regional distribution of population
 have on the business?

B. Political-Legal

 1. What laws are being proposed that may affect e-business
 strategy and tactics?
 2. Has the government's position on the tax status of the internet
 changed?
 3. What new laws are being considered to govern intellectual
 property rights?
 4. What federal, state, and local agency actions should be
 watched? What is happening in the areas of pollution control,
 equal employment opportunity, product safety, advertising,
 price control, etc., that is relevant to e-business planning?

C. Socio-Cultural

 1. What attitudes is the public taking toward e-business and
 toward e-marketing products such as those produced by the
 company?
 2. What changes are occurring in consumer lifestyles and values
 that have bearing on our conducting e-business.
 3. To what extent is privacy a concern to society and customers?

D. Markets and Customers

 1. What is happening to market size, growth, geographical
 distribution, and profit potential?
 2. What are the trends with respect to gender, education, median
 household income, number of children, median age of customers,
 needs, satisfaction levels?
 3. What are their expected rates of growth? Which are high
 opportunity and low opportunity segments?
 4. What is the rate of market penetration of computer ownership,
 online access and purchasing?
 5. Do you know how price sensitive your target customers are?
 6. Can you fit your consumers into one of the following segments?
 (Modahl 2000, Windham 2000)

 1. Benefit Segments

 a. Convenience Shopper (shop same e-business and purchase
 same products because of familiarity)
 b. Price Sensitive Shopper (choose e-businesses that have
 the lowest prices)
 c. Comparison Shopper (comparison shopping to find the best
 deal of primary importance)
 d. Brand Loyal Shopper (frequent e-businesses same
 e-businesses because of trust)
 e. Focused Shopper (shop specific e-businesses for specific
 products, not browsers)
 f. Storefront-Adverse Shopper (shop e-businesses because
 they hate shopping in retail stores)

 2. Experience Segments:

 a. Anxious Shopper (new online consumers who lack
 confidence in their web abilities)
 b. Adventuresome Shopper (online shoppers who have gained
 confidence in their abilities)
 c. Seasoned Shopper (experienced online shoppers who have
 integrated the web into their lives)

 3. Attitudes Toward Technology

 a. Technology Optimist (consumers who like and accept
 technology into their lives)
 b. Technology Pessimist (consumers who dislike and avoid
 integrating technology into their lives)

 7. Will the e-business applications change barriers to market
 entry and/or exit strategies?

E. Competitors

 1. Who are the major competitors? What are the objectives and
 strategy of each major competitor? What are the sizes and
 trends in market shares?
 2. How many of our competitors have begun e-business operations?
 What level of sophistication are these initiatives?
 3. Does the e-business initiative pose any risks for creating new
 competitors?
 4. What type of experience is being delivered to the target
 customers by competitors? Does this experience meet consumer
 needs?
 5. What is the competitive advantage of each of our competitors?
 6. Are there any potential rivals for which we much battle for
 market dominance?
 7. Are we more customer focused than our competitors?
 8. What trends can be foreseen in future competition and
 substitutes for this product?
 9. Is there a threat of new market entrants?
 10. Can we use the e-business applications to redefine the basis
 of competition?
 11. Are there competitors who can provide strategic advantage
 through cooperation and partnership?

F. Innovation Generation:

 1 Are there related industries that can provide innovative
 practices for competitive advantage?
 2 Are there universities or other research institutions that can
 provide a source of innovation and human resources?

G. Facilitators: Are there special financing considerations and/or
 requirements to start an e-business because of its risk?

VALUE CHAIN ASSESSMENT: Understanding how your company creates value
for its customer is the first step toward developing an e-business
strategy. Just like any new innovation, e-business activities must be
leveraged to add value to the existing company offerings if it
expects consumers to adopt new behaviors.

A. Supply Chain Analysis: The analysis of value chains depends on the
 type of business you are in.

 1. Value Chain Analysis for Manufacturers or Assemblers of
 Products

 a. What are the inbound logistics activities your company
 undertakes to secure materials from suppliers? What e-trends
 are occurring among suppliers in their pattern of selling?
 b. What are the operational activities your company uses to
 manufacture or assemble the products it sells?
 c. What are the outbound logistics activities your company
 undertakes to deliver products to distributors, retailers or
 customers?
 d. What are the marketing and sales activities your company
 uses to promote and sell its products to customers?
 e. What after sales activities does your company engage in to
 support its customers?
 f. Did you develop a flow chart of all these activities that
 identify material and information flows?
 g. Did you identify the points within the supply chain where
 value is created for the customer? Did you identify points
 within the supply chain where efficiencies can be gained to
 either reduce costs or enhance customer value?

 2. Value Shop Analysis for Service Providers

 a. How well do your service providers adequately and accurately
 analyze customer problems or needs.
 b. How effective are your service providers at generating
 solutions to customer problems?
 c. Does your company effectively help customers make choice
 decisions?
 d. How well does your company implement the problem solution
 for the customer after choice has been made?
 e. What activities are in place to monitor the implementation
 of the problem solution?
 f. What control activities are undertaken to correct service
 provider mistakes?

 3. Value Network Analysis for Brokering Intermediaries:

 a. What activities are is your company undertaking to develop
 and expand its network of clients?
 b. Is your company effectively managing its service contracts?
 c. Has your network reached a critical mass to provide value to
 the clients involved?
 d. Do you have a sufficient infrastructure to link buyers and
 sellers within the network?
 e. Do you have an effective system for tracking transactions
 and collecting commission payments from all completed
 transactions?

 4. Is your technology platform sufficient to handle the current
 level of network activity?
 5. Are you collecting sufficient quantities of information to
 effectively deal with your clients and add value to their
 transactions?
 6. What suppliers and facilitating companies can you partner with
 to more efficiently manufacture and distribute your products,
 deliver your service, or more effectively serve your network
 clients?
 7. Which parts of the consumption cycle do you customers want
 addressed with your e-business application (shopping, buying,
 delivery, service, support)?

B. Buyer Behavior Analysis: Many companies stop their value chain
 analysis with the supply side. Equally important is the process
 that the customer goes through in deciding which product or
 service to buy or network to employ.

 1. Do you understand the buyer behavior process for your existing
 products and services? (Windham 2000).

 a. Need Stimulation (consumers first realize they have a need)
 b. Solution search and consideration (consumers collect ideas
 for potential solutions to need)
 c. Evaluation and Intention (consumers evaluate alternative
 solutions and make selection)
 d. Buy (consumers engage and complete purchase transaction)
 e. Buy Again (consumers repurchase based on needs)

 2. Online Purchase Decision Cycle (Windham 2000)

 a. Confidence Building (consumers learn about alternatives and
 build confidence)
 b. Skirmish (consumers make initial purchase over the web)
 c. War (consumers are actively sought after by e-businesses to
 generate repeat purchases)

 3. Can you identify the points of frustration in the buyer
 behavior process where your e-business by be
 able to add value and create satisfaction?

E-STRATEGY ASSESSMENT: Armed with your understanding of the
environment in which your business competes and how your business
creates value to consumers, it is now time to develop a strategy to
achieve your e-business objectives.

A. Define your value proposition (A statement focusing on the key
 elements of the situation and the key consumer benefits that
 defines how the e-business will deliver superior value to its
 target customers (Best 2000, Anderson and Vincze 2000, Hartman
 and Sifonis 2000).

 1. What are the dimensions of value that your customers knowingly
 care about?
 2. What are the dimensions of value that your customers may not be
 able to articulate yet?
 3. Where does the company stand relative to the competition on
 each of these dimensions?
 8. What would customers perceive as unmatched value?
 9. Can we deliver this value at a profit?
 10. How are the company's core competencies aligned with
 delivering these values7
 11. What do we have to change, abandon or create to maintain focus
 on new value disciplines?

B. Define the e-business experience (decide what target customers
 will be able to do on your website and the image they will have of
 your company based on that experience (Windham 2000))

 1. How will the website e-tailing functions work?
 2. How will the site be organized? Around customer segments?
 Products? Functional e-business areas?
 3. Will you personalize the consumer experience based on
 consumer's past experience with website and profile information
 you have collected?
 4. What will make the site dynamic so that target consumers will
 return?

C. Define e-business objectives (adapted from Kotler et al. 1977)

 1. Are the corporate objectives clearly stated and do they lead
 logically to the 3-business objectives?
 2. Are the e-business objectives stated in a clear form to guide
 planning and subsequent performance measurement? Do they focus
 on one or more of the following areas (Hartman and Sifonis
 2000):

 a. Cost Reduction
 b. E-conomy Growth
 c. Customer Satisfaction and Reach
 d. Operations

 3. Are the e-business objectives appropriate, given the company's
 competitive position, resources, and opportunities? Is the
 appropriate strategic objective offensive or defensive in
 nature?

D. e-Business Strategy (it is important to first determine of you
 should pursue an offensive or defensive e-business
 strategy)

 1. Offensive Strategy (consider Rational Experimentation or
 Breakthrough strategies and implement them with either a run
 or team-up strategy)

 a. Are you competing, or planning to compete, in moderate to
 highly attractive markets?
 b. Do you want to attain growth by increasing market
 penetration in your target markets?
 c. Do you want to attain growth by entering new markets?
 d. Is the e-business strategy going to employ a high level of
 practice innovation?
 e. How critical is the e-business strategy to the business
 mission?

 2. Defensive Strategy (consider New Fundamental or Operation
 Excellence strategies and implement them with a block or
 team-up strategy).

 a. What is the level of market attractiveness for your
 e-business initiative?
 b. What is your level of competitive advantage for your
 e-business initiative?
 c. Do you want to protect your existing markets?
 d. Should you harvest your existing markets?
 e. Is the e-business initiative going to employ relatively
 common industry practices (low practice innovation)?
 f. How important is the e-business initiative to the business
 mission

SYSTEMS INFRASTRUCTURE ASSESSMENT: Once an e-business strategy has
been developed, it is imperative to assess the technological
competency of the organization to ensure strategy success.

A. Information Technology (IT) infrastructure, applications and
 integration

 1. Does your company have a standard IT infrastructure across the
 enterprise?
 2. Does your business have strong IT operations capabilities
 (capacity planning, networking strategy and operations,
 contract negotiations, database administration, database
 management, etc.)?
 3. Does the company have the necessary technological
 infrastructure (network services, hardware, security) to engage
 in e-business applications?
 4. Is the technology platform flexible enough to accommodate
 change over the planning period?
 3. Is the majority of new application development E-business
 oriented?
 4. Is IT is viewed as an E-business partner that provides Internet
 consulting services to the business units?
 5. Business management has Internet knowledge and IT has business
 knowledge?
 6. What major changes are occurring in product or process
 technology?

B. e-Business Intelligence System

 1. Is the e-business intelligence system producing accurate,
 sufficient, and timely information about developments in the
 marketplace?
 2. Does your business maintain a data warehouse or relational
 database of customer and supplier information?
 3. Does the database have sufficient scalability?
 4. Does management have the ability to data mine the customer
 database to maximize the customer relationship?

ORGANIZATION ASSESSMENT:

A. Senior Management

 1. Is senior management aware of the opportunities and threats
 presented by the e-conomy?
 2. Has senior management made a significant commitment to
 developing e-business initiatives7
 3. Does the Chief Executive Officer provide adequate leadership
 and direction for e-business initiatives?
 4. Is senior management involved in e-business efforts?

B Organization

 1. Has a culture of information sharing been established?
 2. What are the e-business roles and responsibilities of each
 member of the organization?
 3. Who has decision-making authority over e-business initiatives?
 4. Are the limits of accountability clearly defined?
 5. Does the organization have sufficient flexibility to re-organize
 into cross-functional teams?
 6. Are e-business initiatives a business-driven, line activity, not
 a technological staff function?
 7. Can the organization deal with rapid change?
 8. Are management personnel capable of dealing with multiple
 internal and external relationships?

B. Organization structure

 1. Should there be a wholesale transformation of the company from
 a traditional business to an online-centered business?
 2. Should a separate organization be created to develop e-business
 initiatives?

 a. Should the e-business application be developed inhouse?
 b. Should you partner with existing e-business to develop your
 applications?
 c. Should you purchase an existing e-business?

PRODUCTIVITY ASSESSMENT: It is important to have appropriate and
accurate metrics for measuring e-business performance and evaluating
the effectiveness of the e-business strategy.

A. Profitability Metrics

 5. What are the e-business earnings?
 6. What is the e-business cash flow status?

B. Operations Metrics

 1. Revenue Generation

 d. Is the company able to maintain high margins and market
 share in its e-business application?
 e. Is online sales dollar revenue increasing?
 f. Is the firms value in each source of e-business revenue
 distinctive?

 2. Cost Management

 a. Is your e-business support call costs decreasing as a
 percent of sales dollar revenue?
 b. Is your e-business cost per order dollar decreasing as a
 percent of sales dollar revenue?
 c. What is your total cost of marketing communications as a
 percentage of sales dollar revenue?

 3. Other Operations Metrics

 a. Are the number of online sales transactions increasing?
 b. Does your company derive sales dollar revenue from online
 support?
 c. What are the most requested pages/site areas in your
 e-business application?
 d. How often do customers experience broken linkages?
 e. How much time is lost to servers being down or other
 technological problems?

C. Customer Metrics

 1. Does your company track customer satisfaction? If so, does it
 maintain individual customers satisfaction metrics?
 2. What percentage of your online customers are return visitors?
 3. What is the reach of your website in terms of new visitors or
 registrants?
 4. What is your average customer revenue per order amount?
 5. Does your company calculate the lifetime value of its customers?

MARKETING FUNCTIONS ASSESSMENT:

A. Branding/Product (abstracted from Keller 2000)

 1. Is your e-business initiative properly branded?
 2. Do the e-business managers understand what the brand means to
 consumers?
 3. What are the brand objectives? Are these objectives sound? Is
 the current brand meeting these objectives?
 4. Does your e-business application have brand awareness among
 consumers?
 5. Does your brand excel at delivering the benefits desired by
 your target customers?
 6. Do your target customers perceive your e-business offerings
 as being quality solutions for their needs?
 7. How can we build trusting relationships with customers to
 enhance brand loyalty?
 8. Do you maintain brand relevance through continuous value
 improvements?
 9. Is your brand properly positioned against the right
 competitors?
 10. Is a consistent message being delivered reinforcing a single
 brand image?
 11. Do you coordinate all marketing activities to maximize their
 impact on brand equity?
 12. Is the e-business brand given the proper support?
 13. Do you monitor your e-business brand equity?
 14. What should you do to ensure that traditional business and
 e-business branding strategies are complimentary?
 15. Are there particular products that should be phased out?
 16. Are there new products that are worth adding?
 17. Are any products able to benefit from quality, feature, or
 style improvements?

B. Pricing

 9. Is your pricing strategy for e-business applications based on
 consumer perceptions of value?
 10. What are the pricing objectives for the e-business
 products/services?
 11. Do you use a set pricing strategy in your e-business
 applications with periodic changes?
 12. Does your e-business application give you the ability to use a
 dynamic pricing strategy (continuous updating in response to
 consumer demand and competitor adjustments)?
 13. Do the products and services sold through your e-business
 application require buyer-seller negotiations?

 a. If so, is there a specified starting price for
 negotiations?

 5. Are auctions or market exchanges viable pricing strategies for
 your e-business application?

 a. Does your e-business application require the creation of an
 auction?
 i. If so, does your e-business application have the
 capabilities to complete all transactions online?
 b. Are there enough product/service suppliers with over
 capacity that a reverse auction can be used in your
 e-business application?
 c. Can competitive advantage be achieved by creating and
 managing a market exchange with your e-business
 application?

C. Logistics

 1. Is there adequate e-market coverage with your website?
 2. Should your company undertake or maintain distribution
 functions? Or, should these functions be outsourced to a
 logistics specialist?
 3. Will the e-business application serve the same customers
 currently served by offline distribution channels?
 4. Will the e-business application distribute products and
 services to new markets segments?
 5. How will your e-business application affect your relationship
 with channel partners?

 a. Do your supplier and facilitating partners have the
 technical proficiency to interface with your e-business
 application and/or develop their own initiatives?
 b. Will your e-business application create channel conflict
 with existing distributors or retailers?

 6. Should sales transactions be completed online, with sales
 representative, or by a channel partner?
 7. Should customers be able to track delivery of their products?
 8. What facilitating businesses exist to help streamline the
 distribution process (shippers, warehousers, payment systems,
 lead generation, customer support)?
 9. Does each channel member provide efficiency and cost savings to
 your company or add value to customers?

D. Website

 1. Does the website deliver the customer online experience defined
 in your e-business strategy?
 2. Is your website easy to navigate?
 3. Does your website load quickly regardless of the customers
 connection (modem, LAN, cable, DSL)?
 4. What activities do customers want on your website?
 5. What content is most important to customers purchasing online?
 6. Do you have the appropriate payment options for customers to
 complete an online sales transaction?
 7. How many pages will customers have to work through to complete
 an online sales transaction?
 8. Does the website collect usable information on target
 customers?
 9. Do customers want personalized online experiences? Can you
 deliver a personalized experience?
 10. Does your website have adequate shopping cart services to
 complete online transactions?
 11. How will content be produced for your website (in-house or
 outsourced)? Will you have enough content to update your
 website on a regular basis?

E. Marketing Communications: Marketing communications is critical
 for driving target customers to your website and developing trust
 and confidence in your e-business.

 1. Creating e-business awareness and driving target customers to
 your website?

 b. Will advertising be sufficient for creating e-business
 awareness?
 i. Should you use banner advertising, interstitials, or some
 other online advertising?
 ii. Should traditional mass media advertising be used for
 creating awareness?
 Do you have sufficient advertising budgets to reach your
 objectives?
 Are your advertising themes and copy appropriate for
 your branding objectives?
 Have you selected the appropriate media for your target
 audience?
 Is your e-business advertising integrated with current
 advertising themes to present a consistent message?
 c. Have you listed your URL with the appropriate search
 engines?
 d. Should we develop hotlinks with web portals to promote our
 site?
 e. Can publicity be used to inexpensively create awareness for
 our e-business?
 f. Are there possible event sponsorships that can be used for
 creating awareness?

 2. Completing the online sale

 a. Will sales promotions be important for gaining customer
 trial?
 b. Will sales promotions need to be priced-based (discounts,
 coupons or rebates)?
 c. Can sales promotions be nonpriced-based (premiums, contests,
 or sweepstakes)?
 d. Does the sales promotion reinforce the brand image of the
 product?

 3. How far in advance of e-business launch should we begin marketing
 communications?
Exhibit 4

E-Strategy Matrix

 Practice Innovation
 Low High

 Operational Excellence Breakthrough Strategies

 Reengineering Market Creation
 High Leveraging Strength New Business Models
 Efficiency Focused Shift Industry
 High Risk High Risk
 Business
 Criticality New Fundamentals Rational Experimentation

 Cost Savings New Market Segments
 Low Webification Business Model Shift
 Experience Building New Revenue Sources
 Low Risk Low/Moderate Risk

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Harlan Sports
Associate Professor of Marketing
Western New England College
Springfield, MA

Janelle Goodnight
Assistant Professor of Marketing
Western New England College
Springfield, MA