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63
C H A P T E R 5
Digital business strategy
Table of contents
Learning outcomes 63
Management issues 63
Chapter at a glance 64
Learning outcomes
After completing this chapter the reader should be able to:
Follow an appropriate strategy process model for digital business
Management issues
Consideration of digital business strategy raises these issues for management:
How does digital business strategy differ from traditional business strategy?
How should we integrate digital business strategy with existing business and information
systems strategy?
How should we evaluate our investment priorities and returns from digital business?
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Chapter at a glance
Main topics
What is digital business strategy?
Strategic analysis
Focus on
Aligning and impacting digital business strategies
Case studies
5.2 Setting the Internet revenue contribution at Sandvik Steel
5.3 Boo hoo learning from the largest European dot-com failure
Suggested teaching and learning approaches
This chapter is structured around a clear process framework for strategy development. The
chapter starts by asking how digital business strategy differs from other forms of strategy.
Some of the similarities and differences between digital business strategy and other forms of
strategy are discussed. Note the well-known Michael Porter paper listed in the Further Reading
is useful for debating differences between Internet and traditional business strategy development
although it was written in the context of the dot-com failure. The definitions of digital business
strategy can be used to discuss approaches to digital business strategies. Activity 5.1 can also be
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Strategic objectives
(Also discussed for SCM (Chapter 6), E-procurement (Chapter 7) and E-marketing (Chapter
Strategy definition
(Evaluation of revenue, business and distribution models, Chapter 2.) Review of different
Case studies
Case study 5.1 Debenhams creates value through mobile commerce
No questions asked.
Case study 5.2 Setting the Internet revenue contribution at Sandvik Steel
Questions
1. Summarise Sandvik Steels digital business strategy as described in the article.
The strategy is not simply to use the Internet as a sales tool, but also as a method of delivering a
better service to customers. From the article:
2. Suggest why the proportion of online purchases varies in the different countries in
which Sandvik trades.
Proportions vary due to:
Penetration of Internet technology in the country
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Culture of using online trading
Additional questions
1. Summarise how digital business has been used to transform Sandvik Steel.
Digital business has changed the way the company deals with both customers and suppliers.
2. What are some of the risks of digital business that need to be managed that are
highlighted by the article?
a. Change management
focusing hard on business needs and cutting through the internet hype.
b. Channel management (conflict management)
The companys approach was to work with the traditional sales channels. So many companies
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Case study 5.3 Boo hoo learning from the largest European dot-com
failure
Questions
1. Which strategic marketing assumptions and decisions arguably made Boo.coms
failure inevitable? Contrast these with other dot-com-era survivors that are still in
business, for example, lastminute.com, Egg.com and Firebox.com.
These are assumptions that ultimately led to the downfall of Boo.com since in total they made it
unprofitable:
Demand for online services would be higher, given the increase in adoption of the Internet.
Yet many users were not comfortable/familiar with purchasing online.
2. Using the framework of the marketing mix, appraise the marketing tactics of Boo.com
in the areas of Product, Pricing, Place, Promotion, Process, People and Physical
Evidence.
The marketing mix is covered in Chapter 5, so this part of the question should only be set if this
concept has been covered previously.
These are aspects of how Boo.com applied the mix that students may comment on:
Product Premium brands were used leading to premium prices. Unclear on mix between
sportswear and high street fashion. Scope relatively narrow, so limiting target audience.
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3. In many ways, the visions of Boos founders were ideas before their time. Give
examples of e-retail techniques used to create an engaging online customer
experience which Boo adopted that are now becoming commonplace.
These are some of the approaches used:
Creation of a strong brand based on quality and service.
Questions for debate
Debate 5.1 Digital business responsibility
A single person with specific digital business responsibility is required for every
medium-to-large business. It is not sufficient for this to be the responsibility of a non-
specialist manager.
Summary of arguments for are as follows:
This needs a new approach to thinking and a new person to evangelise about the benefits.
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Summary of arguments against are as follows:
Cost not warranted
Debate 5.2 The influence of IS managers
1. Board-level representation for IS managers is essential in the digital business era.
Summary of arguments for are as follows:
IS is becoming increasingly important to influencing strategy and IS issues may affect
implementation of strategies.
IS strategy needs to be aligned with business strategy this is difficult to achieve if
importance of IS is not recognised.
Summary of arguments against are as follows:
IS not likely to influence business strategies an enabler, but does not affect strategies
adopted.
Exercises
Self-assessment questions
1. What are the key characteristics of a digital business strategy model?
All strategy models should:
Be based on assessment of internal and external environment.
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2. Select a retailer or manufacturer of your choice and describe what the main elements
of its situation analysis should comprise.
3. For the same retailer or manufacturer suggest different methods and metrics for
defining digital business objectives.
Objectives should be SMART. Examples of metrics are in Table 5.6, p. 209, for example:
Revenue amount
4. For the same retailer or manufacturer assess different strategic options to adopt for
digital business.
This refers to the types of decisions outlined in the strategy section of this chapter that is:
Decision 1: Digital business channel priorities
Decision 2: Market and product development
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Essay and discussion questions
1. Evaluate the range of restructuring options for an existing bricks-and-mortar
organisation to move to bricks-and-clicks or clicks-only contributing a higher
online revenue.
Students should discuss restructuring in terms of:
Relationships with partners. This is described in this chapter in the decisions in the Strategy
2. Explain the main strategy definition options or decisions available to an organisation
intending to become a digital business.
This question is intended to enable students to study, in more depth, the types of decisions
outlined on p. 217, that is
Decision 1: Digital business channel priorities
Decision 2: Market and product development
3. Between 1994 and 1999 Amazon lost more than $500m, but at the end of this period
its valuation was still more than $20b. At the start of 2000 Amazon.com underwent its
first round of job cuts, sacking 150 staff or 2% of its worldwide workforce. Later in
2000 its valuation dropped to less than half.
Write an essay on the strategy of Amazon.com exploring its history, different criteria
for success and its future. See the Wired Magazine archive for profiles of Amazon
(www.wired.com).
Amazon is now available as a case study Case study 12.1 Learning from Amazons culture of
metrics and further commentary is available via Techcrunch (www.techcrunch.com).
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(http://scholar.google.com/). Issues that students can address in this question include the
following:
4. Analyse the reasons for the failure of the original boo.com. Research and assess the
sustainability of the new boo.com business model.
Similar sources should be used to assess Boo.com. Issues to discuss include:
Positioning and targeting of segments
The criteria for dot-com success referred to in the section on Valuing Internet start-ups at the
end of the chapter can be used here to evaluate Boo, that is:
i. Concept
ii. Innovation
iii. Execution
Promotion online or offline techniques are insufficient to attract sufficient visitors to the site
Performance, availability and security some sites have been victims of their own success
iv. Traffic
v. Financing
vi. Profile.
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5. What can existing businesses learn from the business approaches of the dot-com
organisations?
Reference to the six factors listed above (i to vi) could be used as a structure for this question
(pp. 6768) that is:
i. Concept. The need to introduce new business concepts, assess potential business,
marketing, distribution and revenue models.
ii. Innovation. See (i). The flexibility and dynamism of dot-coms to rapidly respond to market
opportunities and threats.
iii. Execution.
Promotion innovative techniques, for example, affiliates, viral marketing
iv. Traffic. Combination of online and offline techniques
v. Financing. Possible new financing sources and the use of joint ventures/partnerships to
achieve growth.
The Q1 2001 McKinsey Quarterly article Lessons from e-marketing failures see
www.mckinseyquarterly.com may also help with this question.
6. What are the similarities and differences between the concepts of business process
re-engineering (BPR) and digital business? Will the digital business concept face the
same fate as BPR?
This question examines digital business as a faddish management concept. You can review
how similar concepts such as BPR and TQM are introduced to much acclaim and then fade.
7. Discuss this statement by David Weymouth, Barclays Bank chief information officer
(Simons, 2000b):
There is no merit in becoming a dot-com business. Within five years successful
businesses will have embraced and deployed at real-scale across the whole
enterprise, the processes and technologies that we now know as dot-com.
This quotation is also relevant to Questions 5 and 6. It suggests that gradually all businesses will
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8. Compare and contrast different approaches to developing digital business strategy.
This question calls for a wide literature review to assess overall approaches to digital
Examination questions
These are all long examination questions requiring at least 30 minutes to answer.
1. Define the main elements of a digital business strategy.
2. You are the incumbent digital business manager for a domestic airline. What process
would you use to create objectives for the organisation? Suggest three typical
objectives and how you would measure them.
Scenario style questions such as this can be used to assess students on a range of digital
business issues. The answer should start by emphasising the importance of objectives in
strategy process that is, to help guide strategy and tactics and measure its enactment.
Attributes of successful attributes can then be articulated (SMART). Three objectives should
be from:
Online revenue contribution (direct)
3. Explain the productivity paradox and its implications for managers.
This concept is described on pp. 240241. Research results indicating a poor correlation
between organisational investment in information systems and organisational performance
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4. What choices do executives have for the scope and timeframe of implementing
digital business?
This question is similar to essay Question 1 essentially mix of bricks and clicks. You can use
Activity answers
Activity 5.1 Selecting a digital business strategy process model
Review three or four strategy process models that you have encountered. These could be
models such as those shown in Table 5.1. Note that columns in this table are independent the
rows do not correspond across models.
1. What are the strengths and weaknesses of each model?
(a) 1: Strategy is based on thorough environment analysis, clear statement of vision and
objectives, emphasises the feedback loop necessary for control.
(b) 1: Highlights detailed elements of analysis and strategy development.
2. What common features do the models share? List the key elements of an appropriate
strategy process model.
Study of the four models suggests that the following elements are significant:
One: Continuous internal and external environment scanning or analysis is required.
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Activity 5.2 Assessing the significance of digital channels
For each of the following products and services, assess the suitability of the Internet for
delivery of the product or service and position it on the grid in Figure 5.16, with
justification, and make estimates in Table 5.7 for the direct and indirect online revenue
contribution in two, five and ten years time for different products in your country.
Choose specific products within each category.
No suggested answer.
Activity 5.3 Digital business strategies for a B2C company
1. Review the summaries of the approaches recommended by IDC Research below
(Picardi, 2000). Which elements of these strategies would you suggest are most
relevant to a B2C company?
In brief, it can be suggested that the first three strategies apply to most organisations, and in
particular to B2C organisations. The attack e-tailing and defend e-tailing approaches do not
2. Alternatively, for a company with which you are familiar, review the eight strategy
decisions within this section.
No suggested answer.
Activity 5.4 Digital business investment types
1. Referring to the four investment categories of Robson (1997), discuss in groups which
category the following investments would fit into:
(a) E-procurement system.
(b) Transactional e-commerce website.
(c) Contract with ISP to host web server and provide Internet connectivity for staff.
(d) Workflow system to manage complex customer orders (e.g. processing orders).
(e) Upgrading a company network.
You will notice that the categories are not mutually exclusive.
(a) E-procurement system. This is an operational system, but as will be shown in Chapter 8, the
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(b) Transactional e-commerce website (Chapter 9). This is a customer facing system which, if it
(e) Upgrading a company network is an infrastructure investment. If you think it is unrealistic
2. Assume you had sufficient funds to invest in only two of these options. Which two
would you choose?
