Competitive Advantage in the digital economy

The internet is emerging as a critical backbone of commerce. The potential functionality of the web is broad and varied

Content Customer service Seamless service Developing communities

The internet is an enabling technology

The value of eCommerce

Improvements in efficiency

In the B2C market cost reduction is dramatic:

Business cost of a travel reservation Business cost of a brokerage transaction
Fullservice Broker Discount broker Online broker

Business cost of a typical banking transaction

Branch: $1.07

Travel Agent

$10.00

$150.00

ATM:

$0.27

$69.00

Internet

$0.01

Online

$2.00

$10.00

The value of eCommerce

B2B segment opportunities to reduce costs and increase profits.

Immediate return on investment reduced cycles times and channel costs Significant new revenue sources ability to expand quickly into new markets overseas - niche Preferred vendor status, achieved through ease of interaction & B2B process integration

Transforming the value chain

eEconomy is redefining value creation across the spectrum. The Enterprise: value creation begins at this level

Strategy: an e-enlightened strategy Technology: Internet enabled Process: virtualised or e processes. People: an e enabled workforce

Value creation

The extended enterprise:

Value creation also extends outside of the enterprise to relationships with customers and suppliers The extended enterprise will find new opportunities in:
Product/service innovation More powerful & efficient channels Customer relationships

Industry, markets, economic transformation

As extended enterprises cooperate and collaborate, the traditional boundaries are blurring. eCommerce is reshaping all industries and markets the entire economy.

What does this mean for organisations?

Organisations need to look beyond their traditional boundaries. Need to consider collaboration within and across industries. Move from a single company/single industry mindset to multi-company collaboration across industries

Competitive Advantage

Establishing a profitable and sustainable position against the forces that determine industry competition. Has become more difficult to sustain an advantage for an extended period.

Porters Competitive Forces model and strategies

Well known model for analysing competitiveness. Used to develop strategies for companies to increase their competitive edge. Demonstrates how I.T. can enhance the competitiveness of corporations.

Porters Five Forces

The structural attractiveness of an industry is determined by these five underlying forces of competition. Analysing the forces illuminates an industrys fundamental attractiveness. The strength of the five forces will differ between industries.

Porters Five Forces

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Threat of Substitute products

By making the overall industry more efficient, the internet can expand the size of the market.

Negative: it also creates new substitutes

Bargaining power of channels & end users

Eliminates powerful channels or improves bargaining power over traditional channels.

Shifts bargaining power to end consumers. Reduces switching costs.

Barriers to entry

Reduces barriers to entry such as the need for sales force, access to channels, and physical assets anything that internet technology eliminates or makes easier to do reduces barriers to entry. Internet applications are difficult to keep proprietary from new entrants. A flood of new entrants has come into many industries.

Bargaining power of suppliers

Procurement over the internet tends to raise the bargaining power over suppliers but it can also give suppliers access to more customers. The internet provides a channel for suppliers to reach end users reducing the leverage of intervening users.

Rivalry among existing competitors

Reduces differences among competitors as offerings are difficult to keep proprietary. Migrates competition to price. Increases the numbers of competitors by widening the geographic market.

Strategies to sustain a position against these forces

Cost Leadership online retailing

Lowest cost Difficult to sustain price wars Budget Travel, Ryanair

Differentiation

Be unique Quality Rosenbluth International, a travel agent http://www.rvacations.com/ Narrow scope segment and achieve either cost leadership or differentiation opportunity for customisation

Focus

Additional strategies

Growth: acquire market share, web based selling can support this Alliances: Work with business partners synergy and opportunities for growth. Particularly popular in ecommerce ventures. Innovation: New products & services and new ways to produce them: involve the customer (Web 2.0 participation) also reverse electronic auctions.

Additional strategies

Improve internal efficiencies

Reduce costs and improve quality. Web-based systems improve administrative efficiency twenty to thirty fold.

Customer oriented approaches & CRM

Make the customer happy Web-based systems are particularly effective personalised, one-to-one relationships.

Strategies

These strategies are usually interrelated e.g. Innovations are achieved through alliances, or through getting closer to the customer. Cost leadership may increase customer satisfaction and lead to growth.

Defending against the Five Forces

Intranets: internal efficiencies Extranets: a private network that securely shares part of an organization's information or operations with suppliers, vendors, partners, customers or other businesses. Shrink processing and order time as well as costs increase profitability and the desire for suppliers to work together reduce bargaining power of suppliers.

Provide customers with free software & other computer services:

Reduce customers bargaining power

Defending against the Five Forces

Frequent flyer/buyer programs in airlines, hotels, restaurants etc.

Increase loyalty switching costs

Intense competition from Rivals use web to get closer to the customer

Value Chain Analysis

Part of the larger stream of activities, which Porter calls a value system. Analyse internal operations to increase efficiency, effectiveness and competitiveness. Identify how IT can provide support add value Can be used for an individual company or an industry. Value systems seek to span multiple groups and organisations to create benefits for BOTH intermediaries and end-customers

Porters (2001) Value Chain

IT can

create or enhance product features: customisation Increase switching costs: increase loyalty Contribute to internal efficiency Organisational efficiency business partnerships creating synergy and innovation. Can create new business models reverse auctions, fee for service instead of traditional commissions

Tourism Supply Chain Management

Ref: Xinyan Zhang, Haiyan Song, George Q. Huang (2009) Available on webcourses

Supply Chain Management & Tourism

Highly competitive environment has forced tourism firms to look for ways to enhance their competitive advantage. Considerable growth in the implementation of new information technologies and the development of new commercial formats such as eTourism. Also - effective tourism supply chain management (TSCM).

TSCM

Can be referred to as a set of approaches utilized to efficiently manage the operations of the tourism supply chain (TSC) within a specific tourism destination to meet the needs of tourists from the targeted source market(s) and accomplish the business objectives of different enterprises within the TSC. The TSCM philosophy requires moving away from arms-length relationships toward coordination across organizations throughout a TSC.

TSCM

Tourism an amalgamation of products and services. Often viewed as value added chains of different service components that form service networks. Therefore, identifying ways to manage these networks is vital, especially for tourism firms that are keen to maintain a competitive advantage over their equally efficient rivals

TSCM

Moving away from just looking at promotional and marketing activities distribution side. To focusing on the supply side supply networks involving inter-firm relationships and product development. Collaboration, co-operation and coopetition

Why focus on the Supply Chain?

Extent of competitiveness has seen a move away from focusing on the individual organisation. To focusing on the network of enterprises that are engaged in different functions, ranging from the supply of raw materials through the production and delivery of end products to target customers. Can also focus on the destination
http://www.amadeus.com/us/x194133.html

Defining the supply chain

A simple three stage approach

strategic, tactical, and operational

Strategic level

decisions concerning long-term issues such as:

Demand planning, strategic alliances,

http://www.britishairways.com/travel/airlinealliances/public/en_gb

new product development, outsourcing, supplier selection, pricing, and network configuration decisions.

Tactical Level

Involves medium-term decisions such as:

inventory control, production/distribution coordination material handling, and equipment selection.

Operational Level

Concerns weekly or daily events such as:

vehicle scheduling, routing, workforce allocation, and process planning.

Typical tourism value chain

A traditional tourism value chain consists of broadly four components: 1. the tourism supplier, 2. tour operator, 3. travel agent and 4. customer, which are in a single linked chain. IT has influenced this opportunities to shorten the chain

Tourism Supply Chain

Tourism supply chains involve many components - not just accommodation, transport and excursions, but also bars and restaurants, handicrafts, food production, waste disposal, and the infrastructure that supports tourism in destinations.

COLLABORATIVE OPERATIVE RELATIONSHI

TSCM

Supply chains operate through business-to-business relationships, and supply chain management delivers
sustainability, performance improvements alongside financial performance, by working to improve the business operations of each supplier in the supply chain.

TSCM

These all form a part of the holiday product that is expected by tourists Just as no tour operator would provide 1-star transport to take customers to a 5-star holiday hotel, the sustainability of a holiday, like quality, depends on the performance of all the links in the tourism supply chain.

E-value chain

Define service direction Define value elements (essential components) Opportunities for value creation synergies

Internal e-value supply chain

Define concept for web site development Design web-based tourist decision making process Design e-travel data flow within web site and organization Information management with web database system.

External e-supply chain

Define e-travel alliances/networks Define joint e-travel activities Define commission/price Information sharing with web database system Networking based on secure system

E-value - networks

Forming networks that coordinate much of their business through the virtual marketplace. Interdependence between tourism firms within a destination. Based on complementary product, e.g., activities, accommodation, transport and food, Clients are referred from one organisation to another to provide a comprehensive tourist experience

Opodo, formed in November 2001, is an online airline collaboration created by Air France, Aer Lingus, Alitalia, Austrian Airlines, BA, Lufthansa, Finnair, Iberia and KLM.

Orbitz, is a collaboration between American, Continental, Delta, Northwest and United airlines.

Though the collaborators are directly competing against one another, by forming a multi-company alliance they are able to maintain a greater online presence in the face of other online opposition. They also have the brand power that emanates from a collaborative marketing approach.

lastminute.com in January 2002 established a joint venture with Kinki Nippon Tourist, Nippon Travel Agency and Mitsubishi Corporation/MC Capital Fund to launch the brand in Japan. Similarly, in March 2002 Travelocity forged a collaboration with 17 Japanese airlines, to launch tabini.com in Japan. A collaborative approach also allowed the reverse auction e-mediary, Priceline.com, to access the Hong Kong market.

Chain effects

Easy approach and search for information Cutomisation e-travel arrangement Real - time quotation Real - time confirmation Real - time secure payment Internal/External tracking/controlling

eTravel Success factors

Speed (Real-time/Interactive) Integration Customisation Tracking capability

E-Value

SMEs that exclude themselves from these linkages can end up disadvantaged as such inter-firm connections often results in market visibility and strategic leverage.

Benefits
Reduce competition and generate barriers to entry New market opportunities Increased speed of market entry More efficient distribution and transactional processes Technological synergies Shared risk Resource sharing

Costs
Partner conflicts and compromises Lack of trust Over-dependence on partners Cultural differences Loss of a degree of independent control Partner domination Industry inertia Channel cannibalisation Managing a diversity of partners

Future Approaches

Networks of partners

Virtual Clustering

There is increasing evidence that the performance of existing enterprises is significantly improved by clustering. By networking and sharing knowledge, small firms are able to compete for and access specialised resources and information systems as well as internalise competencies and assets that typically are internalised by large firms with economies of scale Clustering can provide competitive advantages and benefits to small firms that would not be available without clustering

Virtual Clustering

Clusters and networks are interdependent, whereby small business network structures underpin the growth and sustainability of clusters. Horizontal Cluster: Same sector e.g. Hotels Vertical cluster: supply chain members such as suppliers, consumers and related services. Diagonal: concentration of complementary or symbiotic activities, whereby each firm adds value to the other (even though their products may be quite different), thus creating a value chain.

Virtual Clustering

Virtual clusters geographic location is of no relevance. Technology provides a base for collaboration and co-operation Opportunity for developing competitive advantage

E-Value

Diagonal integration and value adding is made possible through ICT-based marketing and destination portals. e-marketplaces can perform a number of functionalities, ranging from procurement to customer relations and knowledge management, to supply chain and value chain management.

Challenges

Embracing ICT and technology is still a complex process for SMEs. A technology-driven initiative may leave some operators with no sense of belonging and no perceived sense of value in (virtual) clustering (Braun, 2004, 2002). Trust is critical

Challenges

According to Porters (2001) view of competitive advantage, the vitality and competitiveness of destinations is essentially linked to the competitiveness of individual firms. Individual tourism SMEs often lack the required skill base and do not have a strategic grasp of whole-ofdestination value creation

Challenges

While connectivity has the potential to increase regionally based tourism SMEs visibility in the market place, small tourism enterprises have been facing difficulties embracing ICT and e-commerce. The uptake of technology has not been a priority for many small tourism firms. Micro and small tourism enterprises generally consider themselves outside the tourism value chain, despite the fact that most of their customers are tourists

eValue

New technologies have influenced the supply chain -the web is considered an important new distribution channel, Due to prevailing GDS make-up and the slow uptake of ICT, many small tourism operators have continued to rely on traditional supply chains for market exposure. Considering that SME isolation from GDS effectively deters their access to broader travel markets, It is vital therefore that more effective and comprehensive linkages are considered.

References

Turban, E. et. al (2004) Electronic Commerce a Managerial Perspective, London, Prentice Hall.

Turban, E. (2002) Information Technology for Management, New York, J. Wiley. The Imporatnce of Value Chains for Tourism SMEs (Braun,2005) on webcourses.