1.1. Preface *

1.2. Problem discussion *

1.3. Purpose *

1.4. Delimitations *

1.5. Contribution of the thesis *

1.6. Target group *

1.7. Company of study *

1.8. Disposition *

2. Method *

2.1. Background of our choice of subject *

2.2. Approach *

2.3. Perspective *

2.4. Frames of reference *

2.5. Choice of theory *

2.6. Case study *

2.7. Secondary sources *

2.8. Primary sources *

2.9. Relevance of this thesis *

2.10. General applicability *

2.11. Language *

3. Introduction to Electronic Commerce *

3.1. Background *

3.2. Concepts of electronic commerce *

3.3. The Trade process *

3.4. Advantages of electronic commerce *

3.5. Electronic commerce at Servera *

3.6. Summary *

4. Strategy and electronic commerce: Our model of analysis *

4.1. The Analysis of industry and competition *

4.2. The Analysis of internal strategic capabilities *

4.3. Corporate strategy *

5. Analysing the Industry Environment *

5.1. Introduction *

5.2. Threat of substitute products or services *

5.3. Threat of new entrants *

5.4. The industry jockeying for position among current competitors *

5.5. Bargaining power of suppliers *

5.6. Bargaining power of customers *

5.7. Summary *

6. Analysing the Internal Strategic Capabilities *

6.1. Introduction *

6.2. Primary activities *

6.3. Support activities *

6.4. Managing the linkages *

6.5. The value chain system *

6.6. The Generic building blocks of competitive advantage *

6.7. Summary *

7. Analysing the Corporate Strategy *

7.1. Introduction *

7.2. Vertical integration and electronic commerce *

7.3. Summary *

8. Conclusion *

8.1. Partnerships *

8.2. A changing market situation *

8.3. New patterns of business *

8.4. Comments on our conclusions *

8.5. Suggestions for further research *

8.6. Future visions *

Sources *

Verbal sources *

Internal company material *

Publications *

Internet *

Appendix 1 *

Interview *

Introduction *

Interview structure *

Electronic commerce at Servera *

Appendix 2 *

EDI *

EDIFACT *

EDA *

Electronic mail *

VAN-services *

ECR and QR *

1. Introduction

In this introductory chapter, we will make a presentation of the thesis and discuss the problem that we have based our work on. We will further present the purpose of this thesis, the target group and the delimitations that we have made.

1. Preface

A strong trend in most business areas today, is an increased use of electronic commerce.

Electronic commerce opens doors toward new market opportunities for those companies that are quick at understanding the technique, and also understanding that electronic commerce is more a question of business development and organisational change than computers, software and networks.

Electronic commerce has become a new way of conducting business where customer value, customer relations, and new types of business play an important role. Electronic commerce can become a very important strategic business tool with possibilities of completely new lines of business. Electronic commerce aims at making business processes more efficient, faster and global

We find it interesting that there is not any literature to be found that combines electronic commerce and strategy. The explanation for this literature gap is probably the fact that electronic commerce is a relatively new phenomenon and the enormous growth of electronic commerce could not possibly have been anticipated. Subsequently, little attention has yet been given to what influence electronic commerce could have on strategic reasoning. Today, electronic commerce has become such an important area, that companies need to review their strategic reasoning with respect to electronic commerce.

Electronic commerce goes far beyond simply doing business electronically. Doing business electronically means that many conventional business processes, are being digitised and conducted on an electronic network. However, electronic commerce is not a mere alternative channel for marketing or selling products on line. Instead, the electronic marketplace enables sellers to innovate whole business processes from production to customer services – which were said to occur in stages – by integrating them in a seamless whole.

Electronic commerce has forced companies to take a completely different standpoint towards information technology and new media. Existing strategies are no longer viable and new strategies must be developed with stronger focus on electronic commerce. Electronic commerce is not only about automating the routines in a company; the entire traditional view of the trading process is questioned. New processes and partnerships are created and the implications on strategic reasoning could be enormous.

2. Problem discussion

The development in electronic commerce moves very fast. The conceptions of today are obsolete tomorrow, and computer systems become cheaper and more powerful by the day. Electronic commerce is becoming accessible for all types and sizes of business, and as we believe, an increasingly strategic issue. The evolution does not seem to weaken and electronic commerce is indeed a hot topic in business media today. The type of electronic commerce that is most commonly discussed is the one addressed to consumers. Considerably more widespread and crucial to many companies is the type of electronic commerce between companies, popularly referred to as business-to-business. Despite the increased importance of business-to-business electronic commerce, the area has been little discussed in Sweden. Electronic commerce in Sweden has been focused on the efforts made in the Public sector, but is now largely overtaken by the increased interest in business-to-business electronic commerce.

Electronic commerce between companies has had a breakthrough, and the market is maturing for electronic commerce. Increasingly, administrative systems for business incorporate support for electronic commerce. Companies refine their business processes in the continuous quest for improved competitiveness, with the use of electronic business communication. Furthermore, the fierce competition in many different types of business pushes the development on electronic business communication. International standards for electronic communication are created, making it easier for companies to engage in electronic commerce.

The roles between buyer and seller are altered and the transaction patterns between them change. Some transactions may even disappear which makes certain lines of business redundant. We believe that electronic commerce has serious effects on the way a company does business and is more than an interesting phenomenon. Electronic commerce has therefore become an important component in strategy development and we believe that it must be taken into consideration in a company's strategic reasoning.

There is a literature gap on the implications electronic commerce has on companies’ strategic reasoning. We wish to study if electronic commerce has implications on a company’s strategic reasoning and make an effort in filling this gap. In order to analyse the strategic effects it has on a company, we will describe how and why electronic commerce is implemented in companies today. The research question of our thesis will be: Will electronic commerce change companies' strategic reasoning and if so, what new strategic issues will have to be considered?

3. Purpose

The purpose of this thesis is to illustrate and try to explain the implications on a company’s strategic reasoning associated with the introduction of electronic commerce. We wish to make conclusions on the necessary underlying reasoning for successful strategies on electronic commerce. Furthermore, the purpose is to contribute to the knowledge development in the area of strategy and electronic commerce.

4. Delimitations

It is important to note that we intend to study electronic commerce as a phenomenon between companies, which is popularly called business-to-business. Thus, we will not go further into sales directly to end-customers or business with or within the public sector. Further we will delimit ourselves to make a case study, as we believe that a detailed and qualitative study of a company will better answer the questions of our problem definition than a quantitative survey. Furthermore, we have chosen to use only one company in our study, as the period of time available for this thesis is limited.

5. Contribution of the thesis

Many books and articles have been written on strategy and we are overwhelmed with media coverage on electronic commerce. However, we have not found much written on connecting strategy and electronic commerce, and what implications electronic commerce could have on strategic reasoning. Consequently, our ambition is to analyse if electronic commerce has implications on strategic reasoning and which implications these are. In this way, this thesis will contribute to an enhanced knowledge concerning implications of electronic commerce on strategy that could be of interest for most companies engaged in, or planning to engage in, electronic commerce.

6. Target group

This thesis is primarily written for students, teachers and business people with an interest in electronic commerce and strategy, but we hope that even others, within and outside of the academic world, will find this thesis useful and interesting.

7. Company of study

The company that we have chosen to study is Servera R&S AB. Servera is Sweden's largest restaurant and large-scale kitchen wholesaler and has a nation wide coverage. Servera was created in 1994 through a merger of Dagab Storkök and Promus (KF's wholesale restaurant and large-scale kitchen sector). Servera covers 29 per cent of the total distribution volume to restaurants and large-scale kitchens in Sweden and has sales of 3 billion SEK per year and 600 employees, closely followed by ICA, that covers 28 per cent of the market. Servera's operations are divided into five geographical regions and the customers are personnel restaurants, school canteens, taverns, hotels, hamburger- and hotdog stands. The head office is in Stockholm and they have 10 sales offices throughout the country.

Servera is only active on the Swedish market. Half of their sales is in the private sector and the other half in the public sector. They have a wide and deep selection of all the primary products and equipment that a restaurant needs, from fresh fruit and vegetables, knives, porcelain and cleaning utensils to wines and spirits.

They engaged in electronic commerce in 1994, and customers can now place their orders electronically from their own computer and at a time of their preference. Although using the latest technology, they are concerned not to lose the personal feeling; each customer gets a personal salesperson for answering questions.

8. Disposition

Chapter 2: Method

In this chapter, we will present our procedure and how we have chosen to tackle the problem. We will also present the background of our choice of subject, theory and our method of inquiry. We will further discuss the validity of the thesis and make a critical examination of the sources that we have used.

Chapter 3: Introduction to electronic commerce.

In this chapter, we will make a presentation of developments in electronic commerce and present a theoretical background to the different techniques electronic commerce, as it could be a bit difficult to understand for someone uninitiated in the concepts of electronic commerce. We will also present the involvement of electronic commerce in the trade process, and make a brief presentation of how electronic commerce is used at Servera.

Chapter 4: Strategy and Electronic Commerce: Our model of analysis

This chapter will present our model of analysis that will be used in our case study. Also, the underlying theory used to form the model and the influence electronic commerce has on this theory will also be presented.

Chapter 5: Analysing the Industry Environment

In this chapter we will analyse the competitive environment of our case company. We will try to create an understanding of the industry and the competitive situation, and the way in which electronic commerce could affect the different elements within this environment.

Chapter 6: The Analysis of Competitive advantage

In this chapter we will continue with the illustration and analysis of our case. In the preceding chapter we described and analysed how electronic commerce has changed the external environment in which Servera operates. In this chapter we will describe and analyse how electronic commerce has influenced Servera’s internal strategic capabilities.

Chapter 7: Analysing the Corporate Strategy

In this chapter, we will continue with the illustration and analysis of our case study. Here we will present the influence of electronic commerce on corporate strategy. The results from the external and internal analysis is necessary for formulation the corporate strategy.

Chapter 8: Conclusions

We will present our conclusions and reasoning from our work. Finally we will give some suggestions to further studies on this subject.

 

2. Method

Which method to chose depends on several factors. The method depends on procedure, problem, purpose of the thesis and the characteristics of the object of study etc. In this chapter, we will illustrate how we have chosen to proceed and in which direction we have chosen to proceed. We will also present the models and theories that are the basis of our reasoning. In this chapter we will further account for which frame of reference we have used and how this has affected our procedure.

1. Background of our choice of subject

Deciding a well-delimited subject for a thesis could be taken as simple. We knew from the beginning that we wanted to write about electronic commerce, and we had a strong mutual interest in the subject. We are strategy majors, and believe in an increased involvement of strategic thinking regarding electronic commerce. Therefore, we decided to focus on the implications electronic commerce has on a company's strategic reasoning.

2. Approach

There are two general approaches for a research, the hermeneutic approach and the positivistic approach. We have followed a hermeneutic approach, as we are interested in acquiring a general impression of our case and an insight in the area of electronic commerce. In contrast, the positivistic approach focuses on verifying or falsifying theories and hypotheses, which is not in our interest. There is a theory gap in our area of study and therefore no relevant hypothesis to test. Also, as the purpose of this thesis is of a descriptive and analysing nature, it was a natural choice to decide on a hermeneutic approach. To increase the understanding of our problem, we have alternated between viewing the problem situation as a whole and breaking it down to be able to analyse it in detail.

3. Perspective

A problem often has many interesting aspects and the way you chose to view a problem is determinative for the research. The perspective consequently influences not only what you see but also how you see it. A perspective is somewhat consciously determined, and is like a pair of glasses that you choose to see the world through. It functions like a guideline throughout the thesis.

We are studying electronic commerce implications on strategy to see if there are any specific determinants or changes in strategy formulation. It would naturally be interesting to view this problem from several perspectives and a combination of these would give a broader view of the problem. We have chosen to view the problem from a supplier’s perspective, since we believe that the strategic impacts, as opposed to operational benefits, will be more significant for the supplying firm than for the customer. Consequently, we will focus on issues within the company and neither interview customers nor suppliers of our case company. The time for writing this thesis is limited, which is why we limit ourselves to use this perspective.

Furthermore, we have only chosen to use one company as a case study, and this will naturally also limit our perspective and our results will prove to be little applicable on other areas. However, we hope that some of the knowledge and results will be universally applicable and other researchers will find it interesting to use our results and try them on other case studies and situations.

4. Frames of reference

The overall procedure is utterly determined by a frame of reference, i.e. our actions, thoughts and perception of the problem. Our collected knowledge, norms and values influence the procedure. The frames of reference that we have, and that are relevant for the thesis, are mostly those from our knowledge and perceptions acquired during our education. We are all students from Lund University and have attended similar classes and have read similar literature. Consequently, this delimits our frame of reference. However, we have all participated in different exchange programs abroad and hopefully we have acquired a broader view from this experience.

In order to take on the problem, we felt that we had to expand our frames of reference and enhance our knowledge on the area of electronic commerce and strategy. Thus, we have attended seminars on electronic commerce, read literature written on the subject and interviewed business people. It is difficult to define how our research has changed our frames of reference but it is certain that we have learnt very much from this research and definitely see problems on electronic commerce differently than before. Our norms and values will naturally reflect the work and research done but our ambition has been to stay as objective as possible.

5. Choice of theory

With the choice of theory, you have also chosen how to describe reality. The theoretic frame often functions as an interpretation- and explanatory model. Electronic commerce is a new phenomenon and we needed very much information to feel comfortable with the subject. We used much literature on EDI (Electronic Data Interchange) and other more established types of electronic commerce and many articles and books by Peter Fredholm, who is one of the most knowledgeable in this area in Sweden.

Literature that combines electronic commerce and strategy is virtually non-existent, and this meant that we had to use existing strategy literature to apply on our problem. The models in strategy literature are generic and are thus applicable on electronic commerce, but we had to make rational decisions on which models to use. We have based the structure of our work on the structure of Grants Contemporary Strategy Analysis and we chose to divide the theory on strategy in three parts: The analysis of industry environment, the analysis of internal strategic capabilities and analysis of corporate strategy.

We have chosen to use the strategy models as descriptive tools rather than examining their relevance in the given problem situation since the strategy models are written to be general and supportive for any given strategy situation. It is also important to note that our intentions are only to describe and analyse the given problem in our case study company. Therefore, as described above on perspective, we cannot state that our conclusion will be of universal application, even though we believe that many of the issues are of general importance for similar situations.

6. Case study

A case study involves investigating a specific case, an individual, a group of individuals, an organisation or a situation. By using case methodology one attempts to create a comprehensive picture of an unexplored area of study. "Case studies are often useful when we [the researchers] want to study processes and changes." The choice of using a case study involves a couple of issues to be considered:

Focus; Our case study does not mainly investigate Servera as a company rather which implications the implementation of electronic commerce has on the strategic reasoning within the company.

Width vs. depth; We have chosen to reach depth in our study, by using only one company and in order to make a very thorough investigation, we will highlight several aspects of this case.

The selection of a suitable case company was an extensive procedure. Originally, we contacted a company in Stockholm, Telia TradeBase, and were focused on writing from their perspective. The area of electronic commerce is, however, from our understanding, important for companies today and our choice of subject proved too sensitive for Telia TradeBase and we had to discontinue our study of them. Therefore, we had to find another company and wished to make a study of a company with experience in electronic commerce, to investigate the consequences of implementing electronic commerce on strategic reasoning. We contacted a number of companies but had some difficulty finding a company with a rather extensive experience of electronic commerce that were able to co-operate with us on this thesis. Eventually we came to a decision to study the restaurant and large-scale kitchen wholesaler Servera R&S, and the presented theories are illustrated on this object of study.

7. Secondary sources

The secondary sources used can be divided into three types, process data, accountancy data and research data.

1. Process data - During our study, we have systematically read many articles and much literature on electronic commerce and on strategy which could be described as our process data. It is impossible to list all the articles that are invoked our frame of reference. However, those used directly are to be found in the list of references. The articles have discussed electronic commerce from several angles. A large part of the articles discuss electronic commerce progress and failure in the public sector while other articles discuss the web-based end-consumer business. Some categories are not of direct interest to our thesis but they have all contributed to our frame of reference. The purpose of the process data is to relate the theories to the empirical study of the company.
2. Accountancy data - In order to build up an as complete picture as possible of the case company, we have used corporate material; annual reports, brochures and other written information of the company.
3. Research data - We have also used research data from other researchers and experts, as listings of companies using electronic commerce today, and university theses to enhance our frame of reference.

1. Critique of secondary sources

There is little relevant literature to be found on the implications that electronic commerce has on a company's strategic reasoning. Many of articles we have found, have predominately been of little relevance as they have treated electronic commerce in a general manner. The articles have seldom gone deeper into the strategic issues of electronic commerce and most articles have been quite brief. Although the articles have lacked relevance, they have been written recently and been up to date, which gives a high contemporary value.

A large part of the literature on electronic commerce concerns the introduction of electronic commerce in the public sector. These articles often argue that electronic commerce has not been as cost saving as it was thought to be. These articles have therefore been too negative in order to draw general conclusions on electronic commerce. Also, the public sector is quite different from business-to-business.

Another criticism to the articles is that they are in general written to excite the reader. The authors tend to exaggerate in a misleading manner by using facts combined in a way that could give an inaccurate picture of the situation. This decreases the reliability of many articles. The literature on strategy however, is more reliable since it has been continuously criticised and improved for a long period of time.

It could be understood from seminars at the Computer world expo, that there is a belief in a large and rapid development of electronic commerce in the private sector and especially in the business-to-business area. However, little literature covers the business-to-business area. Much attention is given to the success of companies selling direct to customers on the Internet. These articles state that these companies have been very successful in attracting customers but little is said about how profitable they really are. This literature excludes the business-to-business part of electronic commerce, even though this will be the part of electronic commerce where the most significant changes will occur, according to experts.

Furthermore, and this is general for almost all literature, very little is said about the strategic implications of electronic commerce. Some authors argue that electronic commerce might have strategic implications but there are few authors who describe the implications electronic commerce really can have on the strategic reasoning of a company in the business-to-business area.

As explained earlier the explanation for the lack of this type of literature is probably the fact that electronic commerce is a relatively new phenomenon. Another possible explanation for the lack of literature in the area of this thesis is that there is a larger demand than supply of competent people in electronic commerce. This supply deficit leaves little time for experts to sit down and create new theories, or even to document their knowledge. The knowledge is also very valuable for the companies where these experts are employed. Therefore, the executives in these companies would probably not let the experts share this knowledge with others, especially not their competitors.

Much literature describes electronic commerce in a very positive way. We think that this could be a tendency effect of commercial interests. In many cases, the authors are well-paid consultants. Naturally, these authors will continue to make large profits if the development in the area of electronic commerce continues and therefore they have a subjective interest in electronic commerce and its development.

1. Primary sources

In order to collect primary data for our thesis, we used different sources. We started by attending seminars at ComputerWorld expo 98 in Stockholm and took the opportunity to discuss electronic commerce with representatives from companies at the exposition. We carried out personal interviews, for instance with Fredrik Billing of Telia TradeBase and had informal conversations with specialists in the area, for instance with Ulf Linderoth of Enator. The main purpose of attending these seminars was to get background information about actual problems and to acquire the latest knowledge in the area of electronic commerce. We also wanted to find inspiration to a relevant and current problem for our thesis and participated in several seminars essentially on electronic commerce. Other ideas were generated from informal telephone and mail conversations with experts within the area of electronic commerce. Finally, we carried out the interviews at Servera, which constitute the foundation of our analysis and our conclusions from this study.

0. Choice of respondents

In our telephone conversations with Servera we suggested that we should interview a few people with various responsibilities in the organisation. We requested to talk to people involved in strategic issues at a relatively elevated level in the organisation, since our focus is on the strategic reasoning within the organisation. They agreed and we eventually interviewed the three respondents that will be referred to in this thesis; Annika Johansson, responsible for electronic commerce, Hans Svensson, Financial manager and Kerstin Svensson, Sales manager. Possibly, our perspective would have been different if we would have had the opportunity to interview the president of the company and other people less involved in the day-to-day operations of the company. However, we have found that it has been useful to get an understanding of the operative issues as well to acquire an understanding of the important strategic issues to consider.

1. Choice of interview method

The gathering of primary data can be made from the techniques of questionnaires or interviews. We must take two aspects into consideration when working with this kind of information gathering. Firstly, we must decide on the degree of standardisation; how much responsibility regarding the formulation and the order of the questions that is put on the interviewer. Secondly, the structure of the questions has to be considered; to what extent the questions are free to interpret by the respondent.

In our interviews with Servera we have used very little standardisation of the questions, instead formulating the questions as they become relevant during the interview and for the specific respondent. We chose to do this, since it was important for us to inform ourselves about the company and the respondents. Subsequently, we were able to formulate suitable questions, serving the purpose of our thesis. The low level of standardisation used is helpful, since we chose to explore the problem situation of Servera, rather than to measure a well-defined quantitative problem or a test a hypothesis.

Furthermore, we have used a limited structure for the interview. The questions of the interview were structured according to our model of analysis. However, we did not formulate the exact questions before the interview, only the framework from which we elaborated the questions during our interview with Servera. The purpose of structuring the interview in this way was to allow us to keep the interview within a predetermined framework, and at the same time we could formulate questions successively directly from the information we had already acquired during the interview.

All the interviews were taped and written down and a copy was sent to our case company. This formed the basis of the empirical knowledge used in this thesis. Our choice of low standardisation, while still following a limited structure helped us to acquire a rich and complete picture of Servera and the implications electronic commerce has on their strategic reasoning.

2. Critique of primary sources

The capacity of the respondent is very determinative for the quality and the reliability of the information that is received from the respondent. The interviewer directs the respondent in certain directions, consciously or unconsciously by his or her facial expressions and body language in different questions. This influence is called the interview effect. It implies that the respondent answers in a way to make a good impression, not to seem ignorant or in a way that he/she thinks that the interviewer wants him/her to answer. This is an inevitable factor influencing the result of the thesis. However, we have critically analysed the credibility of the interview material and tried to present an objective picture of the case company.

A case study can be presented with three characteristics, the actor, the history and the reality transfer. The actor can be an individual, a group of individuals or an entire organisation that has own ambitions, wishes, competence and power to act and influence each other over time. Consequently, it must be taken into consideration that the respondents in our case company have their own purpose of what to achieve with the interview and the material is thus biased in a way that we cannot easily. The history could involve an event, an episode or sequence of events in the history of Servera. It is impossible to understand an organisation if one does not also have an understanding of its history, i.e. the events and processes up to its present state. The history of Servera is therefore important since it affects our frame of reference. Consequently, these factors affect the way the respondents act and draw conclusions. They might present information which can only be interpreted correctly by someone with the same historical frame of reference as them. Finally, the procedure of transferring reality at Servera to our academic thesis involves several steps of interpretations and wordings, which can modify the original intent and wordings from our respondents.

2. Relevance of this thesis

Electronic commerce has intensified the competition within most types of business and it becomes an increasingly important part of improving processes and flows of the company today. Considering this, there is a practical relevance in investigating the implications of electronic commerce on strategic reasoning in the company. The thesis is practically relevant as many companies are interested in implementing electronic commerce. Although the research area is of practical relevance to most companies implementing electronic commerce, the thesis is mainly of relevance to the case company, since the problem has its foundation in the implementation of electronic commerce in Servera.

Despite the fact that electronic commerce, as a business tool, has been given enormous attention, little research has yet been done on the implications of electronic commerce on strategic reasoning. The thesis has therefore a theoretical relevance as it does an attempt in filling this literature gap. Just like the practical relevance, the theoretical relevance is limited, since our study only involves one object. Consequently, there are limited opportunities in generalising our analysis and our conclusions of this study. However, a qualitative study of only one object, can make it possible to identify new aspects within this research area, which subsequently can form hypotheses to be tested in a future quantitative study. The conclusions that we have made in this thesis have been evaluated with a thorough critical intuitive investigation.

The theoretical relevance is furthermore emphasised by the limited amount of literature on the implications of electronic commerce on strategic reasoning. This has of course made it difficult to relate our analysis to an established model within the area that combines strategy and electronic commerce. Therefore we have built our analysis on well-established strategy theory. We do hope that our conclusions will contribute, to some extent, to further studies on the implications of electronic commerce on the strategic reasoning within an organisation.

3. General applicability

The conclusions drawn in this thesis are not generally applicable, since it is difficult to generalise from case studies. Studying cases is a method of getting as close to reality as possible and using only one case study results in even smaller general applicability, since only a fraction of reality is studied. Rather we intend to show patterns and couplings that could have theoretical importance for further research.

An alternative method for doing a study on this subject would have been to do a quantitative study, e.g. a survey. The results from such an approach would probably have been more generally applicable than the results presented in this thesis. However, we would not have reached the same depth and understanding.

We believe that our conclusions will be valuable for both theoretical and practical use even though they lack general applicability. We hope that we will extend the readers perception of reality in the areas of electronic commerce and strategy, and in particular, the combination of the two.

4. Language

We are well aware of the problem of using two different languages in the process of writing a thesis. Much of the literature is in English, both American and British English, especially in the strategy area. In the area of electronic commerce much of the literature is in Swedish and the seminars were held in Swedish. However, we believe that the language problem has been constructive and has contributed to our creativity in the thesis writing process, since we have been forced to put a lot of effort in discussing translations and definitions between the two languages. Many words are difficult to translate exactly and some words that look similar have different meanings in the two languages. We are quite sure that the translation difficulty has had a positive effect on our final result.

2. Introduction to Electronic Commerce

In this chapter, we will make a presentation of developments in electronic commerce and present a theoretical background to the different techniques electronic commerce, as it could be a bit difficult to understand for someone uninitiated in the concepts of electronic commerce. We will also present the involvement of electronic commerce in the trade process, and make a brief presentation of how electronic commerce is used at Servera.

1. Background

Defining electronic commerce is not as simple as it sounds. Electronic commerce is a fast moving target, "The definition is ever-changing and expanding to include more and more sectors of the economy, as the influence of electronic communications extends". Electronic commerce has arisen from a need to better use the existing computer capacity for communication and interaction with customers.

In the USA, Mr. Bill Clinton made the term generally accepted when he gave the federal administration the task to use electronic commerce for purchases and other business contacts. The Swedish Agency for Administrative Development (Statskontoret), followed shortly after by setting a goal for the public sector to use electronic commerce for 95 per cent of all frequently purchased goods and services by the year 2000. Toppledarforum, an administrative unit within this organisation, has predominantly driven the process of making commerce more efficient in the public sector and has a project called 'electronic commerce'. The development within the public sector was a platform for the rapid growth of electronic commerce within the private sector.

The development of electronic commerce was very slow in the beginning. A number of enterprising companies paved the way for different techniques of electronic exchange. At this stage, EDI or electronic commerce did not exist, but it was although this that companies tried to achieve. The largest push on electronic commerce was given by the immense growth of the Internet. The Internet is growing at a pace that was impossible to foresee a couple of years ago. Most important of all, business uses of the Internet were virtually non-existent at the time. Today, business uses of the Internet is growing faster than the Internet itself. Electronic commerce needs to be run on a network, and network solutions were very expensive and complex before the use of the Internet. An Internet solution is common for the consumer market, while business-to-business electronic commerce tends to focus on EDI-solutions.

2. Concepts of electronic commerce

Electronic commerce involves many different concepts, methods and techniques, such as EDI, EDIFACT, the Internet, ECR/QR, EDA, E-mail etc., which makes the term a bit confusing and difficult to understand. The most central concepts in this thesis will be explained in this section.



Figure 1: The Confused Individual

1. EDI

During the 70s and in the beginning of the 80s, electronic commerce started to spread in companies in the form of messaging technologies like EDI (Electronic Data Interchange). Business transactions that were formerly done with cheques, purchase orders and waybills could now be sent as electronic messages directly to the recipient.

2. The Internet

The Internet has gone through three stages regarding its purpose: From Information to Communication to Transaction. For over twenty years, the Internet was a medium for distribution of academic information. In the 80s, the Internet extended to a medium for communication via E-mail and chat channels. Today, the Internet is in its third phase: a platform for services and electronic commerce where products can be purchased and paid for. The Internet is a more open type of network where the communication standards are already set. The Internet is predicted to have an even larger breakthrough when secure monetary transaction standards are set. Electronic commerce has become much cheaper, allowing smaller companies to compete with larger companies as they are now using the same level of technology.

3. ECR and QR

QR, or Quick response, is a form of distribution chain partnership. The foundation of this kind of partnership is that the supplier, with accurate and up-to-date information on the customers’ sales prognoses, stocks etc., decides when to deliver. The ownership of the goods is usually not transferred until it is delivered to the end-consumer. QR is most suited for business with regular deliveries and large volumes. ECR, Efficient consumer response, is a relatively new definition, from the beginning of the 90s. It has become a prevalent term for organised business partnerships, and involves a number of activities beyond QR, such as product standardisation, design of the distribution chain and joint marketing efforts. The idea is to study the complete distribution chain as a unit in an attempt to maximise the overall profit and perceived customer value.

3. The Trade process

The trade process in a company can be described as every step from the moment when the customer identifies a need to purchase a product or service to the moment the purchase has been carried out. This process contains a number of steps as can bee seen in the model below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 2: The Trade Process

In many organisations these steps are today communicated via postal mail, telephone and fax, consequently consuming a lot of time and creating extensive paper work. These processes can be made more efficient with the use of electronic commerce. By automating these activities, savings in time and paper volume can be achieved. Furthermore, activities will not only become more efficient, but will be extended to cover activities beyond the traditional trading process, enabling strengthened co-operation between companies and simplifying planning within each company.

Trade between two parties can be divided into separate processes. It can for example be divided into the purchase process, searching and choosing what, where and how to buy, and the order, billing and payment process. The latter works well with EDI-solutions, while an Internet solution creates many further possibilities for the purchase process.

It is often impossible to create a completely new electronic trade process immediately. There are usually operational or technical problems that need to be solved first. It is wiser to implement electronic commerce gradually and systematically. An Internet solution, focusing on the purchase process is common for the consumer market, while business-to-business electronic commerce tends to focus EDI-solutions, to improve the efficiency of the order, billing and payment processes.

4. Advantages of electronic commerce

Fredholm argues that whichever method used for electronic commerce, the most significant advantages could be divided in two groups: direct advantages and strategic advantages. Examples of direct advantages are:

• Lower costs. Information can be reused without having to re-enter the data.
• Better security. When information is reused, the number of mistakes is less. The quality of the information is thus better.
• Shorter process time. The information can be transported quicker to all parties that are involved, which also makes the flow of goods quicker. The distance between buyer and seller is reduced.
• Less in stock. The need for warehousing goods is reduced as the process time between buyer and seller is reduced.
• Better planning. When information is available in an early stage, the receiver can plan his operations better.
• Better control. When information is electronic, it is easier to control events.

The strategic advantages may be the most important, yet the least explored. The strategic advantages could be seen as the way the operation can be changed. In many cases, tasks in the original process can be taken away while others are changed and simplified. Electronic commerce has become a revolutionary tool for the development of business processes for the future, and it is apparent that it will affect companies’ long-term strategies. It is however still a remotely explored area, and little research is to be found on how strategies will be affected and how companies should deal with this.

1. Electronic commerce at Servera

Servera engaged in electronic commerce in 1994, as a response to customers' preference in trading electronically. Today, Servera offers their customers three types of solutions for electronic commerce: The Servera menu planning software, Hand held computers and Servera Talsvar.

Servera menu planning software is a software solution for electronic commerce that can be run on any personal computer. It allows customers to get information on Servera's products and prices and lets the customers order electronically from Servera's wide assortment. The menu planning software has an EDI-coupling that transforms the order to an EDI-message, which is sent on an X.400 network via a Value Added Network (VAN) provider. The message is sent to Servera via modem or by a network connection. Servera's order system receives the EDI-message, which is processed, and an EDI answer is returned to the customer to confirm the order.

Hand held computers is another electronic commerce solution that utilises small devices that customers carry around in their warehouses to put together the orders. These hand held computers are then connected to the telephone network, in a similar way as the menu planning software, to send an EDI message to Servera.

Servera Talsvar is a telephone ordering system that can be used on after-office hours for dialling in orders. The customers are guided through a voice menu system navigated with the telephone buttons. Servera Talsvar is directly connected to Servera's ordering and warehouse system, which gives a quick response and tells the customer if the requested product is in stock. When the order is completed and processed, Servera Talsvar immediately returns a fax confirmation of the order to the customers.

Servera co-operates with several business partners. The communication between Servera and their customers is a co-operation with Enator and Postnet. Servera's server, an AS400 computer, sends the messages via Enator to Postnet, a package-distributing network, which forwards the EDI messages to the customers.

Servera will shortly extend their EDI-solution to include not only the order function but also incorporate invoicing routines to their customers. Servera is also engaged in a project with one of their suppliers in developing an electronic commerce solution. The next step will be to include additional suppliers in this electronic trade. Servera is already prepared to trade electronically with their suppliers but the suppliers are currently using different protocols, and they are negotiating about which protocol to use. Furthermore, Servera is investigating their opportunities to implement a solution to trade electronically on the Internet, since an Internet solution is more flexible and enables real time processing and online communication. An Internet solution controls that the ordered products are held in stock and will give immediate suggestions of alternative products, if a product is sold out or taken out of the assortment.

2. Summary

Electronic commerce has had significant implications on the way companies perceive new technologies and media. Strategic thinking that has been viable for a long time, has to be reconsidered and modified to involve the new aspects created by electronic commerce. The entire concept of the traditional trade process is being questioned. New processes and partnerships are created, and a number of new strategic issues have to be understood and taken into consideration, in order to fully take advantage of electronic commerce.

1. Strategy and electronic commerce: Our model of analysis

This chapter will present our model of analysis that will be used in our case study. The underlying theory used to form the model and the influence electronic commerce has on this theory will also be presented.

As explained in our introductory chapters, literature that combines strategy and electronic commerce is virtually non-existent. The existing literature on strategy has therefore been used to create a model to analyse the effects electronic commerce could have on strategy. The model is based on the structure of Grant’s Contemporary Strategy Analysis and divides a company's strategy into three inter-linked areas of analysis: The Analysis of Industry and Competition, The Analysis of Competitive Advantage and Corporate Strategy. This structure is chosen because it gives an overall view of a company's strategic situation and yields important knowledge for strategic reasoning.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 3: The model of analysis used on the case study

There are two major inputs into strategy analysis: the analysis of the industry environment of the firm and the analysis of resources and capabilities within the firm. The areas are thus inter-linked as the two first areas form the underlying knowledge needed in order to develop the corporate strategy. The models within each area of strategy are chosen with decisions based on the relevance of electronic commerce in each model.

1. The Analysis of industry and competition

The Analysis of Industry and competition is an external analysis that describes the external environment in which a company is functioning. The analysis is restricted to the firm's immediate (micro) environment, which is the firm's industry. This is not to say that other areas of the external environment such as demographics, political and social trends are irrelevant to a strategy analysis. However, from an electronic commerce point of view, the industry is where the most important influence will be observed.

The theoretical model chosen in this area, is the Five forces of competition by Michael Porter. Our description of the model is based on the interpretations of Robert Grant. This model is used to demonstrate the impact electronic commerce could have on a company’s industry environment and competitive situation.

2. The Analysis of internal strategic capabilities

The analysis of industry and competition presents the external sources of competitive advantage while this part of the analysis is concerned with the internal sources of competitive advantage. Competitive advantage is the ability to outperform rivals on firm's primary performance goal, profitability. However, it is important to note that the competitive advantage may not be revealed in higher profits. Instead the firm may wish to trade profits for market share or rewards to its employees.

The analysis of competitive advantage is divided in two parts, an analysis of the company's Value chain and an analysis of the Generic Building Blocks of Competitive Advantage. The reason for dividing the analysis in two parts is that electronic commerce seems to have a large impact on the internal resources and capabilities of an organisation, and therefore the two models were chosen to present two different perspectives of the same problem. The Value Chain is chosen because it is an effective way to systematically analyse the impact of electronic commerce on the different activities of an organisation. Electronic commerce can profoundly affect one or more of these activities by fundamentally changing the activity or altering the relationship between activities. The building blocks of competitive advantage is another effective method of analysing the impact electronic commerce has on strategic reasoning. The model is used to understand how electronic commerce can generate competitive advantage by improving these four building blocks.

3. Corporate strategy

Corporate strategy uses the knowledge from both the industry environment and from the analysis of competitive advantage to develop an overarching strategy for the company. This strategy is primarily concerned with which business areas a company should participate in. These are questions about scope, as over what range of vertical, geographical, and product markets a company should spread its activities. The corporate level strategies are thus concerned with where a firm competes.

Corporate strategy is one of two levels of strategy within an enterprise. The other is business strategy and is concerned with how the firm competes within a particular industry or market. The two ingredients of our strategy analysis - environmental analysis and competitive analysis - form the basis of both corporate and business strategy decisions. It is therefore important to note that our section on corporate strategy will also include business strategy decisions, but will have an emphasis on corporate strategy.

There are different areas of corporate strategy and the one that has been chosen in this case study is vertical integration. Electronic commerce is an integrating mechanism on an organisation and there seems to be an obvious effect of electronic commerce on vertical integration. This is the reason that this area of corporate strategy was chosen.

 

 

3. Analysing the Industry Environment

In this chapter we will analyse the competitive environment of our case company. We will try to create an understanding of the industry and the competitive situation, and the way in which electronic commerce could affect the different elements within this environment.

1. Introduction

The wholesale industry for restaurants and large-scale kitchens consists of a few strong competitors (mainly Servera and Menyföretagen), and a large number of small local niche suppliers. Servera is Sweden’s largest restaurant and large-scale kitchen wholesaler, covering 29 per cent of the distribution volume, with sales of approximately 3 billion SEK per year and 600 employees. Menyföretagen (ICA) follows closely, with 28 per cent of the market. Besides the competing wholesale companies, there are also a few suppliers, such as Scan and Dafgård, distributing directly to Servera’s customer segments.

In the case study of Servera, the competitive situation will be illustrated with an industry analysis, using Porter’s model "Five Forces of Competition" which emphasises the opportunities and threats in the industry environment. We use this model because it clearly demonstrates, from five perspectives; the impact electronic commerce could have on a company’s industry environment and competitive situation. We have chosen to use the original structure from Porter’s model, since the strategy literature that we have used has different structures of the model. However, we have mainly used Grant’s interpretations of describing the model. We found his interpretations more contemporary and they allow us to clearly describe the intentions we have with this case analysis.

Michael Porter developed the model of the Five Forces of Competition, identifying five sources of competitive pressure. The model consists of three horizontal sources, which are the threat of potential competition; the competition from established companies within the industry and the threat of substitute products or services. The model also consists of two vertical sources, which are forces within the distribution chain of the company, the first source being the bargaining power of suppliers and the other, the bargaining power of the buyers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 4 Five forces of competition

2. Threat of substitute products or services

A substitute is a product or service that directly or indirectly competes, with a specific business or product, for the same buyer expenditures. E.g. in the car industry, substitutes could primarily be seen as other cars, but also other modes of transport like buses, trains, etc. The threat from substitutes derives mainly from the multitude of substitutes, and to what extent there are close substitutes available on the market, the number of substitutes and the ease with which the buyer can substitute.

Substitutes within the wholesale industry for restaurants and large-scale kitchens have been virtually non-existent for long period of time. However, with electronic commerce a potential threat has arisen. Servera’s suppliers could use electronic commerce to directly approach Servera’s customers. They would then be supplying a substitute service, consequently decreasing the value added by Servera’s logistics and goods-handling services. Servera is aware of this potential threat from direct supplier-customer integration, mainly when it concerns their biggest customers. However, the suppliers have a limitation in logistics. They are not interested in picking orders for individual customers, which are spread over a vast geographical area, involving long distances in a country like Sweden. Such logistics is exactly the service Servera is specialising in. Furthermore, Servera is only working with suppliers who have chosen to distribute through a wholesale company. However, it will become essential for Servera to be well adept in using electronic commerce to improve the efficiency and quality of their services to minimise the risk of being exposed to such threats.

3. Threat of new entrants

If a firm can earn a return on invested capital that exceeds the cost of capital, then there are opportunities for excess returns on investments within that industry. These excess returns are then bound to attract new competition; new entrants to the industry, until the rate of profit have fallen to a competitive level. It is necessary to build barriers to entry, to make it difficult for new entrants, i.e. new competitors, to enter the market and thus reduce profits. Electronic commerce usually allows small companies to compete on more equal terms with large corporations, since these small companies, with the help of electronic business communication tools, can operate as if they were a bigger company.

However, in the case of Servera the situation is very different. The requirements of electronic commerce came from the public sector. This segment of the market was only manageable for the biggest competitors in the industry, like the companies of Servera, Menyföretagen, Arvid Nordqvist and Martin Olsson, since supplying the public sector requires a certain scale of being able to deliver in large volumes. Consequently, these companies, in particular Servera and Menyföretagen, (since the other two take little interest in selling to the public sector) have pioneered in the development of electronic commerce in the industry. Thus electronic commerce has become a barrier to entry and has helped Servera create a strong position in the wholesale industry for restaurants and large-scale kitchens. So far, the strong position primarily concerns the public sector, but could become an important factor of competitive advantage for the private sector. The long-term experience of electronic commerce, is a significant barrier for potential entrants. However, it is uncertain if this long-term experience of electronic commerce can be a sustainable advantage for the future.

The merger between Dagab and Promus was made due to limited organic growth and changing conditions in the market at the beginning of the 1990s. The market has had a receding trend, losing around 10 to 15 per cent a year on a saturated market. "There was not really any company in the wholesale industry for restaurants and large scale-kitchens making a profit, everybody was losing money. There were too many companies on the market.". Consequently, few companies were attracted to this market. Furthermore, there was a substantial barrier to entry, since entering this business required significant experience of this kind of operations. However, electronic commerce changes this situation. The industry still requires vast experience and knowledge but the distribution of information has become much easier with electronic commerce.

The bridge between Copenhagen and Malmö may constitute a threat from potential Danish competitors, but also a market expansion opportunity for Servera. Electronic commerce could simplify such a market expansion, since electronic techniques makes it easier to communicate across borders. The customs integration and the use of a common currency within the European Union will further support electronic commerce and simplify trade between the member countries. However, barriers of languages and culture remain even if electronic commerce is not constrained by national borders. The wholesale industry in Sweden is also unique, since it involves a few strong competitors distributing a vast geographical area. The lack of organic market growth, the strong established firms on the market and the unique conditions of distribution will likely make potential new European entrants hesitate before expanding to the Swedish market.

4. The industry jockeying for position among current competitors

The definition "industry jockeying for position among current competitors" is a central element drawn from Michael Porter’s original explanations of the model. It has also been referred to as "competitive rivalry" or "rivalry among existing firms". The nature and intensity of competition within the industry among established firms depends on the concentration of competing companies, the diversity of competitors, the extent to which the product can be differentiated and the cost conditions affecting competition.

Price has incontestably been the main factor of competitive advantage within the wholesale industry for restaurants and large-scale kitchens, due to fierce competition in this weakening market. Electronic commerce will further emphasise price competition, since customers can more easily inform themselves about competitors’ prices. However, the customers in the public sector are tied to contracts for a longer period of time, and cannot switch supplier during this time. Private customers always wish to maintain their ability to negotiate. "Large chains usually use more than one supplier, both our competitors and us [Servera]. This means we constantly must influence the customer to purchase from us."

Another very important factor of competitive advantage is reliability. The customer wants to be sure that that the right products are delivered to the right place and at the right time. Efficient logistics is most essential in being able to quickly respond to customer's demands. Electronic commerce is usually seen as a means of improving efficiency in the distribution chain. However, Servera expresses that improvements in efficiency have been small. Extending the use of electronic commerce towards their supplier might bring about such improvements.

Furthermore, the assortment is becoming an increasingly important factor of competitive advantage. Servera keeps some 4500 products in stock, and they also have a special order assortment of approximately the same amount of products. The electronic price list has been created to communicate more efficiently to Servera’s customers the latest information on this assortment of products. Another interesting aspect made possible through electronic commerce is that it is possible to expand your assortment into new product categories, e.g. fresh fish and fresh bread, in distribution partnerships with small local suppliers.

5. Bargaining power of suppliers

The bargaining power of suppliers and customers are linked and depend on similar characteristics, namely their sensitivity to price and their relative bargaining power of negotiation. The bargaining power of suppliers tends to be high when there is a concentration of suppliers, a consolidated supply, rather than a fragmented supply, with many suppliers. Suppliers are strong when switching costs are high or if they have a specifically powerful brand. Furthermore their bargaining power is significant when the customers are highly fragmented, or if the supplier has the ability to integrate forward, if not content with the selling price demanded by the customers.

As described in the section Threat of new entrants, the wholesale industry for restaurants and large-scale kitchens is an oligopolistic market, indicating a small concentration of suppliers. However, due to a declining market, the concentration is possibly still too strong. The bargaining power of suppliers is to a certain extent likely to increase, since they have the alternative to sell directly to Servera’s customers. With the use of electronic commerce systems, Servera’s suppliers will be able to co-ordinate sales to end-consumers themselves. This may constitute be a threat to Servera. However, Servera has observed that suppliers lack the logistic abilities which the wholesale companies possess, and they have little interest in diversifying into this kind of operations. Servera has also started to integrate backwards in the distribution chain. They are making very limited improvements in efficiency when implementing electronic commerce towards customers but expect to make significant savings in efficiency towards suppliers. However, the process is different and concerns making the whole buying process more efficient. This integration backwards can be seen as a means of improving the relationship, and thus the mutual efficient use of each other, between supplier and distributor. Consequently, the threat of having to compete with their own suppliers is minimised. Vertical integration is becoming increasingly important when implementing electronic commerce. Routines that formerly were the basis of relationships between companies are becoming automated, and more organised business partnerships are developed within the distribution chain.

 

6. Bargaining power of customers

The bargaining power of customers is, as previously mentioned, closely related to the factors determining the bargaining power of suppliers. The bargaining power tends to be high when concentration of customers is high, and if they buy large volumes. Furthermore, their bargaining power will be substantial if there are many and small suppliers, when there are many alternative sources of supply, when material costs are significant, when the switching cost is low and there is risk for backwards integration by the buyer.

The bargaining power of buyers might generally be assumed to increase with electronic commerce. Customers have easier access to information now and can act more consciously and selectively in their choice of supplier. They will make more demands, e.g. on service and reliability and become more sensitive to price. Since not every company will be able to compete with price, customer relations will become more important. Vertical integration is an effective way of achieving this.

Servera has 50 percent public sector customers and 50 percent private sector customers. The public sector customers have definitely strengthened their bargaining power with the help of the directives of Toppledarforum. Electronic commerce is now a requirement for doing business with the public sector. Because of the size of the customers in the public sector, and the multitude of alternative suppliers, the public sector can have a considerable impact on wholesalers like Servera. However, customers from the public sector are also characterised by long contracts and by improved loyalty to their supplier, the latter as a step towards vertical integration, mainly caused by the implementation of electronic commerce.

The private sector is different. Today, private customers use only electronic commerce with hand terminals and the menu planning software, not EDI-solutions. The private sector has not yet made demands on electronic commerce, but is beginning to show an increased interest in these techniques of doing business. However, the private sector is characterised by less loyalty. They demand more attention and service to keep buying from a specific supplier. With the use of electronic commerce these companies are able to maintain a very detailed control over potential suppliers and thus significantly strengthening their bargaining power. The private sector also consists of smaller, less concentrated customers, which do not have the same ability of backward integration, directly to Servera’s suppliers. Furthermore, the relationship between the sales person and the customer is reduced, which has created a certain fear both for the customer and for Servera in loosing control. "The competence has gradually transferred to the market [to the customers]. We must demand a little more from the customer than we do today." The customers are expected to be more knowledgeable about Servera's products and might feel uncertain in their new role. Servera is losing their personal contact with the customer and thus their ability to directly influence the customer. Servera tries to maintain their personal contact by developing a different relationship toward the customer, supplying extra services such as the menu planning software and making the sales people more customer service oriented.

The private sector also expects to maintain an ability to negotiate with competitors and are usually using both Servera and one or more of their competitors. There is, however, a tendency that large chains move in the direction of the public sector customers in creating long-term relationships, while the individual private companies still change supplier quite easily if prices are not kept attractive. Strategically this will have implications on the business behaviour of Servera’s customers. The individual private companies will have an increased propensity to switch, since they will have better control of competing suppliers through electronic communication. Regarding large chains, Electronic commerce can become a tool for designing and maintaining long-term customer relations, as in the public sector.

7. Summary

In summary, electronic commerce will have a significant impact on the competitive environment within the wholesale industry for restaurants and large-scale kitchens. Much administration that used to be very resource demanding has been greatly simplified with electronic commerce. Electronic commerce is not merely an improvement of business processes, but a radical change in the ways of doing business in the industry, which significantly affects strategic reasoning. Electronic means of communications and transactions open up a number of opportunities and threats to companies in the industry. It is important for Servera to be aware of these opportunities and threats and develop strategies that will prepare them for these changes.

In this chapter we have found that threats from substitutes arise mainly from the possibility of Servera’s customers turning directly to the suppliers. This is made possible by using electronic commerce. There are however significant limitations in handling the logistics making the realisation of this threat unlikely. Threats from new entrants are limited by the small organic growth in the market and also by the prerequisite to have electronic commerce. The main threat of new entrants would come from potential foreign competitors, capable of entering the Swedish market. With the introduction of electronic commerce access to foreign markets is simplified, even if differences in market regulations and structure, still poses some problems for internationalisation. Electronic means of communication give customers better information and price competition will become even more central. Efficient logistics and reliability are also important factors of competitive advantage, which can to a certain extent, be improved by the use of electronic commerce. Furthermore, since assortment is such an important factor of competitive advantage in this industry, an interesting step would be to expand into new product categories through distribution partnerships with small local suppliers. Opportunities in information gathering, that used to be extremely resource demanding, now enables companies to keep accurate information about a customer’s buying patterns etc. The bargaining power of the suppliers is strengthened by the possibility of selling directly to Servera’s customers although it seems more profitable for them to use electronic commerce in co-operation with Servera to achieve mutual benefits, following the trend towards increasing vertical integration. The bargaining power of customers tends to develop in two directions. Firstly, individual companies are likely to become more aware of competitors pricing and may have greater propensity to switch suppliers. Secondly, large chains will see more significant benefits in long-term relations with suppliers and similarly, integrate with Servera to achieve mutual profits and efficiency improvements.

Many of the strategic impacts of electronic commerce can be derived from a changing industry environment, as this will in many ways create a completely new market situation and new patterns of doing business.

 

4. Analysing the Internal Strategic Capabilities

In this chapter we will continue with the illustration and analysis of our case. In the preceding chapter we described and analysed how electronic commerce has changed the external environment in which Servera operates. In this chapter we will describe and analyse how electronic commerce has influenced Servera’s internal strategic capabilities.

1. Introduction

This chapter will focus on the changes in Servera's strategic capabilities with the introduction of electronic commerce. This means understanding the changes in strengths and weaknesses within Servera. The internal analysis will be done in two steps, firstly with a value chain analysis, and secondly with an analysis of the building blocks of competitive advantage.

"One of the key aspects of the value chain analysis is the recognition that organisations are much more than a random collection of machines, money and people." The resources and competencies create value to the customer by being deployed into activities. Porter argues that by identifying these separate value activities one can understand the strategic capability of the organisation. This involves breaking down the organisation into its basic activities and assessing the strategic significance of each of these activities.

Figure 5: The value chain

As described in the model, Porter distinguishes between 5 primary activities and 4 support activities. The support activities are the functional activities that allow the primary activities to take place. The profit margin is a result of how efficiently the activities are linked together.

Our analysis is based on the version of the value chain popularised by Porter as we wished to use the original version. However, we have also studied and used the interpretations by Hill and Jones, Grant and Johnson and Scholes.

2. Primary activities

1. Inbound logistics

The inbound logistics activities include purchasing and materials handling. The focus is on quality and reliability of components and materials.

Servera has just recently modified their inbound logistics activities. The first step was to make an extensive analysis, a type of business process reengineering to improve their trade process and to decrease their capital employed. The second step will be to start using electronic commerce towards their suppliers. Servera is currently engaged in a project with one of their suppliers and are planning to include all suppliers.

Servera has many alternatives to inbound logistics. The financial manager declares that they can choose between buying directly from the supplier and collecting the products themselves, buying the transport service from an external shipping agency or letting the supplier transport the goods. They evaluate the total cost of inbound logistics carefully to ensure that the best solution is chosen and that they use an appropriate mixture of all three mentioned methods. Presumably, inbound logistics will change even more when electronic commerce is introduced together with their suppliers. Today it is too early to see exactly in which way.

The competition in the restaurant and large scale-kitchen wholesale industry is mainly based on price competition. Therefore, to be able to compete, Servera either must have competitive prices or be able to create extraordinarily high value to the customer. It is difficult for Servera to compete with niche-competitors since they are so specialised and differentiated in what they are doing. Therefore, Servera competes on price and with a very wide assortment of goods. The market sets the prices; hence, the only way to gain margins is to be more efficient than the competitors, especially in the area of inbound logistics.

2. Operations

The value chain analysis was originally designed for manufacturing companies. Therefore, the activity operation is traditionally referred to the production of goods. Servera's mission is to offer and distribute a complete assortment to their customers. As Servera does not have any production of goods, operations will be referred to this service.

It is important to note that the activities inbound logistics, operations and outbound logistics are closely integrated, as Servera is a distributing company and that the company mission mainly concerns logistics, including gathering and packaging of ordered products. Therefore, they put much effort in making logistics and operations as efficient as possible.

Servera's goal is to offer a fully equipped assortment so that the customer can buy everything they need from one supplier. Servera's sales manager points out that "One supplier, one order, one car and one invoice" is what Servera is aiming at. If the customer can order everything they need electronically on one order, it will simplify the buying process for both Servera and their customers, thus improving the efficiency and the competitive advantage for Servera. Today it is possible to order electronically from Servera and electronic invoicing routines are under development.

The financial manager sees a new business opportunity with the introduction of electronic commerce, where Servera can take care of other local suppliers transporting, for instance fresh fish or fresh bread, which they do not handle today, together with their own transports. This means that they will be able to charge the fish supplier a price for the transport that is lower than the supplier's cost of distribution. This is also a step in Servera's development in issues of environmental concern, since the pollution from transports will be lower.

The larger the customers are, the longer time it takes to distribute the new price list to all departments within the customer's organisation. An example is Gothenburg's urban district (Göteborgs kommun), to which the price list is sent to a central purchasing unit, to be delivered through several agencies for administrative development to over 700 purchasing units. This process can take up to 14 days. It is important that the customers have correct price lists. Otherwise they might order products with old product numbers, old prices and even products that no longer exist. With electronic commerce, Servera can reduce the time it takes for an updated price list to reach the customers to a few hours. It is also possible to update an electronic price list more often for all customers, to reduced costs.

3. Outbound logistics

The outbound logistics activities include warehousing and distribution. Generally, the focus is on fast delivery, efficient order processing and sufficient inventories to meet unexpected orders.

Servera's core activity, according to the financial manager is the reliability in logistics. It is very important that the customers get their delivery in time and that the delivery is correct. This is one of their main competitive advantages. He further states that they are better than their competitors in this function. The logistics must be perfect and the reliability in outbound logistics is the most important competitive edge to emphasise, to their customers, to protect Servera's market share from competitors.

The financial manager points out that there are large differences in transport costs depending on how far the goods are transported. With electronic commerce it is difficult to tackle the problem that Servera has a higher cost of distribution to customers in the northern part of Sweden. Some competitors charge extra to deliver up north and some local competitors can compete with lower prices due to lower costs for shorter transports. Electronic commerce simplifies the logistical planning but not the transport of the physical product.

Servera is planing to further develop their outbound logistics with a bar code aided warehouse system to support the gathering of outgoing goods. This could be accomplished with electronic commerce where the order reaches the warehouse directly when the customer has sent it to Servera.

4. Marketing & sales

In marketing and sales, the focus is on advertising that enhances brand reputation, an effective sales force and quality sales literature.

Before electronic commerce was introduced at Servera, the sales force used to call customers to take orders and to enter the orders into Servera's ordering system. The customers are now able to make the orders themselves and send them in by EDI messages. As many of the orders are very large, this electronic solution has reduced the workload for the sellers since they do not have to enter the orders into the computers anymore. When the order is received, the seller only has to check the order and see if everything is correct. The sellers have good knowledge about the customers' order patterns and can easily see if the order seems correct or not. If the order is incorrect, the seller calls the customer to discuss the possible error. In this short phone call, the seller can focus on correcting the order and, most important, take the opportunity to extend the order, do some additional sales promotion and manage the business contact with the customer. Before electronic commerce was introduced it was more difficult to concentrate on extending the order as it took a long time just to enter the order into the computer system. Electronic commerce has therefore improved customer relations.

When EDI solutions are introduced it is easier to make the customer to remain faithful to a single retailer. The electronic commerce agreements ensure that the customer purchases from one single retailer and it is no longer up to the responsible for the single purchase to decide from which retailer to buy, both for the better and for the worse, since the competitors can do the same thing. It is important for Servera to accurately handle these agreements and tie their customers closer to the company.

"Servera operates in a strange line of business. There are no list [fixed] prices, just discounts on discounts. I do not know if this situation will change. I see it as an inefficient way of working. I would have preferred to have more net prices." This can be seen as a typical problem when an industry is introducing electronic commerce. Toppledarforum suggests that no discounts shall be allowed in the EDI implementations. The financial manager sees an alternative where small and medium sized customers follow list prices and only the large customers are allowed discounts.

5. Service

The service activities include customer training, fast completion of deliveries and customer credits.

The public sector requires electronic commerce solutions but in the private sector the solutions are still additional services. Servera believes that electronic commerce solutions will soon be a requirement also from the private sector. However, the small and medium sized customers in the private sector, will probably prefer an Internet solution, as it is cheaper and does not require other programs than web-browsers.

Some years ago, the restaurants and pubs where unfamiliar to purchase planning. Today, Servera offers a menu planning software and training to improve the customers ability to plan their purchases. The plans also assure the customers to receive their orders in time and it also makes it possible for Servera to plan their purchases better.

Many customers demand telephone contact to get access to information about how large portions to serve, information about product content, information about allergies and the nutritive value of the food. This type of information is included in the menu planning software. In the future, this type of information will be provided automatically to the customers when more customers are using the menu planning software.

3. Support activities

1. Firm infrastructure

The firm infrastructure activities have a somewhat different character from the other support activities. Infrastructure includes the company's organisational structure, control systems and culture. It also includes building up a corporate reputation and management information systems that supports innovations and responsiveness to customer needs through close internal co-ordination.

The introduction of electronic commerce in Servera is a change in organisational structure and all changes in other activity areas are due to this change in infrastructure, which spans over the whole organisation.

The introduction of electronic commerce seems to have had little influence on the attitudes to electronic commerce. "I am not sure how motivated the sellers are to tackle this new way of doing business"; although such motivation is very important to successfully run a system of electronic commerce. According to the financial manager the top management seems to have realised that an IT-vision is necessary. This vision is, however, not established but is under development.

2. Human resource management

The human resource activities include training that supports goals of quality and responsiveness, incentives that are consistent with differentiation goals and developing commitment to customer service.

Electronic commerce changes the way Servera deploys their human resources. It is increasingly necessary to involve and take advantage of knowledge from different functions within the organisation. Therefore, when changes are to be done in Servera, the project groups have been larger. "We have been obstacles in these projects and we have learnt to bring more members to participate in these projects who not have leading functions." Servera has involved more people to ensure that the knowledge within the organisation is taken into account in these important changes. "In one project group we were six representatives from the board. Today we have much larger project groups. [...]This is more stimulating and a valuable alternative to the everyday routine functions [for the new participants]." This is not a new phenomenon that occurs when electronic commerce is introduced. It is more a result of the rapid changes in an organisation's environment and can be seen in most companies today. In the situation where an organisation introduces electronic commerce, it is very important that not only experts in electronic commerce are present. The actors within the organisation have good knowledge about the company's competitive environment and should therefore also participate in the introduction of electronic commerce. The stimuli given to these new members of the project groups is good motivation for the employees and increases their creativity and motivation in their daily routines.

It is important to inform the employees that electronic commerce as well as other efficiency improvements are good for the company and as a result, employees will get other, often more varying and stimulating tasks in the future. However, this demands communication of the top management visions and education of the whole workforce for these new assumptions. Education in how to use these new technologies and computer systems and education in how to educate and supervise the customers when they run into problems.

3. Technology development

The technology development activities include unique product or process features and fast new product or process development. The technology development activities also include design for reliability and service ability.

Technology development includes the development of new product and processes. In the Servera case this can be seen in the introduction of electronic commerce. The development of technology for electronic commerce at Servera is done by projects groups, led by the responsible for electronic commerce, including a range of internal personnel from different functions within Servera and representatives from their business partners, aided by consultants from Frontec. The technology development activity is highly linked with marketing and sales, in- and outbound logistics and operation activities.

4. Procurement

The procurement activities include processes for acquiring the various inputs needed to the primary activities.

When Servera introduced electronic commerce they developed new needs of inputs to support their primary activities. New technology was purchased and agreements about maintenance of information systems were undertaken. The procurement of these new inputs is not very different from the procurement of old types of inputs to support the primary activities. The procurement activity is therefore more or less unchanged after the introduction of electronic commerce.

5. Margin

The essence of Porters value chain analysis is to cut costs in activities without decreasing the perceived value for the customer, or eliminate the activity if possible. Why keep on doing something that the customers do not appreciate? If a company can eliminate an activity without decreasing the perceived customer value, then there is no reason for continuing that activity. By cutting costs in activities, the company can create a room for profit margin.

Electronic commerce is said to be a way to increase profit margins by making the business process more efficient. Electronic commerce is also said to be a further step towards a perfect market. This is based on the assumption about perfect information, i.e. the actors on the market will be able to attain the information necessary to make perfect purchases in every situation. With electronic commerce this assumption will be almost fulfilled. The customers will be better at purchasing electronically and when their systems are fully developed they will have very high bargaining power. They will be able to compare more alternatives on the market and to purchase more efficiently. It is too early to see how the margins that occur when introducing electronic commerce will be divided between buyer and seller in the long run. It is never the less to early to see that it will be increasingly important to be prepared to reach these new profit margin possibilities.

By linking outbound logistics with electronic commerce, the time for customer credit can be reduced with approximately three days. This is a possibility of using electronic commerce to cut costs in activities without decreasing appreciated customer value.

4. Managing the linkages

In order to attain a sustainable competitive advantage, an organisation must realise the importance of how the organisation manages the linkages between activities. An activity can be a basis for competitive advantage by itself, but over time single activities are easily copied by competitors. Therefore, it is important not only to excel in each individual activity but also to manage the linkages between activities. The linkage between activities is more difficult to copy and is therefore more likely to be a basis for sustainable advantage than a single activity. The linkages can be between, as well as within, the primary and/or the support activities.

Porter, as well as Johnson and Scholes, focus on identifying unique activities and linking these activities together in a competitive way. We believe that electronic commerce effects not only the activities but also the way the activities are linked together. We will therefore include the analysis of how the links are managed, despite the fact that this part is excluded in Hill & Jones version of the value chain.

Servera is an example of a company that has good linkages between activities, as described above in operations and technology development. Their inbound logistics, operations and outbound logistics activities, are closely integrated, making the distribution of goods as efficient as possible. Electronic commerce can be an excellent integrator, improving the communication between the different activities. Servera has a well-functioning linkage between inbound and outbound logistics and is also considering improving this linkage to electronic commerce. They propose to inform their suppliers of a customer order electronically, directly after the order has been placed and thereby removing the need of keeping the product in stock. This integration with the use of electronic commerce is thus an activity linkage that is more difficult to copy than an individual activity.

Electronic commerce also means a change in infrastructure by improving communication. The linkages between all primary activities are thereby indirectly improved by this infrastructure development.

5. The value chain system

It is uncommon that a company undertakes all of the activities from product design to end-customer delivery. Usually different companies specialise on doing some of these activities. All companies involved in the process of fulfilling the customer needs are part of a wider value system. Kotler and Armstrong argue that: "In its search for competitive advantage, the firm needs to look beyond its own value chain, into the value chain of its suppliers, distributors, and ultimately customers." It is obvious that electronic commerce as a phenomenon will change the structure of value chain systems - it already has in some industries. For instance, Amazon, the well-known Internet bookstore, has altered the value chain system in their industry. Amazon does not follow the traditional distribution chain of using outlets for selling books and sells directly to the end-consumer bypassing the function of the outlets. In order to survive as a wholesaler or as a retailer in the future, the company must find strategies that link activities within their own organisation together with activities in other organisations in the value chain system, in a unique way that is difficult to copy.



 

 

 

 

 

 

 

 

Figure 6: The value chain system

Electronic commerce often leads to attempts activity integration between two companies in the distribution chain, which is integration of the value chain system. Integration through electronic commerce might be a way of achieving advantages over the competitors.

It is important to note that building up competitive advantages on electronic commerce itself will only give advantages in the short run. In the long run, competitive advantages cannot be built on the use of on electronic commerce. Electronic commerce can only be a partial method of structuring the activities.

According to Fredholm the personal contacts between companies will be reduced when electronic commerce is introduced, since most contact will be electronic and automatic. In Servera we can see the opposite. Before electronic commerce, the sellers handled most contacts between Servera and other companies. After the introduction, more people within Servera came in contact with people in other organisations, for instance the people involved in electronic commerce projects and the sales managers. This increased contact area between companies might be temporary, therefore it is very important to use this new contact area in a sufficient way to improve customer relations for the future.

In order for a company to keep its position in the value chain system, it is important that it can add a significant value to the product or service. According to Fredholm electronic commerce opens the possibility for a buyer to purchase directly from the manufacturer instead of sending orders to a wholesale company. Servera is a wholesale company and does not have many obvious value-adding activities. The wholesale function, gathering and distributing goods, can, even if it is difficult, to some extent be substituted by manufacturers using electronic commerce solutions, so that Servera's present customers can buy their products directly from the manufacturer. To avoid competition from other manufacturers, it is important for Servera to present a unique mixture of services that the customers are willing to pay for. Today electronic commerce is such an activity, but this activity might soon be copied by Servera's competitors. Therefore, Servera has to develop other unique service activities.

6. The Generic building blocks of competitive advantage

An organisation achieves competitive advantage by providing their customers with what they want or need, better or more effectively than competitors and in ways their competitors find difficult to imitate. The four main building blocks of competitive advantage are efficiency, quality, innovation and customer responsiveness.

 

Figure 7: Generic Building Blocks of Competitive Advantage

Achieving these goals requires strategies that embrace several distinct value-creation activities. These building blocks could therefore be regarded as building blocks that cut across the different value-creation functions of a company. As described in the model below, attaining the goals of these building blocks require substantial cross-functional integration.

The building blocks of competitive advantage is a model that we only have found in Hill and Jones, Strategic Management. We find this model very valuable for identifying the influences that electronic commerce has on competitive advantage and have therefore included this section despite the fact that we have not found the building blocks of competitive advantage in other literature



Figure 8: Generic building blocks and the value chain

Electronic commerce could be a very important tool for creating competitive advantage, and could therefore be an important factor in strategic reasoning. In the case of Servera, electronic commerce is seen as a complement or alternative to the traditional commerce and telephone ordering. Electronic commerce has, however, created significant changes in the building blocks of competitive advantage.

Companies that have achieved a competitive advantage typically excel in at least one of these four main dimensions. In turn, these dimensions are the product of an organisation's competencies, resources, and capabilities. These factors are generic in the sense that they represent four basic ways of lowering costs and achieving differentiation that any company can adopt, regardless its industry or the products or services it produces.

1. Efficiency

A company is a device for transforming inputs into outputs and efficiency is measured by the cost of inputs required to produce a given output. Electronic commerce could be a great help in improving employee production by enhancing the communication in the company and thus shorting lead times and improving efficiency.

However, at Servera, the improvement in efficiency has been small. On the contrary the ordering process has to some extent become longer, as Servera does not receive the EDI message from their customer immediately after the message has been sent. Sometimes it takes several hours, and Servera has therefore suggested customers who need a speedy delivery to order over the phone. These lags are due to the technical structure in the data network that Servera is using. "It [efficiency] will be achieved, but we have not seen an improvement in efficiency yet, it will come in the future." They are working on an electronic invoice, which can result in considerable savings in invoice payments. "If we can send the invoice electronically the same day as the customer gets the goods, we will save two days of credit, as the customer credit starts from the invoice arrival." The improvements in efficiency that can be seen today are improvements in the distribution of price lists, which are sent electronically instead of by letter. The observed lead-time improvement is about one day, by sending the prices at once.

In summary, an improvement in efficiency relies much on technical problems to be solved, in improving the data network and in implementing the electronic invoice. Electronic commerce therefore certainly has a potential to improve Servera's business, even if the effects on efficiency have been small until now.

2. Quality

Quality products are goods and services that are reliable in the sense that they do the job they were designed for and do it well. Electronic commerce does not change much in a physical product but can certainly enhance the augmented product- which is the additional consumer benefits built around the core and actual product. Servera was concerned that the quality would be reduced because electronic commerce is anonymous and has therefore assigned personal sales man for each customer. The financial manager at Servera is still concerned that service might not be as good as before, but says "with electronic commerce, it is possible that we set free resources for different customer campaigns and better treatment of the customer".

Servera also has some problems with their sales people entering orders incorrectly, which results in customers getting the wrong products or quantities. With electronic commerce, the customer enters the order and faults might still be made, but this time, Servera has a chance to double check them before the product is shipped. The security is thus improved in the form of fewer errors.

In summary, the quality is improved automatically with electronic commerce on entering orders, and great improvement is possible on customer service if the organisation uses the freed resources.

3. Innovation

Innovation can be defined as anything new or novel about the way a company operates or the products it produces. Electronic commerce certainly alters the way a company operates by improving the communication in the company and towards the company's suppliers, distributors etc. Electronic commerce may also radically change the product, if it is some type of service or change the non-physical part of the product. Being involved in electronic commerce may also give the company something unique - something that its competitors lack (until they imitate the innovation). Hill and Jones argue that innovation is one of the single most important building blocks of competitive advantage. Electronic commerce may allow a company to differentiate itself from its rivals and charge a premium price for its product during the time that electronic commerce makes the company or product unique.

At Servera, electronic commerce was introduced in the company because of customer demands and not directly from Servera's own innovative thinking. However, the fact that most of their competitors have not yet introduced electronic commerce in their organisation, makes Servera at least partially unique. It is also important to note that the timing of introducing electronic commerce into the organisation today is right, as it is possible to acquire competitive advantages. However, the situation is changing and most companies will have electronic commerce in a couple of years and the competitive advantage will not be as great.

In summary, Servera has a competitive advantage with respect to innovation since they are among the few that provide electronic commerce in their industry. They can also gain most out of being innovative in electronic commerce today, as companies will most likely follow their example in introducing electronic commerce.

4. Customer responsiveness

In order to achieve customer responsiveness, a company must give its customers exactly what they want, when they want it. In other words, achieving superior efficiency, quality and innovation are all part of achieving customer responsiveness. An important aspect of customer responsiveness is customer response time - the time it takes for a good to be delivered or service to be performed from the moment that the customer has placed the order. Electronic commerce can radically shorten the time for a customer response time, which is one of the major goals of ECR/QR, by maximising the perceived value for the end-customer.

Servera's lead times however, have not been reduced with electronic commerce, but the customer has the possibility to order at his time of preference, at any time of the day. Servera is predominately using electronic commerce with the use of EDI and the messaging process takes some time. They are looking for a better solution and Servera's financial manager sees a possible improvement if they were to use the Internet instead. "Electronic commerce on the Internet could be better, the customer can talk with us directly and we can build intelligent applications that can make suggestions depending on what we have in stock." Servera sees the development in electronic commerce on the Internet as an important possibility to improve their own operations when their industry is ready for it.

In summary, Servera does not see any lead time improvements with electronic commerce, but consumer response has been improved with better service, possibilities for the consumer to order at his time of preference and quality improvements in less ordering faults.

7. Summary

Servera's resources and capabilities shape their strategies and create a competitive advantage. Electronic commerce is a part of their resources and capabilities and has certainly not yet shown all the improvements in competitive advantage that are possible to achieve.

 

 

 

 

 

 

Figure 9: The relationship between strategies and resources and capabilities

Electronic commerce has changed the way Servera exploits their resources and competencies to create value to the customer. This can be seen in all of the activities in the value chain. The most important changes have occurred in the primary activities: inbound logistics, operations and outbound logistics; and the support activities: operations and technology development. Electronic commerce also means a change in infrastructure by improving the communication. This improved communication between activities improves the linkages between all primary activities. Servera has also changed the way they link activities together, both with activities within their own value chain and with activities in other organisations within the value chain system.

Furthermore, electronic commerce has proven to be successful in some aspects in all four building blocks of efficiency, quality, innovation and customer responsiveness. There is also large potential, especially in efficiency with technical and organisational improvements that will result in decreased lead time, better service and cost savings in invoice payments.

 

5. Analysing the Corporate Strategy

In this chapter, we will continue with the illustration and analysis of our case study. Here we will present the influence of electronic commerce on corporate strategy. The results from the external and internal analysis is necessary for formulation the corporate strategy.

1. Introduction

Corporate strategy is an overarching strategy for the company and is based on the knowledge acquired from the analysis of the industry environment and from the analysis of competitive advantage. As explained earlier, the area of corporate strategy that will be used is vertical integration because electronic commerce is an integrating mechanism and will have obvious influence on vertical integration.

2. Vertical integration and electronic commerce

Vertical Integration is based on the idea that an organisation should integrate the different stages in the production chain, from raw material to end-consumer. It is called backward integration when the company takes control of inputs supply and forward integration when the company takes control of its own customers.

Vertical Integration is useful for determining the optimal scope of a firm and particularly involves the role of transaction costs in the firm and in the relationships between firms.

The integration that was studied in the chapter of competitive advantage in the analysis with the value chain was the integration of internal activities. The focus in vertical integration is instead the integration of external activities and relations. Servera, being a large distributor of restaurant products, primarily has relations to its suppliers and customers. The vertical integration that Servera is concerned with will be in relations to these. To succeed, the strategy should add value to the company, and electronic commerce could be an efficient tool in doing this, by minimising the transaction costs and vertically integrating the business processes between the firms.

Traditionally, vertical integration has been the case of mergers and acquisitions, and is now moving towards alliances and partnerships. This is also the case of Servera and their introduction of electronic commerce in the organisation has enhanced their vertical integration to their suppliers and customers, not by acquisition but by vertical relations to their suppliers and customers.

 

1. Backward integration

Servera is currently working on a partnership project with several suppliers. "In this project, electronic commerce is an important part for getting a flexible handling of orders and invoices between us and our suppliers."The co-operation between Servera and their suppliers involves increased communication, education and discussion for the joint action to function. Servera's aims at, with enhanced communication between the parties, improving their businesses to run smoother with shorter lead times, fewer goods in stock and better understanding. A concept used for this is, infopartnering, which means that advantages are attained through the co-operation of business partners on the logistic and market economy level, with the support of electronically transferred information.

2. Forward integration

Electronic commerce is used with several of Servera's customers, which has led to an increased integration. "When you start with electronic commerce, you become more integrated. We meet more people at our customers. We are a larger span of people [who meet]. Before, it was only the sales manager and perhaps some sales people [who met] but now we involve more people and the result is a better co-operation." The goals are about the same as in the backward integration, but now concentrated towards the relations between Servera and their customers. The customers engage in agreements on electronic communication with Servera, which ties them closer to Servera and they become less inclined to switch supplier, provided that the relationship works well.

3. Advantages

The vertical integration attained in Servera is very close to the concept of ECR/QR. In ECR/QR, partner co-operation is seen as essential. Traditionally, each stage in the distribution chain optimised its own operations, without concern of affected business partners. ECR/QR strives instead to create long-term partnerships by co-ordinating and synchronising certain functions. The co-operation can undoubtedly lead to considerable savings and other profits, which are then divided on the involved parties in the distribution chain. Alternatively, the price for the end-consumer can be reduced to stimulate demand.

Servera does not have a pronounced vision of ECR/QR but they have still attained some of the advantages of the ECR/QR concept. There are two ways of generating advantages with ECR/QR, which are through logistics and marketing efforts. Servera has primarily generated advantages through logistics by improving vertical communication between the business partners, to minimise stockholding and improving service. Servera has put much effort in improving vertical communication and they explain that the partnerships have involved a complete review of the business processes in purchasing, capital binding and warehousing.

Electronic commerce has been an important part in improving the communication and this has led to an efficiently running business with small capital binding and smooth logistics. The other way of generating advantages with ECR/QR is through marketing efforts. The marketing efforts are concerned with product exposure and assortment composition. There seems to be less done at Servera concerning this matter. There is, however, large potential for profits in the area of marketing efforts and merchandising. These marketing efforts could be in co-ordination with Servera's suppliers in assortment composition and mutual product and advertising campaigns.

4. Disadvantages

Even if Servera already has the technical and economic prerequisites for advanced infopartnering and electronic commerce, there are still some problems and difficulties that they have consider. This type of vertical integration and infopartnering involves a much larger openness between the business partners concerning warehousing techniques, sales and distribution methods. "Business today, is done with partnerships and an increased openness. The problem is that they [customers and suppliers] get a larger insight into our operation. We do not know where to draw the line" Servera and their business partners become transparent and expose some of their competitive advantages. Other disadvantages include a reduced flexibility. With vertical integration through electronic commerce, Servera is tied closer to its suppliers and it is more difficult to switch to other suppliers if the need would arise.

5. Degree of integration

Vertical integration may be a full or partial integration. Full integration is a complete partnership where one company sells its full production to the buying company. The full integration is built on a merger or an exclusive agreement. Partial integration is where only a portion of the production is sold to the buying company. This is also the case in Servera and this type of partnership has been initiated even before the emergence of electronic commerce. Electronic commerce has however, tightened the relationship by improving the communication and tightening the bindings between the involved parties.

3. Summary

In summary, electronic commerce could be seen as a tool for designing vertical relationships and vertically integrating the communication between the parties involved in the different stages of the production chain. A company pursuing vertical integration is normally motivated by a desire to strengthen the competitive position of its original, or core business. The introduction of Electronic Commerce is a process of improving the core business of an organisation by vertically integrating the involved parties and sharing the benefits. Vertical integration might be initiated before an introduction of electronic commerce, which also seems to be the case at Servera. However, the introduction of electronic commerce has unconditionally enhanced the relationships and communication between the involved parties. Servera's efforts in vertical integration, have been proven successful, they have met their customers demands. There is however, still potential for further improvement in backward integration and in areas of marketing co-ordination with their suppliers.

 

 

 

 

 

 

 

 

6. Conclusion

In this final chapter, we will present our conclusions from the theoretical and empirical analysis that we have made. We will further comment on these conclusions and finally present some suggestions to further studies within this subject.

Electronic commerce is in our belief, a phenomenon that will substantially affect the way companies conduct business in the future. The development within the area of electronic commerce moves very fast. However, little attention has been given to the strategic implications of electronic commerce. The focus has been on operative benefits, such as increased efficiency, cost reductions and shorter lead-times, by using electronic commerce. In this thesis, we have analysed implications on strategic reasoning associated with the introduction of electronic commerce and which new strategic issues that need to be considered.

Our analysis shows that that electronic commerce certainly has affected Servera's business. It is, however, difficult to define which exclusive implications electronic commerce has on Servera's strategic reasoning; we will rather have to note certain tendencies in particular directions.

From the interviews, we have understood that the respondents do not perceive that electronic commerce has changed their overall business that much. It has involved certain problems and possibly some advantages, but in general, they are running the same business as before. They perceive the development of electronic commerce as a change among others in the external environment. However, our perception is different. We have analysed the introduction of electronic commerce as an isolated phenomenon for its direct effects on Servera's strategy. We certainly believe that their business has changed, with important implications on their strategic reasoning. This means that the implications on strategic reasoning associated with electronic commerce has been neglected not only in literature but has also been overlooked in our case company, which makes the research of this thesis even more interesting.

1. Partnerships

It is true that Servera is running about the same business as before, but their industry environment has undergone serious change. Consequently, Servera's strategic reasoning has had to change in order to conform to the new environment. The most obvious sign of these strategic changes is the increased partnership through vertical integration, and more specifically, vertical relations in the industry. Servera has strengthened its relations with both customers and suppliers. Some of the tendency in creating partnerships could of course, in Servera's case, be caused by the necessity to integrate in an industry with little organic growth. However, we believe that electronic commerce has strengthened this relationship and switching between suppliers has become more difficult. The relation to Servera's customers has also become more integrated because electronic commerce has increased the communication. This type of information partnership also leads to certain insecurity. It involves an increased openness concerning warehousing techniques, sales and distribution methods. The customers and suppliers get an increased insight into each other's operations and become partially transparent and vulnerable towards each other. Besides improving the business relations, Servera's partnerships could also be an important reason for reducing insecurity by making formal partnership agreements.

2. A changing market situation

Electronic commerce has also changed the market in which Servera is functioning. Traditionally, geographical borders defined the perception of a market but chances are that these are slowly being reduced. Servera is functioning in the same geographical region as before, it has not changed with electronic commerce, but it is important that their perception of this market changes. Electronic commerce provides the opportunity to function over multiple geographical regions at a much lower cost than before and is therefore an opportunity but also constitutes a threat to Servera. Electronic commerce improves the communication and monetary transaction possibilities as well as the logistical planning but not the actual transport of the physical product. Furthermore, the electronic marketplace provides the opportunity for small or foreign competitors to compete on an equal level being equally accessible on the electronic network. Electronic commerce opens opportunities to supply new product categories through distribution partnerships with small local suppliers.

3. New patterns of business

Electronic commerce also implies changes in a company's value chain, and more important in the value chain system. The value chains are integrated and new patterns of business arise. Subsequently, Servera must consider these new patterns of business in a strategic manner. Servera's suppliers have increased their bargaining power and constitute a potential threat in bypassing the function of Servera and selling directly to Servera's customers. As yet, they have not done so but Servera must be aware of the potential threat. Servera's customers also have more bargaining power than before the introduction of electronic commerce, now having easy access to information and being able to demand that their wholesaler provide some type of electronic commerce. It is important to note that even if Servera's customers have gained an easier access to information, they cannot more easily switch supplier the way electronic commerce is utilised today. Today, electronic commerce involves quite a bit of co-ordination in order to function, which ties the parties together. The situation will probably change if electronic communication between Servera and their customers run on a more open type of network like the Internet. On the Internet, all involved parties will automatically be using the same protocol and switching supplier will be much easier. Even here, formal partnership agreements concerning electronic commerce could play an important role reducing the risk that Servera's customers switch supplier.

 

4. Comments on our conclusions

It is difficult to say exactly how generally applicable our conclusions are, as we have only studied one company. However, with the background of our conclusions from Servera, we have found that there are some strategic issues of importance that companies should consider when engaging in electronic commerce. These issues are questions that companies need to ask themselves and carefully consider, in order to face the implications that electronic commerce could have on the company's strategy:

How could our relationship with customers and suppliers change? As we have concluded, business partnerships are of obvious importance and involve both benefits and disadvantages. The relationship is often strengthened but in cases of advanced electronic commerce the integration also involves an increased transparency and vulnerability. This insecurity is a problem that must be considered.

How could the market situation, as we define it today, change? It is not certain the geographic borders will be the same, if they even will exist. Customer buying patterns might change, new ones will arrive and others will disappear. Electronic commerce minimises national borders, modifies the extended product and will therefore change the company's present perception of the market and how they can give value to their customers.

How could business patterns change? The interactions with customers and suppliers will change the way business is conducted today. We have noted an increased bargaining power for both buyers and suppliers and this increased power must be considered. Agreements concerning electronic commerce will be of increasing importance.

As a result of these questions, one must further ask oneself: What are the opportunities and threats that arise from these strategic issues? How can we face these opportunities and threats?

These questions are built on the conclusions drawn from our case study but we also understood that there is one fundamental issue that remains. It is relevant to question the purpose of using electronic commerce, as the purpose highly influences the way electronic commerce is implemented in the organisation.

5. Suggestions for further research

It is important to note that this thesis is only intended to explore the area of the strategic impacts of electronic commerce, since little research has yet been published on this topic. We have highlighted some important issues on partnerships, a changing market situation and new patterns of business, which would all be of interest for further research. We hope that some of the aspects presented in this thesis will contribute to an increased interest in the strategic reasoning concerning electronic commerce.

As this is a thesis within the area of Business Administration, it is written with that perspective. Consequently, many technical aspects of electronic commerce have been excluded. However, there might be an interest for future research to observe the strategic choices in choosing the technical solutions for electronic commerce. This would perhaps be a sensible attempt in integrating business administration with computer science.

6. Future visions

A strategic issue for the future is that the Internet is likely to become a central part of electronic commerce. Today, Servera is using a value-added network (VAN) provider for electronic commerce. The VAN is a secure but expensive method for electronic communication and has until recently been unrivalled in its ability to provide EDI messages. However, the present development of secure standards, is clearing the way for the Internet to transform business processes and relationships for electronic commerce. EDI through a VAN provider has been proven successful for Servera, especially for their larger customers while smaller customers are reluctant in using this type of electronic commerce. The Internet is therefore a possibility that could allow smaller customers to access product information and place orders while Servera links the Internet system with the existing EDI systems. The usage of the Internet will also allow real-time communication with Servera's warehouse system

Johansson D, Lundh H, Roos C, ECR samarbetet mellan ICA-handlarna och Abba Seafood, bachelor thesis,

The purpose with the interview is to collect data on our case company and to collect data for our analysis.

The three areas of interest:

• Analysing the Industry Environment (Five Forces)
• Analysing the Internal Strategic Capabilities(Value chain and Building blocks)
• Analysing the Corporate Strategy

Description of the company

Background, introduction, current situation, Electronic commerce

• Threat of substitute products or services
• Threat of new entrants
• The industry jockeying for position among current competitors
• Bargaining power of suppliers
• Bargaining power of customers

Value chain

• Primary activities

Inbound logistics, Operations, Outbound logistics, Marketing & sales, Service

• Support activities

Firm infrastructure, Human resource management, Technology development,

Procurement

• Managing the linkages and the value chain system
• The Generic Building Blocks of Competitive Advantage

Efficiency, Quality, Innovation, Customer Responsiveness

Backward Integration, Forward Integration,

Description of the EC implementation

What type of system are they using?

For how long have they used EC?

Which parts of the organisation are affected?

What was the purpose of introducing EC?

Management knowledge level on EC?

There are different types of electronic commerce and they all have different purposes, depending on the situation. When two companies have a business agreement and they continuously have transactions with each other, there is a need to automate the communication. In other cases, when a company only occasionally makes electronic purchases, it is better to use a cheaper or simpler technique without automation.

Electronic Data Interchange, (EDI) is probably the most standardised concept of electronic commerce, and deserves a bit of explanation. EDI generally means electronic transmission of information by standardised messages. It is, for the computer generation, a rather old concept and the first standards were developed in the middle of the 1970s in the United States, England and Germany. EDI replaces the costly processes of filling out, copying and posting order forms. In order to handle the paperless transaction, the company uses a network connection to the other party.

When using EDI the most important factor is not which communication channel that is used, but rather that the two companies have agreed on the structure of the messages. This means that the information systems in the companies, for example order-, stock-, invoicing, financial- and accounting systems will be able to communicate directly with each other. The problem is that, using EDI has been very expensive, and impossible for small businesses to introduce into their operation. This is however, changing and the introduction of the Internet together with the low prices on personal computers has made EDI quite accessible, even for small businesses.

EDIFACT, Electronic Data Interchange For Administration Commerce and Transport is a group of standardised templates for EDI messages, developed by ISO, the International Standards Organisation together with the United Nations. The development is a continuing process and their goal is to create global standards for EDI messages. EDI associations and users are allowed to demand new standards or changes to the current ones at any time, and 168 different EDIFACT templates had been developed by 1993.

Many companies use different types of file transfers today and it works well without standards within the company or possibly within the group but becomes practically impossible when the company communicates with its environment of customers and suppliers. This is when the great advantage of global standards like EDIFACT is seen, it becomes much easier for all involved parties and communication runs much smoother.

Electronic Data Access (EDA) is a method for a computer system to connect with another company’s system and getting partial access by using a password. EDA can be used for quick access to stock balance, placing orders, getting product details and other information.

The Internet is becoming a good example of EDA usage. The Web can be used for giving the same information and making transactions like the ones described above. The Internet has made electronic business communication accessible even for small businesses and individuals.

Electronic mail or e-mail has during the last couple of years got its breakthrough and is used in virtually every company. During the 80s many large corporations started using electronic mail to facilitate communication within the company, in the 90s, the Internet has with its popularity and low prices made it possible for virtually everyone to have an e-mail address.

Usage of e-mail in companies is first of all thought to be a complement to other techniques for electronic communication. Other techniques, like EDI is better for transferring orders, prices, invoices and other types of structured information. E-mail is better for routine communication with the customer, like support and questions.

There has always been a discussion between EDI-users on which solution that is the most optimal, direct communication between the involved parties or communication via a third party, a so-called VAN-provider (Value added network). A VAN-provider functions as an intermediate medium that links the involved parties by providing a secure network. The main advantage of the VAN is that it is secure and main disadvantage is that it is expensive.

Efficient Consumer Response and Quick Response (ECR/QR) are two methods for organised business partnerships and has they have their origins in the everyday commodity business (dagligvaruhandeln). Both ECR and QR can be divided in two different stages of integration. The first one involves the logistic aspect, vertical communication and integration to achieve optimum stocks. The second one involves co-ordination of marketing activities, in assortment and shop displays, as well as co-operation in product launchings and retail activities.

Quick Response (QR) is a term for a specific kind of partnership co-operation. The underlying concept of Quick Response is that the supplier decides when it is time to make a new delivery. In general the ownership of the goods is not transferred from seller to buyer, until the goods are delivered from the buyer. To make this kind of agreement work, the supplier must have access to qualitative information from the buyer about level of stocks, prognoses of sales etc. The situation where costs are reduced at the same time as the quality is improved, is the ideal response that the partnership is successful. QR is most suited for businesses with regular deliveries and large volume between two parties. QR was established during the 1980s, and was mainly used within the clothing industry. There is however not any standardised, international methodology for QR, as there is for ECR (as explained below).

The term Efficient Consumer Response (ECR) originates from the United States, in the beginning of the 1990s, and was defined as "Working Together to Fulfil Consumer Wishes Better, Faster and at Less Cost". The original idea was to study the complete distribution chain, from commodity supplier to end-consumer, as a unit in an attempt to maximise the overall profit within the value chain system. The goal is to maximise the perceived value for the end-consumer. To achieve this, it is essential to identify which activities generate value, to perform these effectively, and eliminate activities that do not contribute to customer value. In Europe the organisation ECR Europe was created to establish a definition of the ECR concept. According to ECR Europe’s definition ECR is a function of three focus areas:

Category management signifies the process where supplier and distributor co-operate within specific product categories, as strategic business units, to achieve maximum customer value. Category Management consists of some sub-components; establishing infrastructure i.e. choosing partners and agreeing on the basic conditions for co-operation, how to optimise product launchings, assortment and promotion campaigns

It is essentially with product replenishment that the distribution chain is designed to achieve maximum customer value. The level of stocks is optimised, so that the risk of shortages is minimal, and the total stock in the distribution chain is kept at a minimum. This can be achieved by electronic communication of all commercial activities within the distribution chain to every partner involved.

A number of sub-routines, such as how to identify each product, how to communicate information etc., are established to enable the two prior steps. Four of the most important components are Electronic Data Interchange (EDI), Electronic Funds Transfer (EFT), Item coding and database maintenance (EAN) and Activity Based Costing (ABC). Many of these techniques have long been known, but are only now linked together and co-ordinated, with the implementation of ECR.