How to tackle the sixth and final bullet point in the AQA Research brief on: The impact of e-commerce on business performance and on strategy, both nationally and internationally.
In order to consider the impact of e-commerce on performance and strategy students first need to have a basic understanding of the key terms, ie:
- business performance and how it can be measured.
- business strategy, including different types of strategies pursued by business.
What is Business Performance? How can it be Measured?
Business performance essentially concerns a business’s ability to fulfil its function and to achieve its short, medium and long-term goals, (which may be financial or non-financial). Performance can, in fact, be measured against a business’s ability to achieve:
- Marketing objectives / targets eg relating to brand awareness, sales, repeat business, market share.
- Financial objectives / targets eg relating to raising finance, cash flow, cost minimisation, profit and profitability.
- Operational objectives / targets eg relating to quality, production volumes, capacity utilisation, lead times, overall productive efficiency.
- Human Resources objectives / targets eg relating to rates of labour turnover and unauthorised absence.
Performance might also be measured in terms of success in meeting the needs of, or fulfilling responsibilities to, stakeholders, not just in terms of customers and owners / shareholders, but the wider society, especially with the growing concern over the environment and importance now being placed on a business’s performance in terms of corporate social responsibility.
It should also be appreciated that performance may be assessed in terms of effectiveness and / or efficiency, and a distinction should be made between these two terms:
- Effectivenessis concerned with the achievement of organisational goals (including meeting the needs of different stakeholders groups).
- Efficiency is concerned with achieving organisational goals (or meeting the needs of the different stakeholder groups) with the minimal use of resources (eg people, machinery, finance, time).
For example, a business strategy (see below) could be regarded as effective if the business objective which the strategy set out to achieve had been achieved. However, if this had involved extravagant use of resources, then the business was not efficient in achieving this objective. Only if the objective was achieved with no greater use of resources than the minimum necessary, could it be said that the operation was efficient.
What is Strategy?
Business strategies are essentially plans to achieve business goals ie its mission, aims and objectives (eg in terms of sales, market share, profit, return on investment, etc). To succeed in a competitive environment a business needs to develop a competitive advantage and a successful strategy will exploit that which a company does best ie its competitive advantage. It should be based on the firm’s strengths, and be something that is valued by customers.
Michael Porter identified 3 strategies (Porter’s Generic Strategies) through which competitive advantage can be achieved: cost leadership, differentiation and focus. E-commerce may enable or constrain the achievement of these strategies and, ultimately, the objectives they set out to achieve.
E-commerce can also affect a business’s ability to pursue strategies relating to growth and expansion. For example, in terms of Ansoff’s Matrix, internet-based e-commerce technologies may help a business pursue a strategy of market penetration and / or market development. They have also enabled a business to expand its product portfolio and, thus, pursue a strategy of product development.
Conversely, in several industries / sectors, the Internet has led to an influx of new low-cost, online only entrants which has restricted the pursuit of growth strategies amongst traditional incumbents and, instead, led to strategies of consolidation or rationalisation.
Alternatively, new online competition has forced businesses to diversify into other products / services to either help retain existing customers and / or attract new customer segments.
Numerous examples of the impact of e-commerce on business performance and on strategy to achieve its objectives will be included in our Complete Companion for use with the theme, which is due to be published next week on Thursday 10th December and can be pre-ordered now.