CASE 13.2: RED HAT STRATEGIC COLLABORATIVE PLANNING This major, open source software company operates a very competitive global market Strategic planning is critical for its success. Therefore, the company embarked on the following collaborative strategic process: Step 1: Generated a set of priorities of issues based on the company's mission, objectives and goals. Step 2. For each high priority issue the company created a team The leaders of each team were top executives who were given tasks that were not related to their areas of expertise, with the hopes that they would generate fresh ideas. Step 3: Each team used traditional, as well as Web 2.0 collaboration tools (e.g., blogs. wikis), to reach any and all Red Hat employess, providing background each issue, and requesting ideas and feedback The ideas were collected, and organized and evaluated by all the participants For a period of five months, there were discussions online chats, and debates. AI the end of the “idea generation phase”, the best ideas were combined into nine strategic priorities. Step 4: The company created new teams, one for do each strategic priority. The teams identified initiatives for each priority (again using feedback from employees). The teams included people who were involved in strategy implementation the one or two most important strategic initiatives. This process resulted in the identification of some innovative ideas It encouraged creativity the commitment for implementation in addition there was an increased understanding of others’ work and better collaboration Those who were involved in strategy implementation also panic and pated in strategy initiation and formulation this. Because of the success of the project. Red the Hat now updates and evaluates strategy on an ongoing basis, rather than refreshing yearly.Despite the economic downturn the company's earnings have grown consistently since the initiation of the process. The stock price increased by over 500% between 2009 and 2013. For a detailed description of the process, its benefits, lessons learned, a supporting video (“Jim Whitehurst on Red Hat Strategy"), and the corporation's financial results, see Yeaney (201 l). Source: Based on Yeaney C011). Gast and Zanini (2012), and Bort (2012) Questions 1. Red Hat is an open source company why was it more likely to use Web 2.0 tools.2. Relate the case to crowdsourcing (Chapter 8) 3. Identify strategy formulation activities in the process. 4. View the video "Jim Whitehurst on Red Hat youtube.com/watch? Strategy" (2 26 minutes, cited in Yeaney 02011) vm64V6nVownHE) and summarize the drivers and motivations. 5. Summarize the benefits and the critical success factors in the case. Security to Consider During Strategy Formulation Some security issues that need to be considered when setting up an EC strategy include:
• Malware and other technological attack methods.
• Human error and natural disasters.
• Botnet Dos attacks that shut down order taking, or slow it down considerably.
• Extortion, using DoS and DDoS as a blackmail platform.
• Business interruption due to any security attack.
• Relevant penalties and legal expenses due to litigation.
• Damages caused by disgruntled employers.
• Damage to intellectual property(e g stolen or reproduced trade secrets).
Other Issues in E-Commerce Strategy Formulation
Different types of issues exist in e strategy formulation, depending on the company, industry, nature of the applications, and so forth. Here we discuss some representative issues.
Managing Conflict Between the offline and Online Businesses
In a click-and-mortar business, it may be difficult to allocate limited resources between offline and online activities. The two activities can be viewed as competitors, especially in e sell-side projects. In this case personnel in charge of offline and online activities may at behave as competitors This conflict may cause problems when the offline side needs to handle the logistics of the online side, or when prices need to be determined. The ability of top management to introduce change properly, and the use of innovative processes that support collaboration will all determine the degree of collaboration between offline and online units in a business. It is essential to have strong support by top management for both the offline and online operation and a clear strategy of “what and how” each unit operates.
Pricing Strategy
Traditional methods for determining price are the models. Cost-plus and competition-based models. Cost-plus means determining the expenses associated with producing a product (production cost) by materials. adding up all the costs involved – materials, labor, rent, overhead, and so forth and adding an additional amount to generate a profit margin (a percentage mark-up). The competition-based model determines price based on what competitors are charging for similar products the marketplace For a comprehensive presentation see netmba.com/marketing/pricing.
Pricing products and services online changes these pricing strategies in the folk way:
• Price comparison is easier. In traditional markets either the buyer, or more di often the seller, has more information than the other party does, and the seller M uses this information to determine a product's price. Price comparisons help in create the ‘perfect market’- one in which both the buyer and the seller have a ubiquitous and equal access to all relevant information, frequently in the buyer’s favor. On the internet, search engines, price comparison sites (e.g., mysimon.com, kelkoo.co.uk), make it easy for customers to find out who offers the product they want at the lowest price.
• Buyers sometimes somtimes price. Name your own-price models, such as Priceline com and auction sites, provide buyers be with the option lo set their own prices.
• Online and offline goods are priced differently. Pricing strategy may be especially difficult for a click-and-mortar company. Setting online prices lower 400 than those offered by the offline side of by the sane business may lead to internal exam conflict, whereas setting prices at the ale same level might hurt the competitive advantage of the online business.
• Differentiated pricing can be a pricing `strategy. For decades, airline companies have maximized revenues with yield management, models-charging different customers different prices for the same product or service, ln the B2C EC marketplace, one-on-one marketing and can provide price differentiation to a segment of customers(e g those buying an airline seal early).
The consumer's buying power is increasing due to Internet technologies that provide easy Al access to pricing information Sellers need to is implement smarter pricing strategies in order to be profitable and competitive, particularly using the Internet to optimize prices. This can be done by setting prices more competitively, adapting to changing prices, and segmenting customers for differentiated pricing.
Multichannel Strategy
One of the most popular strategies in EC is offering several marketing channels to consumers, including online and m-commerce. This is known as multichannel or omnichannel strategy. In some cases, companies need a policy of how to integrate the several channels in order to avoid channel conflicts cited earlier. In addition, several pure EC companies have opened physical locations it. For example, Expedia (expedia.com) opened Expedia Local Desks, located in select cities In t addition, it was rumored that in 2014, Amazon was going to open physical stores (called “Pantry”) where they will sell about 2,000 items that would normally be found in a grocery store. Pantry will be competing with warehouse stores like Costco and Walmart's Sam's Club. As of the time of the d writing of this book, Do physical stores have opened For details. see usatoday.com/story.
t e c h / 2 0 1 3 / 1 2 / 1 2 /a m a z o n – p a n t r y / 4001707 The strategy of opening physical stores by pure online companies can be complex For example, Vaish (201 l) describes the need to create a maturity model with different levels. The levels range from limited presence (Maturity Level 0) to optimization and innovation (Maturity Level 4). For each level, a company needs different strategy initiation, formulation, implementation and assessment. For more on multichannel e-commerce, see Lee (2013).
Acquisitions, Partnerships, Joint Venture, Acquisitions, and Multi EC Model Strategy
In contrast with early EC companies, which were not diversified with one website, many EC companies today have multiple on divisions and websites. Furthermore, many collaborate with other companies in joint ventures or other kinds of partnership. For example, Alibaba Group ng(Chapter 4) includes nine companies(e.g., Alipay, Alibaba com, Tmall), and Amazon com to is in the business of selling hardware and to ware in addition to e-tailing. In 2014, China's Tencent Holdings purchased a percentage of Leju Holdings Ltd., an online real estate services company Tencent wants to broaden their range co of online services that can be connected to the in popular smartphone messaging application WeChat, which they own. Facebook, Google, Apple and Amazon are aggressively seeking in access to a broad range of online services. Google is even investing in robotics and Facebook purchase chased the virtual reality company oculus VR in at 2014. Alibaba Group purchased a Silicon Valley startup called TangoMe, and the list goes on and on. Many of these acquisitions are purchased at E such a high price, like the $19 billion that a Facebook paid for WhatsApp. Do all the acquisitions make sense? For example, many wonder if m Facebook's acquisition of Oculus VR for $2 bilion is a visionary or crazy acquisition (e.g., see ac Ortutay and Liedtke 2014).
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