Antonio Thonis

This is the fourth part of my thesis serie of blogposts. In this part the internal and external approach to the electronic business environment is studied and applied to approach social media. We also take a look at the possible uses of social media based on existing literature. In the end I will make a pdf available of all the blogposts and possibly an updated summery based on the feedback.  So please share your views in the comments!

Internal and external business approach to the electronic environment

The strategic alignment model states that strategy must be addressed in an Internal and external domain. The research that follows on electronic strategies and business types also indicate organizations can have an internal or external focus.

E-service: a new paradigm for business in the electronic environment

Rust & Kannan (2003) argue that the traditional path of e-commerce has largely failed after the dot-com crash, and that organizations must learn to embrace the e-service paradigm that can offer new forms of competitive advantage. Putting the firm in a position attending to the needs of the customer by providing software service in addition to selling products

The transformation of physical products to service products is enabled and hasted by electronic networks. For firms to garner long-term customer relationships they must take full advantage of the e-service opportunities that these electronic networks can offer. They predict that product-centered orientated firms that resist the call of the customers for control are not likely to survive in this electronic environment and give the example of record labels.

The traditional path is focused on automation and efficiency to reduce costs. While the e-service path is focused on enhancing service and building profitable customer relationships to increase revenues. There is a shift form focusing on technology and systems towards focusing on understanding the customer. While the new path offers new forms of competitive advantage both can still be used by organizations to perform successfully.

The electronic environment enables both this inward and outward-looking view of e-commerce. The e-service paradigm identifies a new use of internet for improved customer satisfaction as opposed to increased efficiency and productivity. The e-service paradigm takes advantage of the nature the online environment with its flows of information to learn about customers, communicate and engage in long-term relationships to build customer equity (Rust & Kannan, 2003). E-services identify customer service as an important new approach of businesses in electronic environments.

According to Rust Kannan (2003): “Dell Computers is a good example of how a firm selling products in an increasingly commodity market can follow an e-service orientation to build its customer equity.“ Organizations as IBM, HP and Sun are also undergoing this shift and increasingly focus on their services as prime revenue source.

Business types, e-strategies, and performance

After the dot-com crash IT developments continued shaping towards web 2.0 and new services emerged (Hoegg et al. 2006) creating new business opportunities (Rust & Kannan, 2003)  and new e-strategies emerged. Lai & Wong (2005) mention that the companies that survived the dotcom crash needed to device innovative e-strategies and restructure around new business models. After reengineering efforts some companies recuperated from the debacle.

In their research they look at companies after the EC crash and investigate the influence of different business types(B2B & B2C) and non-EC on the company performance. Also the e-strategies from the different companies are identified and their effectiveness correlated with the company performance.

The results indicate a moderating the relationship between business type and e-strategy performance.

Findings indicate that many EC companies used four different types of e-strategies. Savings-related strategies were most effective for B2B and B2C companies, while marketing-related strategies were only effective for non-EC companies. The business type that benefited the most from the e-strategies were B2B companies and also performed better than their B2C counterparts.

Conclusion: How to approach social media

E-strategies further help identify how organizations approach the electronic environment and which strategies they use. The four main types of e-strategies are identified as: savings-related, structure-related, policy-related and marketing-related. These identified strategies can also be subdivided between internal and external strategies. Savings, structure and policy-related are inward focused strategies while marketing-related strategy is focused outwards.

Rust and Kannan (2003) identify two different paths of e-commerce. The traditional path focused on automation and efficiency to reduce costs and the e-service path focused on enhancing service and building profitable customer relationships to increase revenues (Rust & Kannan, 2003). The traditional e-commerce path and e-service path help identify two approaches of businesses to the electronic environment. One focused inwards on processes and the other focused outwards on customer satisfaction. Organizations can adopt an internal as well as an external focus.

Both papers indicate the existence of an internal and external focus for organization strategies and are in line with the strategic alignment model that was presented and help identify how different organizations can use social media and web 2.0 in their (electronic) strategies.

I argue the same strategies can be used when formulating strategies for the use of social media in organizations, because social media operates in the same electronic environment on web 2.0 services and platforms. Also the e-strategies theory can be connected to e-commerce or e-service paths by making a distinction between internal and external focus.

Functions of web 2.0

Possible uses of the World-Wide Web for business

Having answered what web 2.0 and social media is and developed definitions for both, now the possible use of social media by organizations can be researched. Cockburn and Wilson (1996) present a list of applications for which businesses are using the WWW. While their paper was written at the beginning of the internet era, it can still be used to identify the purposes and goals of businesses on the internet. They identified the following application areas:

Publicity, marketing and advertising:  the WWW appears to be an ideal medium for businesses to promote themselves and their products. Gaining access to millions of people can be achieved by a small fraction of the costs of conventional methods.

Direct online selling: can revolutionize the way in which people shop. Virtual shops and catalogues are available on the web where customers can directly buy products.

Research and development: especially companies involved in research and development can use the internet as an additional resource for collecting information. Many databases are available and discussion boards that can be searched and queried for information and data.

Communication: use of low-cost electronic mail(and other ways of online communication )that allows many companies to link together and communicate internal and external  in an easy and fast way.

Collaboration: fast and easy forming of links and collaboration over the internet instead of using private (network) links.

After the dot-com crash new web business characteristics were identified as web 2.0 (O’Reilly, 2007) and businesses had to understand the new rules for success on that new platform (Valacich & Schneider, 2009). The survey was done in 1996 before the dot-com crash and new developments have led to new approaches and use of the internet. Modern web 2.0 business uses like e-commerce can be seen as part of Direct online selling. Crowd sourcing that makes use of the collective intelligence of web 2.0 (O’Reilly, 2007) can be seen as part of Research and development and Collaboration.

Internal enterprise use of social media focuses reaping the benefits from internal collaboration and communication and makes use of web 2.0 services to achieve this. The free broadcasting platform that social media offers, helps to circumvent traditional organizational hierarchies (Brzozowski et al. 2009).

While the list of applications for which businesses use the internet still is valid, I argue that one business application is missing that was identified after the dot-com crash. Customer service is the main new business application that originated from the paradigm shift after the dot-com crash (Rust & Kannan, 2003) and should be added to the list. Zappos.com is an example of a company that mainly focuses on using internet to offer customer service, with the use of a blog, chat and other messaging services. These are used as a support function on their e-commerce services that are used for direct online selling.

Conclusion: How organizations can use social media

The possible uses of the Internet for business were identified by Cockburn and Wilson (1996) in their survey that presented a list of applications for which businesses were using the internet. I identified one main application that was missing and updated the list. The business uses of internet are: Publicity, marketing and advertising, direct online selling, research and development, communication, collaboration and customer service.

The list of possible business applications of the internet helps identify the use of social media for organizations. I argue that these applications can also be applied to the use of social media that operates on top of web 2.0 services and platforms. Web 2.0 and social media that operates on top of it offer new opportunities, but I argue that the same goals on the web remain. One of the new opportunities that arrived with the rise of web 2.0 and e-services is customer service that can be a goal of businesses on the internet, and was added to the list.

These possible uses of the internet overlap with the possible uses of social media. Only now web 2.0 and social media has really enabled the possibilities to achieve these uses and goals on the internet while at the start of the internet era the possibilities were still limited. These uses will be important for the model that is presented later on in this paper.

Related posts:

1. The alignment of web 2.0 and social media with business strategy – Thesis Pdf
2. Business Strategy and Social Media (IT) alignment – Thesis part 3
3. Business use and Definitions of Web 2.0 and Social Media – Thesis Part 1
4. Impact of Social Media and Web 2.0 on Organizations – Thesis Part 2
5. e-Service vs e-Commerce: A new paradigm for Business