Making Ebay Work

Table of Contents Introduction:2 PART A: Chapter Summary3 PART B: Background and Case summary5 EBay’s Background5 Case Summary: Making eBay work6 PART C: Case Questions7 Case Question #1:7 Case Question #2:10 Case Question #310 PART D: Implications and Recommendation12 Implications12 Recommendations13 Introduction: Strategic capabilities have become a source of competitive advantage for both small and large organization. Organizations that wish to survive and compete in today’s dynamic business world need to implement unique and high-value strategic capabilities. This paper takes you through in depth analysis of strategic capabilities and how it relates to the business environment. The organization in focus is eBay, an online sales company. EBay is one of the largest online sales and auction company with branches in over two dozen countries. Its unique resources and key competences are paramount to its ever-growing success in the industry. The first part of this paper will take you through the concept of strategic capability. This is the summary of the chapter 3 from the textbook, Exploring Corporate Strategy. This part will focus on definition of strategic capability, the importance of resources and competencies to achieving strategic capabilities, cost efficiency, and how strategic capabilities can lead to sustainable development. The second part focuses on the background of the case study company, eBay. There is a brief background about the company and summary of the case study. Part three seeks to answer the case questions. The questions are divided into three; the first talking about the analytical framework for analyzing eBay’s strategic capability. There are several analytical frameworks in the textbook, for in-depth and better understanding, the SWOT analysis was used. The second question seeks to know what kind of capabilities have provided eBay with competitive advantage. The last questions deals with managing capabilities such as new resources, investing and divesting in resources, and extending resources given new entrants in the marketplace and the changing nature of eBay. Each question has been answered by expert individuals with good knowledge of strategic capabilities. The paper concludes by taking into consideration possible lessons learnt from the chapter and case study. We also give recommendations for development in eBay or other organizations that seek to achieve the feat of successful organizations like eBay. PART A: Chapter Summary Strategic capability can be defined as the adequacy and suitability of the resources and competencies of an organization for it to survive, prosper and deliver in the future. The strategic capability contributes to the competitive advantage of an organization by creating and implementing strategies that competitors find difficult to imitate or match. Unique and rare strategic capabilities give organizations better reputation and goodwill when compared with their competitors. Importance of resources, competences, core competences and dynamic capabilities: An organization’s strategic capabilities mainly revolve around its resources. The resources are either tangible or intangible and they are grouped into four categories; an organization’s resources can be: Physical, Financial, Human, and intellectual. Physical resources include machines, building or production capacity of the organization. Financial resources are used in the day to day running of the business; they include capital, cash, debtors, creditors among others. Human resource includes the number and mix of people in an organization. Most organizations have human resource departments that help manage the welfare of the personnel in the organization. Intellectual resources are intangible resources that include patents, brands, business system, and customer database. Resources are important to an organization because they allow the organization to produce at lower cost or generate superior product or service. The resources in an organization are of no worth if they are not being utilized effectively. Organizations must utilize their resources by being competent. Competences in business policy are used to mean the activities and processes through which an organization deploys it resources effectively. Competences can either be threshold or core. Threshold competences are the essentials needed to compete in a given market, while core competences are the effective use of resources to gain competitive advantage. Importance of cost-efficiency: The management of cost-base of an organization can be a basis of achieving competitive advantage. Cost efficiency is driven by a number of cost drivers. [pic] How strategic capabilities can lead to sustainable competitive advantage: †¢ Value: Have resources that customers value in terms of products and services. Product or services must exceed consumer want and taste. †¢ Rarity: Having unique resources and competences in terms of personnel intellect, unique services rendered among other things. †¢ Robustness: A strong and well-built form of strategic capabilities that annot be imitated by competitors. †¢ Non-substitutability: Providing value to customers and possessing competences that are complex and casually ambiguous. Diagnosing Strategic Capability If organizations are to achieve competitive advantage by delivering value to customers, they need to understand how it is created. †¢ Value Chain: describes the activities within and around an organization whic h together create a product or service. †¢ Value Network: is the set of inter-organizational links and relationships that are necessary to create a product or service. Activity Maps: it shows how the different activities of the an organization are linked together †¢ Benchmarking: comparison of programs and strategic positions of competitors. †¢ SWOT: summary of key issues which affect the business environment. Managing and developing Strategic Capability: In order for managers to manage and improve the strategic capability of an organization, there are certain decisions and actions which can be taken which relate to the development of strategic capabilities within the organization and external environment. These include: Extending best practices: managers might identify strategic capabilities in one area of the business and then seek to extend this throughout all the business units. †¢ Adding and changing activities: this involves adding or changing capabilities so that they become more reinforcing of outcomes. †¢ Stretching competencies: managers may see the opportunity to build new products or services out of existing capabilities. †¢ Entrepreneurial Bricolage: strategic capability can be built by exploiting resources, skills, and knowledge which have been ignored: which is often what entrepreneurs who develop new business models do. Ceasing Activities: involves doing away with current activities not central to the delivery of value to customers. †¢ External Capability development: developing capabilities by entering into alliances and joint ventures. PART B: Background and Case summary EBay’s Background EBay is an online shopping and auction website where people and businesses buy and sell products and services. EBay was created in 1995 and they have over the years grown and expanded to over two dozen countries such as the United Kingdom, China and India. EBay recorded a profit of $367 million according to GAAP in their fourth quarter in the year 2008. Millions of collectibles, decor, appliances, computers, furnishings, equipment, vehicles, and other miscellaneous items are listed, bought, and sold daily on eBay. In 2005, eBay launched its Business & Industrial category, breaking into the industrial surplus business. Some items are rare and valuable, while many others are dusty gizmos that would have been discarded if not for the thousands of eager bidders worldwide. Case Summary: Making eBay work The ‘Making eBay Work’ case study is divided into three sections namely; eBay’s business model, eBay’s management and Competition and cooperation. EBay’s business model A business model describes the structure of product, service and information flows and the roles of the participating parties. Therefore the business model in eBay’s case includes its products and services and the interactions between buyers and sellers. The business model includes Value in eBay which is created by providing a virtual market for buyers and sellers. EBay listens to its customers and organizes Voice of the Customer groups which involve flying in a new group of about 10 sellers and buyers from around the country to its offices every few months to discuss the company in depth. Technology allows every move of every potential customer to be traced. Workshops and classes are held to teach people how to make the most of the site. EBay is governed from outside and within in the sense that the company’s system has a source of automatic control in the form of buyers and sellers rating each other on each transaction. Sales of illegal products are dealt with by withdrawing the item on sale and then banning the seller. EBay’s management Meg Whitman, an ex-consultant joined eBay in 1998 and has seen then heavily influenced the company’s management. Meg Whitman met a collection of Information Technology (IT) geeks who were handpicked by eBay’s founder Pierre Omidyar as top management of the company. Meg Whitman felt she needed to reshuffle and change the management as most of the top executives understood more of the IT side of the company rather than understanding the business side of the company. Respected consultants were then assigned senior management roles. This change brought about the company becoming data and metric driven: ‘If you can’t measure it, you can’t control it. ’ This simply means that category managers made decisions based on measuring and acting upon the data within their fiefdom or departments. EBay has in time upgraded its ability to ensure that technology does not fail. The company’s website was plagued with outages in 1999 which shut down the site for a period of 22hours. The problems were as a result of software problems and lack of backup systems. Maynard Webb joined eBay to become the president of the company’s technology unit and has since then ensured a secure website by constantly upgrading the system. Meg Whitman is a manager who is known for leadership qualities such as understanding and flexible. She is a leader who buys into the company in more ways than one by auctioning some of her furniture from her ski condo in order to have an eBay selling experience. Competition and cooperation As the internet has become a more competitive arena, eBay has definitely not stood still. The company tries to be aware and flexible. EBay bought Skype, the internet telephony organization in 2005 at the cost of $2. 5 billion. A lot of controversy marked this acquisition as people considered it too risky and eBay fired back by saying the company can create an unparallel e-commerce engine, pointing to their 2002 purchase of the online payment system, PayPal. eBay also supported their action by saying three benefits would be realized as a result of the purchase; ‘the more members the company will acquire, the more valuable the company will become, and lastly the more likely eBay will become a world leader in managing network effects. In 2006, eBay announced a deal with Google and has since then become one of Google’s biggest advert customers. EBay also partnered with Baidu Inc, a Chinese web portal bought by eBay in 2002. Baidu promotes PayPal Beibao as the preferred method of payment on Baidu. Despite eBay success in the west, it is not as successful in the east. EBay had to pull out of Japan and is cur rently struggling in Taiwan and lagging behind a rival in China. GMarket in Korea had a less complex system and so had a larger market base; so eBay had to come up with eBay express to meet up to the customer needs in Korea. PART C: Case Questions Case Question #1: Analyze eBay strategic capability using an analytical framework from the chapter Strategic Capability can be defined as the resources and competences of an organization needed for it to survive and prosper. EBay’s case shows us the necessity of an organization having sustainable resources and competences. In analyzing their strategic capability, the SWOT framework (strength, weakness, opportunities and threats) projects, clearly, the issues surrounding a business and deduces how this issues makes them strategically capable. Strengths: Bay’s greatest strength is that it is the first online auction site. Because of that, eBay is well trusted. The customer’s perception that he/she can buy a good without worrying, keeps him/her coming back. That is why, in 2006, eBay had 200 million customers. Out of that, 750,000 made their living from eBay. (Johnson, Scholes, & Whittington, 2008) From the case study, you can see a strong rel ationship between the business-to-customer and customer-to-customer relationship. For example, when a category manager sees a customer is having difficulty selling a product, he helps the customer by improving their presentation of the product. Also, eBay organizes â€Å"Voice of the Customer† were a group of 10 sellers and buyer are flown in from around the world, to discuss the company in depth. In regard to the customer to customer relationship, customers help each other by creating rules and norms to keep themselves safe from fraud. They also have websites, offering advice on how to sell on eBay. This relationship seems little, but it is not. It has taken at least 13 years to build it; that is why it would be very difficult for another company to break in. Another major strength eBay has is Meg Whitman who is a unique resource. She is well experienced. She previously worked with Procter and Gamble, Hasbro and Stride Rite, and went to Harvard business school. When she came in, she multi-tasked, filling many of the senior management roles such as the head of the US business, head of international operations and vice president of consumer marketing with consultants. Through her eBay has been re-defined; eBay has over thirty categories now (you can buy items ranging from books, cars, antiques to houses), their sales have increased and have acquired several firm- like Skype and PayPal- strengthening eBay alive and keeping it flourishing. Weakness Although things seem perfect, eBay has a number of weaknesses: Because items are sold online you can’t be certain of the person you are transacting with. EBay customers suffer from other fraudulent activities by other customers. For example, another customer maybe selling a Gucci hand bag for a reasonable price. When you pay for it and receive the bag, you realize the bag is not original. Another case of fraud occurs when stolen goods are sold. Fraudulent situations affect the customer to customer relationship. In addition, according to the case, in 1999 the site was shut down for 22 hours courtesy of software problems. This is a major weakness because eBay’s site cannot function when the system breaks down; auctioning cannot take place. During these periods, a lot of profit will be lost, affecting the business and customers. EBay would be affected more because of the amount spent on repairing. In the past, even the payment system, PayPal, has been shut down. Opportunities Opportunities are lucky breaks entrepreneurs use to get ahead of competition. Acquisitions provide new business strategy opportunities. In 2005, according to the case study, eBay bought Skype. It is an online telephone company. EBay acquired the firm for $2. 6 billion. Skype's software lets PC users talk to each other for free and make cut-price calls to mobiles and landlines. A lot of critics didn’t see the essence but for eBay it was a great opportunity. They were strengthening their threshold and unique resources. Skype is a unique resource because not a lot of businesses can afford to imitate that feat (spending $ 2. 6 billion). It is a threshold resource because Skype helps customers communicate more effectively. Through Skype, customers can see and hear each other; reducing the rate of fraudulent activities. In addition, eBay has opportunities through new and emerging markets. EBay has over 30 sites, were language differs. For example, if you go to the Chinese site, it wouldn’t be in English. But it wasn’t always like that before. This opportunity occurs when a country becomes more modernized, like Singapore. When it happens, eBay has an opportunity to increase its market segment. This is how eBay has been able to grow, over the years. Also, a product produced 5 years ago can still be sold and found on eBay. In a way, eBay keeps products alive. You can find a first edition magazines and old models of cars on eBay. This is one of eBay’s core competences. EBay keeps Markets current. Threats As with many of the global Internet brands, success attracts competition. (SWOT Analysis: Lesson, 2008) Competition is a threat because it reduces the amount of customers you have. From the case study, eBay has a big threat in Korea. GMarket is the Korean version of eBay. It is partly owned by Yahoo. Although Yahoo’s auctioning unit isn’t as strong as eBay, it can become a threat in the future. Already, because of Yahoo in Japan, eBay has pulled out. It doesn’t do well in the East because international competitors have a cultural edge over them. Furthermore, some costs cannot be controlled by eBay, which is a threat. â€Å"It is a threat because if a customer doesn’t understand why he has to pay extra, for example delivery charges and credit card charges, he might feel cheated. If fuel prices were to rise, the cost is passed on to the consumer in terms of delivery and postal fees. This could make the overall cost of an auctioned item too expensive, making customer’s look for cheaper prices†(SWOT Analysis: Lesson, 2008) Also, individuals pretend to be eBay staffs, using their logos, the send illegal e-mails. Case Question #2: What are the capabilities that have provided eBay with competitive advantage and why? hjogdnfjuhfe Case Question #3 Using the concept of sustainability and dynamic capabilities how would you manage (creating new resources and competences, investing/divesting in others extending others) Given: New entrants to market and the changing nature of eBay. Concept of Sustainability: Concepts of sustainability and dynamic capabilities are major strategies that organizations use to capture competitive edge over competitors. Sustainability of strategic capability deals with the criterion that organizations use to achieve and maintain competitive advantage over a long and sustainable period of time. Three main factors influence sustainable strategic capabilities; Inimitability, Rarity, and Value. Inimitability refers to the robustness or sturdiness of the strategic capability. It involves â€Å"identifying capabilities that are likely to be durable and which competitors find difficult to imitate or obtain† (Johnson, Scholes, & Whittington, 2008). Inimitability can be achieved through three main ways, they are; Complexity: Complexity of strategic capabilities is the quality of being intricate and compounded. When organizations like eBay have very complex strategies, it will be very difficult for new entrants to the market to imitate such strategies. An example of a complex strategy in eBay could be the internal linkages in the organization. These internal linkages deal with how eBay internally links activities and processes together to deliver customer value. Internal linkages can be in form of relationship between top-management, middle-management and lower management staff. EBay has a very good communication network that allows for efficiency which will in turn produce efficiency and increase customer satisfaction. Organization can also build external interconnectedness with its customers to make it difficult for their strategies to be imitated. When developing new resources, organizations can seek opinions or partner with their customers or clients to generate idea that will add value to the company and also generate strategic capabilities that are robust in nature. †¢ Culture and history: Culture and history are very unique to each organization. It is almost impossible to find two organizations with similar cultural background. When investing or divesting in resources, organization should make sure their investment is culturally inclined. When strategies are linked to cultural embeddedness, there is the â€Å"likelihood that such competences have developed over time and in particular way. The origins and history by which competences have developed over time are referred to as path dependency, are specific to the organization and cannot be imitated† (Johnson, Scholes, & Whittington, 2008). Causal Ambiguity: Ambiguity deals with not being able to discern the meaning or cause of a particular effect. It is very difficult for organizations to imitate another organization when the former cannot easily discern the cause and effect of the latter’s success. Organizations like eBay have varying causal factors that affect its success in the industry that other competitors find hard to discern. Other factors that affect su stainable development include the rarity and value of the strategic capability. When an organization is seeking competitive advantage, it needs to make sure the resources it’s investing in have huge values to the customers and they should be very unique and rare capabilities. Unique resources and competences can include marketing strategies that are peculiar to the particular organization. Dynamic Capabilities The changing environment in the business world today calls for the implementation of dynamic capabilities. Dynamic capabilities are â€Å"an organization’s abilities to renew and recreate its strategic capabilities to meet the needs of a changing environment† (Johnson, Scholes, & Whittington, 2008). Dynamic capabilities help organization to integrate, build, and reconfigure internal and external competences to address the ever changing environment. When an organization is developing, investing, divesting or extending in resources, it should be able to transfer and modify existing resources to keep competitive edge over its competitors. The organization should have intellectual skills that can easily implement new capabilities to foster development. PART D: Implications and Recommendation Implications The following are the implications of the case study Making eBay Work: Competitive and Cooperative: Competition and Cooperation are one of the major elements used to successfully excel in the business world. Form the case it is observed that eBay is very competitive and cooperative. Competitive in the sense that eBay bought companies like Skype, the internet telephony organization (http://www. skype. com/) and PayPal an online payment system (www. paypal. com/) in order for it to keep up with the evolving activities on the internet. GMarket in Korea had a less complex system; so eBay created eBay express to meet up to customer needs in Korea. Bay is cooperative in the sense that it partnerships with companies like Google, yahoo and Baidu in other for it to be more effective in its services. Customer Friendly: Some organizations do not pay attention to the needs or complaints of their customers and take the appropriate measures to satisfy them, but eBay listens to customers and tries to keep up with what they want to sell, buy and how they want to do it. This brings about profitability, good reputation and more customers. So every organization should try to be customer friendly because it serves as an advantage to them. The great importance of Technology: The basis on which eBay operates is technology that’s why it’s of great importance to them. eBay endeavours to up grade their systems to fit the latest technology, make sure the site is accessible at all times, ensure no fraudulent activity or illegal transaction is carried out in the site and also ensures that the site is virus free. This helps eBay to operate effectively. Staying Aware and Flexible: eBay tries to stay aware and flexible at all times. The company tires to get feedback from customers, complaints, suggestions and also take note of customer activity on the site. This helps eBay to make necessary adjustments in other to satisfy their customers. Nearly all of its fastest-growing new categories emerged from registering seller activity in the area and quietly giving it a nudge at the right moment. For example eBay noticed a few car sells on the site so the company created a separate site called eBay Motors which has special features such as vehicle inspection and shipping. Organizations should try and stay aware and flexible in running while running their business. Good management can make a positive difference in an organization: Having a good manager or management body in an organization can make the organization excel. When Meg Whitman came into eBay in 1998 she made eBay become data and metric driven and she also brought about strategies which made eBay work better. eBay had a software problem and this caused the site to be shut down for 22 hours. When Maynard Webb was brought into the company as the president of eBay he quickly upgraded the systems and make sure they are upgraded constantly and this makes the site function more effectively. Have a good knowledge about a particular market before entering it: It is observed from the case that eBay is not doing well in the east but is doing well in the west. It pulled out of Japan, is suffering in Taiwan and it lags behind a rival in China. This shows that eBay those not have the right strategy to excel in those areas so it is advisable to have a vivid knowledge and strategy about a particular market or area before entering it in order to excel. Recommendations The following are the recommendations for the case Making eBay Work. eBay is not doing well in the east, in order for eBay to do well in the east it should either buy GMarket or partnership with GMarket in other to be successful. Since GMarket is big and successful it would not allow eBay to buy them so if eBay partnerships with GMarket it will be more successful in that area. If eBay is very tactical they can be better than GMarket in the long run. Like the saying goes â€Å"If you can’t beat them join them †. So eBay will be better off if it partnerships with GMarket. eBay pulled out of Japan, is suffering in Taiwan and it lags behind a rival in China. In business it is advisable never to give up so eBay should reengineer its self so it can function better in countries like Japan, Taiwan and China. †¢ One of the lessons of the chapter 3 (Managing strategic capability) is that strategic capability often lies in the day-to-day activities that people undertake in organizations. So developing the ability of the people at eBay in other to recognise the relevance of what they do in terms of strategic capability of the organization is important. Bay should organize training and development in specific areas and also develop people’s awareness that what they do in their jobs matters. This will help achieve competitive success and increase their motivation. Bibliography Johnson, G. , Scholes, K. , & Whittington, R. (2008). Exploring Corporate Strategy. Essex: Prentice Hall. S WOT Analysis: Lesson. (2008, February 12). Retrieved March 23, 2009, from Strength, Weaknesses, Opportunities and Threats (SWOT): http://www. marketingteacher. com/Lessons/lesson_swot. htm ———————– Experience Supply cost Product/process design Economies of Scale Cost Efficiency