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William Bell10/11/18Dr. BarkerCIS 410-50Webvan CaseThis report will provide an evaluation of the Webvan corporation regarding their status in the online grocery environment, and the decision the company should make heading into the future. The information gathered in this report are based on the two years Webvan has been in business (5 months of operation). As of now, Webvan is looking at a $23 million loss for the present year, with potential to bring in a $216 million profit in two years. The issues that have placed Webvan in this predicament include the need for on-time development of distribution centers, and an increase in demand for online grocery services. With the uncertainty in the online grocery environment, Webvan can either continue operations as is, buy established regional grocery chains that include supplier networks and distribution centers, or accept a takeover offer from a large grocery market. I recommend that Webvan buy regional grocery chains while sticking to their current strategy, and consider using online advertising fees to gain more income until they are stable.While analyzing the environment of online grocers, Webvan appears to have multiple rivals to compete against. Peapod, Streamline, Shoplink, Netgrocer, Hannaford brothers, and eGrocer are some of the established companies that have a solid foundation in the industry. Afuah and Tucci mentioned that Peapod reportedly brought in “44 percent of the online grocery market” (266), the year prior to Webvan entering the market. This makes it important for Webvan to have an established business plan that will give them a competitive advantage over its current rivals. The threat of new entrants in the market are high. Brick and mortar grocery stores have realized that they must adjust to the online grocery markets, and have done so by creating websites to sell their goods online. Since these brick and mortar stores have an established flow of income, the cost of building an online presence wouldn’t cost as much as it does for a company like Webvan, which makes entrance into the market relatively easy. Threat of substitutes are high in the environment. A customer could decide to go to a fast food restaurant or a brick and mortar store like Kroger, instead of purchasing an item from Webvan. Customer bargaining power is high due to the many options to choose from. It takes no time at all and no extra money for a customer to go to another provider for service. The only aspect Webvan might not have to worry about is the bargaining power of the supplier. Webvan has many options it can choose from in order to obtain their products.The mission and generic strategy of Webvan could drive them to the top of the competition. Webvan owner Louis Borders envisioned giant distribution centers, large selections of product, secure online transactions, quick and efficient deliveries, all at comparable prices to that of a regular grocery market. To achieve this vision, Webvan put a strategy in place where they highlighted operations and customer experience to separate themselves from the competition.Inside the company, Afuah and Tucci reported that, “80 software programmers created proprietary systems that automated, linked, and tracked every part of the grocery ordering and delivery process” (264). They used a giant distribution center to fulfill orders and cater to “as many customers as 20 normal supermarkets” (265). This would take place with half the labor and double the product selection of a regular supermarket. With the current operations in place, Webvan could deliver services one day after an order was placed, personalized shopping lists were generated for customers, and delivery fees for orders over $50 were waived. The organization structure has yet to be determined in the case, but there hasn’t been reports of miscommunication or little to no organization in operations.After reviewing the status of Webvan in comparison to texts regarding e-commerce, Webvan would be best suited to buy regional grocery chains and continue operations. Zwass states that in order to thrive in e-commerce, a business must, “identify an actual customer need and the firm's relationship with the customer must build on the key feature of the medium, namely interactivity” (8). Kalakota lays out some of the customer-oriented trends/needs that customers look for, the first being faster service. Kalakota states, “Customers count speed of service as a key reason for doing business with certain companies” (38). With the unique Webvan system where delivery vans traveled no more than 10 miles and were able to take orders directly to the customer after receiving the product. Webvan was able to deliver products one day after an order is placed which is quicker than most online grocery markets. Another customer need/trend pointed out by Kalakota, is more product choices, “Online retailers triumph over brick and mortar companies in one area: breathtaking product selection” (41). Webvan sought to provide its customers with 50,000 products compared to the 30,000 of a brick and mortar.Going by the needs that draw customers to a company, I believe that Webvan will have no problem bringing in business in the future, which takes care of one issue they’re currently facing. The second issue of having distribution centers built on time, can be addressed by purchasing regional grocery markets. Webvan would have the facilities and machines needed to efficiently serve customers as laid out in the vision, and could potentially save money as the building of new distribution centers could cost more. The only area of concern in my opinion, is the customization aspect within Webvan’s services, and the communication between customer and company to fulfil the customer’s order. Afuah and Tucci stated that, “Tacit knowledge and cognitive limitations of people make it difficult to perform some transactions over the internet” (46). Webvan uses a personal chef, what if poor communication leads to the chef not making a customer’s order up to par? This would lead to a dissatisfied customer who would go elsewhere for business. Webvan must ensure proper communication takes place in order to fulfill customized orders of the customer.If Webvan were to continue operations as is, they could see detrimental results due to the amount of uncertainty they would face. Fried states that, “the further we look into the future, the less success we have in prediction” (279). What if the distribution centers aren’t built on time? Would they be able to attract enough customers to bring in a surplus of income? Fried also states that,” Initial estimates for large projects are always overrun.” (295). This means that Webvan will go over the initial budget if the distribution centers are built. Do they have enough to build the centers? Will they be able to bring in enough business to balance out the costs of the centers?In the case of Webvan accepting a takeover from a large grocery chain, I would only recommend this option if Webvan didn’t have the proper IT architecture to deliver their services, or if there was a lack of IT, user, and general management. Cash states that, “When an architecture has not been clearly defined, there is often high uncertainty and conflict” (160). Lack of infrastructure in IT would prevent Webvan from performing up to its standards and would bring no profit. In this case the best thing to do would be to accept a buyout. Referring to IT, user, and general management, it is highlighted in the course pack that, “managing the changing roles and relationships is one of the most complex issues facing all three groups as they attempt to harness the power of IT” (63). If Webvan struggles to control the three management groups listed, their IT will fail to perform up to par with the strategy and vision of the company. In this case, a buyout is in the best interest of Webvan as there will be little to no income if IT is not ideal.From a stakeholder’s perspective, buying regional grocery markets would be the best option as well. Webvan would obtain facilities and equipment that could possibly cut costs in comparison to building new distribution centers. Customers would be able to receive quality service while still being able to select from a wide variety of selections. Investors would see a return from what they put into the business, and Webvan employees will remain employed due to the large amount of orders coming in. If Webvan were to continue operations as is, the company could see a major decline in profit due to high costs of building distribution centers and not enough new business coming in. Customers can expect slower delivery rates or higher prices in order for Webvan to make up for financial losses. Investors could see little to know return, and employees could be terminated due to the lack of business. By accepting a takeover, Webvan would be under the control of another business but will gain some type of income, customers could see a change in the services offered, investors may or may not see financial gain, and the employment of Webvan workers would rest in the hands of the buyer of the company. This is why Webvan should buy regional grocery stores and continue to operate as laid out in the company’s vision. As in add on, Webvan should take paid advertisements on their site until they have enough income to sustain without it. As of now they are in the negative and additional income would only assist them in this situation. Works CitedCash, et. al. Building the Information Age Organization? Afuah and Tucci. Internet Business Models and StrategiesAfuah and Tucci Webvan: Reinventing the MilkmanFried, Louis. Managing Information Technology in Turbulent TimesZwass, Vladimir. Electronic Commerce: Structures and IssuesKalakota and Robinson.? e-Business 2.0: Roadmap for Success??Course Pack pgs. 61-63 ................
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