Case: Webvan



2190755429250Case: WebvanCIS 410-01Bryce Green035000Case: WebvanCIS 410-01Bryce Greenright23002311402020760098002020Table of Contents TOC \o "1-3" \h \z \u Problem Overview PAGEREF _Toc33903821 \h 2Mission Statement PAGEREF _Toc33903822 \h 2Generic strategy PAGEREF _Toc33903823 \h 2Organizational Structure PAGEREF _Toc33903824 \h 3Industry Competitive Analysis PAGEREF _Toc33903825 \h 4Competitive Rivalry – High Threat PAGEREF _Toc33903826 \h 4Threat of New Entrants – High Threat PAGEREF _Toc33903827 \h 4Threat of Substitutes – High Threat PAGEREF _Toc33903828 \h 5Threat of Suppliers – Low Threat PAGEREF _Toc33903829 \h 5Threat of Consumers – High Threat PAGEREF _Toc33903830 \h 5IEBM PAGEREF _Toc33903831 \h 6Stakeholders PAGEREF _Toc33903832 \h 8Alternatives PAGEREF _Toc33903833 \h 81.Acquire Regional Chains PAGEREF _Toc33903834 \h anic Growth PAGEREF _Toc33903835 \h 93.Takeover Offer PAGEREF _Toc33903836 \h 9Impact of Alternatives PAGEREF _Toc33903837 \h 91.Acquire Regional Chains PAGEREF _Toc33903838 \h anic Growth PAGEREF _Toc33903839 \h 93.Takeover Offer PAGEREF _Toc33903840 \h 10Recommendation PAGEREF _Toc33903841 \h 10Problem OverviewWebvan was a grocery delivery service that combined online shopping with home delivery service. In 1999, Webvan went public and achieved a total market value of over $8 billion on its first day. However, it was expecting losses of nearly $30 million for that year due to sales not meeting their expenses. This lead to founder and Chairman Louis Borders to consider how to deal with the difficult strategic decisions the company was now facing: Should Webvan use its market capitalization to acquire regional grocery chains to reach new markets? Should Webvan push forward with additional products lines? Should Webvan consider a takeover from a large grocery chain?Mission StatementWebvan provides quick and reliable grocery delivery service targeting the online grocery market through differentiation.Generic strategyWebvan positioned itself through differentiation in the areas of operations and customer service. Webvan utilized proprietary systems that oversaw every part of the grocery ordering and delivery process. A prototype distribution center, which would be a model for their planned 26 other centers, was able to service as many customers as 20 supermarkets. Customers would be able to order a list of items and have them delivered the next day. They would be able to choose from an anticipated 50,000 products which would be curated by their culinary anizational StructureWebvan was organized into a functional structure which complemented its need to be well coordinated to make deliveries in a timely manner. “The need for faster and more customized deliveries has disrupted traditional inventory management policies and transportation choices.” (Kalakota,194) While the company original operated in the San Francisco only, it had plans to expand globally. The functional model was ideal for this expansion because it “…promotes economies of scale.” (Cash,29). Activities were grouped together to meet the needs of the functional area. For instance, the 80 software programmers at Webvan worked together to make their systems, while the employees, or “Pickers” in the distribution centers were stationed throughout to assemble orders and send them down the line to trucks for shipping. These trucks would then deliver orders to docking stations throughout the area where they would be loaded onto vans for home delivery to the customer.This structure allowed Webvan to offer a service of great value to customers and compete with others both in the online grocery market and in the traditional brick-and-mortar grocery chains.Industry Competitive AnalysisCompetitive Rivalry – High ThreatWebvan operated in the expanding online grocery industry driven by technology and faced both young and well-established. Established rivals, such as Peapod, eGrocer, and Streamline and Shoplink, possessed the resources and renown to challenge Webvan’s place in the market and presented a high threat to their business. While Webvan had differentiated itself through its operations and customer service that catered exclusively to groceries, many of their competitors offered products outside of groceries. This increased their customer base and allowed them to target these customers for online groceries in addition to the products they were already purchasing from these competitors.Threat of New Entrants – High ThreatOnline grocery delivery had a low barrier to entry and allowed any small company to quickly establish itself within one of the markets that Webvan currently serviced or those they were not yet operating in. These new entrants would be able to beat Webvan to new customers that may not be within Symantec’s target market yet and prevent them from acquiring them in the future. They could also offer competing prices and services that Webvan would find difficult to beat without significant investment or cost.Threat of Substitutes – High ThreatThe biggest hurdle to online grocery shopping was competing with traditional grocery chains like Kroger, Walmart, Target, and any local establishments. Webvan’s projected sales of $518 million by 2001 was less than one percent of the entire grocery market and paled in comparison to what these chains generated. These large chains had already reached to most of the country and stretched into international markets in some cases. They had the resources and capital to remain a threat to Webvan and the rest of the industry, especially as they began to prototype their own competing online grocery services. In addition, many customers preferred to see and physically interact with and inspect to products they were purchasing from groceries, which was next to impossible for an online service to provide.Threat of Suppliers – Low ThreatSuppliers of groceries were numerous and had very little bargaining power against retailers in either the online or storefront grocery chain market. Although Webvan partnered with local suppliers for high-quality products, they could just as easily switch to a different supplier in the area or abroad if the difference in costs were enough to make up for the loss in quality. This fact would also allow to negotiate for lower prices with their current suppliers.Threat of Consumers – High ThreatThe orders these customers place will be highly customized and selective which will require the infrastructure handle these orders (Fried, 106). Webvan initially operated in the Bay Area and had only 10,000 users. While impressive given the short amount of time it took to achieve that, these customers had plenty of other options to choose from if they didn’t enjoy the service or couldn’t find what they were looking for. They could easily visit a competing website like Peapod or eGrocer or a traditional chain like Kroger and purchase what they need there. There were simply too many options for customers to choose from for Webvan to expect a captive customer base without offering enticing reward programs or long-term contracts and switching fees.IEBMProfit SiteWebvan positioned itself as an online grocery retailer. Its business exchanged “… real products for real money through online channels.” (Afuah and Tucci,18). This profit site was problematic due to the high competition and bargaining power of its consumers.Customer ValueWebvan provided value to their consumers through their differentiation strategy that offered the convenience of delivering groceries to the doorsteps of customers.ScopeWebvan offered groceries to customers in San Francisco exclusively when they initially operated. However, they planned to expand the product volume and diversification as well as expanding to new markets in the US and abroad.PricingWebvan used Menu-Pricing for their products which offered fixed prices for all products where “…buyers can either take it or leave it.” (Afuah and Tucci, 60), which was common for retailers.Revenue SourcesWebvan generated profit solely from sales of grocery products and delivery fees. They refused to sell customer data or run ads on their website because they wanted to remain neutral to brands.Connected ActivitiesThe main activities that supported the operations of Webvan were their software, customer service, and logistics. They used software, such as their proprietary systems that managed orders, to provide customer service for order confirmation and fulfilment which would in turn utilize the company’s logistics systems to track and deliver products to the consumer.ImplementationThe functional structure of Webvan informed the implementation of their model, which grouped functional areas together to process customer orders and ensure they are delivered on time. Employees would use the systems at Webvan to pick out the products of an order and send it to be packaged and shipped from the distribution center to stations for home delivery service.CapabilitiesWebvan boasted the ability to operate their distribution centers with half the labor and double the selection of products compared to traditional grocery chains and supermarkets.SustainabilityWebvan’s model was easy for competitors to imitate and their complementary assets were highly important due to their simple model and reliance on the internet to reach customers and process orders. Because of this, they were unsustainable and needed to acquire or be acquired by another company in order to survive.StakeholdersCustomersUsers need groceries delivered to their homes in a timely manner.EmployeesEmployees process and handle orders from the warehouse through the distribution center and to the customer’s home.ShareholdersShareholders are invested in the company’s profitability and share value.Louis BordersLouis Borders was the founder and Chairman of Webvan. He was invested in the success and expansion of his company and of himself.AlternativesAcquire Regional ChainsWebvan utilizes its market capitalization to reach new markets through the acquisition of regional grocery anic GrowthWebvan continues to grow on its current path and adds new product lines. Takeover OfferWebvan will consider a takeover from a large grocery chain. Impact of AlternativesAcquire Regional ChainsUnder this approach Webvan will use the market capitalization it gained when it became a publically traded company to acquire regional grocery chains in markets they wished to pursue. They would be able to utilize the existing suppliers, distribution centers, and equipment these chains already possessed and at the same time eliminate competition in those areas.Customers would likely see an increase to prices or service fees and lose access to competing services. Employees at existing Webvan would see no change in their day to day operations and employees at the acquired chains would either face a lay-off or have to transition to the new management of Webvan. Shareholders will see a loss in profitability as the company takes on the expenses of acquisition on conversion of these chains but could benefit in the long run due to the expanded market. Louis Borders will face opposition from shareholders due to the expenses but will fulfil his desire of expanding the company’s anic GrowthUnder this approach the current management staff will either be retrained or replaced to address the poor communication that has been impacting the information flow.Customers would see little to no change in service aside from the increase in products available to them. Employees of Webvan would see little change except for the increase in products and customer orders as the company grows. Shareholders will see little change in profitability or share value initially but could see an increase over time as the company grows its customer base and daily orders. Louis Borders will not see his company expand to new regions for the time being as it grows in the Bay Area.Takeover OfferIn this scenario Webvan will consider an offer to be taken over by a large grocery chain such as Kroger, Walmart, or Target. This could happen if one such chain is interested in acquiring Webvan to get into the online grocery market without building their own service from scratch.Customers would either see an increase to prices or service fees or be need to transition to the new service offered by whomever took over Webvan. Employees at existing Webvan either face a lay-off or have to transition to the new management of the new parent company. Shareholders have the opportunity to sell their stock to the company seeking to take over Webvan and could profit greatly. However they may lose out on any future dividends that would have been offered. Louis Borders will have the opportunity to sell his stock and make and significant amount of profit. He will however likely lose his company and not have any input on its future unless he is able acquire a position during the acquisition.RecommendationBased on the available information I believe the best option for Webvan and Louis Borders to choose is the “Takeover Offer” approach. Webvan was experiencing losses of almost $30 million at the time it went public and was unsustainable due to the relative ease of imitation and high importance of its’ complementary assets. It needed to either acquire regional stores to grow or be acquired by another company in order to survive and not become irrelevant. Simply continuing to grow organically was not an option it could remotely consider. Their current model was not sustainable and would lead to them be overshadowed by their competition as they were confined to their only market in the Bay Area. This too could not last forever as the competition would eventually grow strong enough to encourage their customers to switch away from Webvan.The losses it was experiencing would only grow as Webvan acquired more regional chains an incurred the expenses associated with them. They simply did not have the budget at the time to take advantage of this opportunity, and their future would be difficult to predict due to its’ uncertainty (Adams,201). This would also decrease the profitability and share value of the company and would likely lead the bankruptcy as the company struggles to become profitable.Accepting a takeover offer or seeking and encouraging a large grocery chain to consider a takeover is the only option that would likely end in the continued operation of Webvan, even if it is under a parent company and potentially a change in name.Webvan exists in difficult market to gain a significant foothold in, and it simply lacks the resources and capital to stay afloat on its own. In order to survive, the best thing it can do is join forces with the competition that can support it. ................
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