Unit 2.4
How E-commerce Changes Business: Strategy, Structure, and Process
Learning Objectives
By the end of this chapter, you will be able to analyze how e-commerce acts as a fundamental disruptive force across every aspect of a business.
- ✅ Understand how e-commerce transforms business strategy and competitive dynamics.
- ✅ Explain the impact of e-commerce on organizational structure and culture.
- ✅ Analyze industry transformation patterns like disintermediation and reintermediation.
- ✅ Apply these concepts to evaluate strategic responses in Nepali business contexts.
E-commerce: A Transformative Force
E-commerce isn't just a new sales channel; it reshapes the entire business landscape across three critical dimensions.
🎯 Strategy
How businesses compete, create value, and achieve competitive advantage.
📊 Structure
How organizations are designed, managed, and staffed to execute strategy.
⚙️ Process
How work gets done and how value is delivered to the customer.
Activity: Classify the Change
Click a card to select it, then click a bucket to assign it. Get all 6 correct!
Part 1: How E-commerce Changes Strategy
The rules of competition are rewritten in the digital age.
Traditional Business
- Geography: Local/Regional
- Barriers to Entry: High
- Information: Asymmetric
- Scalability: Linear
E-commerce Business
- Geography: Global from Day 1
- Barriers to Entry: Low
- Information: Transparent
- Scalability: Exponential
Nepal Example: Bhatbhateni's success is based on physical locations (traditional), while Daraz's success is built on a digital platform and data analytics (e-commerce).
📼 Real Case: Blockbuster vs Netflix
Blockbuster (traditional)
- About 9,000 stores at its 2004 peak
- Profit partly from late fees
- Advantage = location
Netflix (e-commerce)
- DVD-by-mail (1998), then streaming (2007)
- No stores, no late fees
- Advantage = data + convenience
In 2000 Blockbuster reportedly turned down buying Netflix for about US$50 million. Blockbuster filed for bankruptcy in 2010.
Strategy, not technology, was the failure: Blockbuster treated online as a side channel, not a new way to compete.
🎬 Watch: Blockbuster Says No
Porter's Five Forces in the E-commerce Era ⚡
E-commerce intensifies the competitive environment across the board.
- Threat of New Entrants: INCREASED ⬆️
Anyone can start an online store with minimal capital (e.g., thousands of sellers on Daraz). - Bargaining Power of Buyers: INCREASED ⬆️
Price transparency and easy comparison empower customers (e.g., comparing prices on Daraz vs. HamroBazar). - Threat of Substitute Products: INCREASED ⬆️
Algorithms and search make discovering alternatives effortless. - Rivalry Among Competitors: INTENSIFIED ⬆️
Global competition, price wars, and constant innovation are the norm (e.g., Foodmandu vs. PathaoFood).
Overall Result: E-commerce significantly increases competitive intensity, making it harder to sustain a competitive advantage.
🙋 Quick Poll: The Fifth Force
Porter has five forces. The last slide showed four. Which one is missing, and does e-commerce raise or lower it?
- Bargaining power of suppliers
- Threat of regulation
- Bargaining power of employees
Answer: 1, supplier power. It can go both ways: a seller can find many suppliers online (power falls), but a small brand that depends on one big marketplace for most sales hands power to that platform.
For a Daraz seller, the marketplace is both a sales channel and a powerful "supplier" of customers.
Quiz: Which Force Is at Work? (1/2)
Note: one scenario still names Sastodeal; that marketplace closed in 2024 — read it as a historical price-comparison example.
Read each scenario and select the Porter's Five Force it best illustrates.
Quiz: Which Force Is at Work? (2/2)
Note: one scenario still names Sastodeal; that marketplace closed in 2024 — read it as a historical price-comparison example.
Read each scenario and select the Porter's Five Force it best illustrates.
Porter's Five Forces
Transforming the Value Chain
E-commerce digitizes and optimizes every step of value creation.
Primary Activities
- Inbound/Outbound Logistics: Automated warehousing & real-time tracking.
- Marketing & Sales: Shift to digital marketing, SEO, and personalization.
- Service: Move to chatbots, self-service portals, and 24/7 support.
Support Activities
- Procurement: E-procurement and automated supplier management.
- HR Management: Access to global talent pools via remote work.
- Technology: Moves from a support function to a core competency.
Key Insight: In e-commerce, technology is not just supporting the business—it IS the business.
Activity: Sort the Value Chain
Click each activity to toggle it into the correct category — Primary or Support.
Porter's Value Chain
Part 2: How E-commerce Changes Structure
Organizational design must adapt for speed and agility.
Traditional Hierarchy
- Vertical & Siloed
- Slow, top-down decisions
- Command-and-control
- Resistant to change
E-commerce Network
- Flat & Cross-functional
- Fast, decentralized decisions
- Agile & Autonomous
- Built for adaptation
This shift creates new roles like Data Scientists, UX Designers, and Digital Marketing Specialists.
🍕 Real Case: The "Two-Pizza Team"
- Jeff Bezos's rule at Amazon: a team should be small enough to be fed by two pizzas (about 6–10 people).
- Each team owns one service end to end, such as search, checkout or recommendations.
- Teams ship changes without waiting for a central committee.
- Spotify's "squads" and many Nepali startups copy the same idea.
This is the "flat and cross-functional" structure from the last slide, in a real company.
Part 3: How E-commerce Changes Process
Business Process Reengineering (BPR): The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements.
Process Example: Order Fulfillment
- Customer goes to store
- Selects product
- Pays at cashier
- Leaves with product
- Customer orders online
- Order is auto-confirmed
- Warehouse picks & packs
- Courier delivers with tracking
E-commerce enables automation, transparency, and efficiency at scale.
🏭 Real Case: Ford Reengineers Accounts Payable
Before
About 500 clerks matched purchase orders, receiving documents and supplier invoices by hand.
After ("invoiceless processing")
Goods are checked against a shared database when they arrive; if they match, payment goes out automatically. No invoice needed.
Result reported by Michael Hammer (1990): headcount cut by about 75%.
BPR doesn't speed up the old steps. It asks, "Why do we do this step at all?"
🎬 Watch: A Reengineered Warehouse
Part 4: Industry Transformation Patterns 🔍
E-commerce doesn't just change companies; it restructures entire industries.
Disintermediation
The removal of traditional intermediaries (middlemen) from the supply chain.
Manufacturer → Consumer
Reintermediation
The creation of NEW digital intermediaries that add value.
Seller → Marketplace → Buyer
🔁 Real Case: Amazon Became the Middleman
- Amazon started in 1995 as a retailer: it bought books and resold them.
- It opened its site to third-party sellers (Marketplace, 2000).
- By late 2023 Amazon reported that third-party sellers made about 61% of units sold.
- Amazon earns seller fees, fulfilment (FBA) and advertising: classic reintermediation.
The internet removed old middlemen, and then the biggest new middleman became one of the most valuable firms on Earth.
🧮 Worked Example: Where Does the Shawl Money Go?
A pashmina shawl sells for US$100 in Germany (illustrative figures).
| Who gets paid | Traditional export chain | Artisan sells on Etsy |
|---|---|---|
| Artisan | US$20 | US$70 |
| Local exporter / wholesaler | US$15 | US$0 |
| Importer + German shop | US$65 | US$0 |
| Platform fees + payment | US$0 | US$10 |
| Shipping (artisan pays) | — | US$20 |
The artisan's share rises from 20% to 70%, but now she does the marketing, photos, shipping and customer service herself.
Activity: Dis- or Reintermediation?
Read each scenario. Click DIS if a middleman was removed, or RE if a new digital intermediary was created.
🎬 Watch: Cutting Out the Middleman
The Nepali Context: Opportunities vs. Challenges
Applying e-commerce principles in Nepal requires understanding the local landscape.
Opportunities 📈
- Global Market Access: Selling Nepali products like pashmina and tea worldwide.
- Lower Startup Costs: Enabling entrepreneurs to launch businesses from social media.
- Niche Markets: Serving specific local needs that large retailers ignore.
Challenges 🚧
- Infrastructure: Unreliable internet and difficult last-mile logistics.
- Trust & Payments: High reliance on Cash-on-Delivery due to trust issues.
- Digital Literacy: A significant portion of the population is not yet comfortable shopping online.
🇨🇳 Real Case: Why eBay Lost China
- eBay bought China's top auction site, EachNet, in 2003 and led the market.
- Alibaba launched Taobao in 2003: free listings, a chat tool (Wangwang) to bargain with sellers, and Alipay escrow to solve trust.
- eBay charged listing fees and ran its Chinese site on its global platform.
- By 2006 eBay had handed its China site to a local joint venture.
"Local context is king": Taobao won by solving local trust and payment problems, the same ones Daraz faces in Nepal.
Key Takeaways
- Transformative, Not Incremental: E-commerce demands a fundamental rethink of business, not just minor tweaks.
- Competition is Intensified: Lower barriers and global reach mean you're competing with everyone, everywhere.
- Agility is the New Currency: Flat structures, cross-functional teams, and agile processes are essential for survival.
- Disintermediation AND Reintermediation Occur: The internet removes some middlemen while creating powerful new ones.
- Local Context is King: Success in Nepal requires solving local challenges like logistics and trust, not just copying global models.
💬 Think, Pair, Share (3 minutes)
1. Pick a Nepali business you know (a bookshop, a travel agency, a dairy). Which of strategy, structure or process would e-commerce change first?
2. Travel agents were "disintermediated" by airline websites, then "reintermediated" by Booking.com and Expedia. Who is the next middleman likely to lose out in Nepal?
3. Blockbuster had money and customers but still failed. What would you have told its CEO in 2000?
Exam Practice 📝
Short answer
- What is disintermediation? Give an example.
- What is reintermediation?
- Define business process reengineering (BPR).
Exam Practice 📝 (continued)
Long answer
- Explain how e-commerce changes business strategy, organizational structure, and business processes.
- Discuss disintermediation and reintermediation with examples, and their implications for Nepali businesses.
Revise the answers in the full note.
Image & Video Credits
Images
- Closed Blockbuster store: Evan-Amos, public domain (Wikimedia Commons)
- Five Forces diagram: made for IT204 after M. E. Porter, CC BY 4.0
- Porter value chain: Dinesh Pratap Singh, CC BY-SA 3.0 (Wikimedia Commons)
- Amazon drive unit robot: Auledas, CC BY 4.0 (Wikimedia Commons)
- Ilam tea garden: Pravinchapagain, CC BY-SA 4.0 (Wikimedia Commons)
Videos (YouTube)
- Blockbuster Says No (0–66 s)
- Cutting Out the Middleman (10–97 s)
- A Reengineered Warehouse (13–98 s)
Thank You
Next Topic: Unit 2: "Case Study: Daraz Nepal – Transforming Retail Through E-commerce