Situational Analysis Overview Egghead Software is in its twenty-first year of existence, beginning as a retailer for computer software products. Realizing the booming growth of e-commerce, it moved its business to the internet, transforming to Egghead. com in 1998. Egghead. com’s focus is on selling refurbished computer hardware and software, as well as new products to small and medium sized businesses. Egghead’s competitive advantage is the choice it allows for consumers to purchase computer products at a flat price, or in an online auction.
In 1999, Egghead. com realized over $5 000 000 (U. S. ) in year-end sales. The current issue that Egghead management is facing is how to deal with customer backlash, and continue to build consumer confidence after a security breach. SWOT Analysis Egghead.
com has the following strengths that will help Joanna Hartzell to face this security problem: ‚ Brand recognition is a strength of Egghead. com as a strong name will attract more customers. ‚ A wide range of original products and services. This is a strength since a unique product creates brand loyalty, and makes it more difficult for competitors to create their own version. ‚ Low prices and leading technology are strengths of Egghead. com because they practically eliminate competition by creating high quality products and services and offering them at a very reasonable price.
Also, Egghead. com had the following weaknesses that can make the situation more difficult for the company: ‚ Their large customer base is a weakness of Egghead. com since the large number of customers is exceeding the company’s capacity. Egghead. com is unable to provide the protection needed for their customer’s personal information. ‚ A deficient security system is another weakness of Egghead.
com because they did not take the necessary measures to defend their customers against hackers. The e-business sector only existed with a basic internet proxy server firewall, which is not sufficient when dealing with a large number of customers and visitors from this web site. ‚ The system of payment of Egghead. com is a weakness of the company because the only form of payment for Egghead customers is credit cards. This is very risky to use due to the fact that hackers target credit card numbers to commit on-line frauds.
Apart from the internal situation of Egghead. com, the business can take advantage of the following opportunities: ‚ The creation of physical locations rather than internet websites for selling Egghead’s products and services is an opportunity for the business because Egghead. com has previous experience in physical location-based business. The addition of physical stores can tap into a greater market, as well as reduce the costs of shipping and warehousing.
‚ Forming a partnership with banks or financial institutions. This is an opportunity for Egghead. com to create a new form of payment, such as cheque ing or Paypal, for internet purchases, which will be safer and more efficient to use rather than credit cards. ‚ Associating with businesses specialized in security software is an opportunity for Egghead. com as it will have the opportunity to develop a new software that will satisfy the protection needs of other e-business. Also, it will expand its target market and contribute to the future expansion of the company.
Even though Egghead. com has many opportunities, there are some foreseeable threats: ‚ Malicious hackers are a threat for Egghead. com since they are persons who use programming skills to gain illegal access to a computer network or file, with the intent of stealing financial information from the company or its clients to commit fraud or other criminal activities. ‚ The increasing competition from other companies is a threat for Egghead. com. Now new customers will be hesitant to use the internet to buy its products due to this security problem.
Rival companies will jump in to gain more clients and to annex a larger share of the market. ‚ The limitation of the internet. This is a threat for Egghead. com since many small or middle businesses in third world countries do not have the resources or do not use the internet for daily operations and, thus, reduces the potential customer base for the future. Problem Identification The critical decision that Egghead is presented with is in how to deal with customer backlash, and re-establish trust and a sense of security among Egghead customers. The most significant cause of the problem faced is arrogance on Egghead’s part.
They believed that their site would not fall victim to the attack of a hacker. Another cause of the problem at hand is competitive pricing wars. Egghead did not want to increase expenses on security in order to price-compete with competitors. Lastly, over-growth of the company may have caused this breach of security. The company became too large to be able to deal with security effectively. The problem at focus is crucial to Egghead because they may loose a large portion of their customer base if this situation is not dealt with correctly, possibly leading to substantial financial losses.
This problem requires a response within twenty four hours because the public must know what happened, and what is being done to remedy the situation, in order to maintain consumer confidence. Alternative Identification Currently, Egghead. com is deciding how it should present its situation to the media and to best regain customer confidence. Various alternatives exist that could be a viable solution to the complex problem. 1. Install a new method of payment that does not require internet applications such as mailing cheque’s.
This will allow those customers that are weary of internet transactions to still do business with Egghead. 2. Since the Egghead logo is well known throughout the internet, creating a new logo for the internet operations will hopefully encourage customers to forget the old logo that was associated with a large business mistake and see the new logo as a new beginning. 3.
Put a larger concentration of resources back into stores. Since 74% of customers are weary of financial internet transactions, Egghead may lose many of their customers. Opening more stores will allow Egghead to continue business without any loss to client base. 4. Taking advance security measures such as hiring a team of expert programmers (hackers) to test the quality of the new precautions. This will take away any further doubt the public has because it has been detected by a team of professionals who excel in the area where Egghead is currently having problems.
Decision Criteria Four criteria that are the most influential factors in making the final decision are: 1. The course of action will minimize sales losses as a result of the security breach. This criterion can be measured by considering the alternative’s effectiveness in re-establishing a sense of security with customers; the most detrimental force on sales revenue. 2.
The course of action will have an effect that preserves the support of customer needs. This criterion can be measured by examining the changes that the alternative will cause to the service provided to customers. It may provide a more universal method of conducting business or it may add complexities to the conducting of business. 3. The course of action will allow the company future growth. This criterion can be measured by considering the limitations or opportunities that the alternative presents.
Will the alternative restrict the size in which the company can grow, or will it provide a potential for growth as a result of its implementation? 4. The course of action can be implemented and go into effect promptly. This criterion can be measured by examining the feasibility of the alternative and how quickly it can be put into effect. Since customers themselves conduct a day-to-day business, which is continuous, the time that passes before a resolution is executed will cost the business a loss of customers.
Analysis of Alternatives The table below shows a quick summary of the analysis of the alternatives. These findings are discussed further in the following three paragraphs: Minimize sales loses Allow to focus on customer needs Allow company to expand Fast speed of implementation Inform public of new security policies Yes Yes Yes Yes New money transfer alternatives Yes Yes Yes No Change name / identity No No Yes No Open a store Yes No Yes No The first alternative is to inform the public of the new security policies being implemented. As seen in the matrix summary, this alternative meets the first criterion of minimizing sales loses because it focuses on increasing customer confidence to reduce the probability of customers leaving. As seen in the matrix the first alternative also meets the second criteria of allowing Egghead. com to focus on the customer needs because the customers need to be assured that they are safe using Egghead. com and this alternative helps customer confidence.
The alternative also meets the third criterion, to allow the company to further expand, as shown in the matrix because good public advertising can boost their outreach and draw in more customers. This also meets the last criterion, quick implementation, as seen in the matrix, because a news release or interviews can be conducted immediately and do not take time to implement. The second alternative is to seek a new money transfer system. As seen in the matrix, this alternative meets the first criterion of minimizing sales losses because it is increasing the possible methods of payment which makes it easier for customers to buy from Egghead. com. This also meets the second criterion of allowing the company to focus on customer needs because this option allows customers to pay in a variety of ways, not just by credit card, thus taking off restrictions which could have previously lost potential customers.
As alluded to in the matrix, the third criterion of allowing Egghead to further expand is also met because the increase of payment options opens the market of their products to all types of businesses by taking away financial transactional restrictions. This alternative does not meet the last decision criterion of a quick implementation, because it may take some time for Egghead. com to find new methods of money transfer and begin to implement them. The third criterion is changing the name and identity of the company.
As displayed in the matrix, this does not meet the first criterion of minimizing sales losses because the change of company will loose all old customers and, thus, will have to start advertising from new again. This also does not meet the second decision criterion of allowing the focus of the company to be customer needs because the customers are looking for assurance of the safety of their investments, not a new name. This does not meet the third criterion of allowing the company to further expand because the company remains the same, but will change their name, and therefore will need to build a new customer base and maintain the old customer base. The last decision criterion of a quick implementation is not met, as seen in the above matrix, because it will take time for the name and identity of the company to be changed. The last criterion is to focus on opening a store. This option does meet the first criterion of minimizing sales losses, as seen in the matrix above, because it opens the possible market for customers which will bring in more revenue and avoids security breaches with credit-card scams.
This alternative also does not meet the second criterion of addressing customer needs, because the problem is not the lack of access to the company but the breach in security, and opening a store may open up more opportunity for breaches in security. As seen in the preceding matrix summary, this alternative does meet the third decision criterion of allowing the company to expand because it is reaching the public in a different way other than their traditional internet based business. This does not meet the last criterion of a quick implementation, as illustrated in the matrix, because it will take time to build and open a store. Recommendation, Reactions and Results Based on the analysis, the recommendation is for Egghead.
com to hire a hacker to check their system for safety and make any necessary adjustments to the security system and announce such adjustments to their customers. The best possible reaction is, after announcing to their customers the system’s security issues were remedied, customers do not lose finances from their credit card and, thus, continue to support Egghead. com. The worst case scenario is that Egghead will lose a substantial portion of their customer base, have lawsuits filed against them for consumers who were affected by the security breach, and ultimately file for bankruptcy. However, the most likely reaction is that Egghead. com will lose few customers in the beginning, but slowly gain back consumer confidence, and regain any lost momentum by the security breach.
Action Plan The following steps will ensure the resolution of the current problem being faced: When What How Who Where Next business day (Tues. Dec. 26) Design the components of the new and much improved security system Analyze the faults present in the original security system to devise a new and improved system Senior management in conjunction with computer technicians specializing in security systems Headquarters in Menlo Park, California No later than Tues. Jan 2 Application of security system on website database Make customers aware of a temporary unavailability of the site in order to apply new security system Computer technicians Headquarters Tues. Jan 2 to Fri. Jan 5 Extensive testing of security system Team of world renown hackers test the system for flaws and loopholes Computer technicians and expert hackers Headquarters & outside testing locations Mon.
Jan 8 (morning) Re-launch of site New and improved site is ready for use. Existing customers are sent out a newsletter with details of enhanced security Sales Department Headquarters Mon. Jan 8 (afternoon) Launch of marketing campaign Advertising focuses on the superiority of the new security system, rather than past faults. Expert hackers endorse system. Marketing Department, Computer Technicians and Expert Hackers Nationwide.