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Using IT to Achieve a Competitive Advantage Presented by: Paula Hayes, Tara Hines, Bill Krampe and Andy Roth.

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Presentation on theme: "Using IT to Achieve a Competitive Advantage Presented by: Paula Hayes, Tara Hines, Bill Krampe and Andy Roth."— Presentation transcript:

1 Using IT to Achieve a Competitive Advantage Presented by: Paula Hayes, Tara Hines, Bill Krampe and Andy Roth

2 I guess weve always known that information gives you a certain power, but the degree to which we can retrieve it in our computer really does give us the power of competitive advantage Sam Walton from Made in America: My Story, Doubleday, 1992

3 What is IT? Information Technology is the amalgamation of hardware, software, data, people, and procedures that enables or inhibits business objectives depending on managements involvement in IT. IS480 lecture notes, Lacity, Fall 2001

4 Using IT to Achieve a Competitive Advantage Creating the Competitive Advantage Features and examples of successful systems Sustaining the competitive advantage through IT

5 Strategic Information Systems Implement systems that cannot be easily duplicated Develop an SIS that can be integrated with unique ideas and practical design solutions at the end user level Develop an SIS that can transform the whole business The Grassroots of IT and Strategy by Claudio Ciborra, 1994

6 Nature of Information Technology, Lacity, Fall 2001 Implements structures, processes, and staffing to fill other 8 roles Alignment of IS strategy and business Fosters relationships with senior management IS Leadership

7 Creating Competitive Advantage through IT Lowering costs Enhancing differentiation Changing competitive scope How Information Gives You Competitive Advantage, by M. E. Porter and V. E. Millar, 1985

8 Success Stories Frito-Lay – first to use hand held computers (HHC) in their ordering system Boeing – high speed, 2 way Internet and live television services to aircraft in flight (Connexion) American Airlines – SABRE system

9 PepsiCo 2000 Annual Report Frito-Lay Sales 2000

10 PepsiCo 2000 Annual Report Frito-Lay Market Share 2000

11 PepsiCo 2000 Annual Report Lays Potato Chips Ruffles Potato Chips Doritos Tortilla Chips 3Ds Snacks Tostitos Tortilla Chips Cheetos Cheese Flavored Snacks Sunchips Cracker Jack Grandmas Cookies Chesters Popcorn Funyuns Onion Rings Rold Gold Pretzels Orbertos Meat Snacks

12 Customers Grocery Stores Convenience Stores Gas Stations Restaurants Bars Vending Machines

13 IT at Frito-Lay The Sr. VP of Technology is Arthur B. Anderson

14 Expert Advice - Timing is Everything - CIO Magazine September 1, 1997 Critical Difference Frito-Lay introduced its now classic inventory replenishment system using handheld computing technology. Allowed Frito-lay to differentiate itself from other snack companies in service to its grocery store customers and to reposition itself as a technology leader.

15 Charles Feld - Tough Optimist - CIO Magazine September 15, 1997 The Pioneer Charles Feld Vice president of MIS Frito-lay Was able to translate complex technical issues into business issues for upper management and to help them sort out priorities. Able to build consensus in an organization

16 Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001 The Problem The field sales guys technically owned the merchandise once they took it out of the warehouse Their day wasnt done until the books were settled

17 Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001 The Solution First-generation handheld computers (HHC) in 1986 Based on a Fujitsu device with a home grown application HHCs would transmit daily sales figures back to the corporate mainframe in Plano, TX

18 Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001 The Problems Very few vendors with this technology There were no standards for hardward, software or radio frequency data transmissions The skeptics believed it would never be as reliable as the manual system

19 Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001 The Benefits Frito-lay was able to change prices on products quickly. Frito-lay could have different prices for different geographic regions. The system paid for itself from day one because the sales force agreed to give up 1 percent of their sales budgets to fund it.

20 b/infosys/emiscase.html Frito-Lays Information System Everyday 10,000 salespeople use handheld computers to track the 14 million Frito-Lay products sold off shelves and vending machines. It is combined with other data into a gigantic database used to generate vital market information.

21 b/infosys/emiscase.html The Result Because the database is updated daily, Frito-lay has access to almost real-time information on every aspect of their business. Financial, historical, and competitive data.

22 b/infosys/emiscase.html The Competitive Advantage Tightens the link between every function involved in making, distributing and selling the products. Helps to locate potential problems in maintaining sales levels and market share. Helps reduce the costs of supplies. Used to automate the production scheduling process for the chips as they come off the line.

23 b/infosys/emiscase.html The Most Important Advantage The most important advantage of Frito- Lays information systems comes through centralizing data yet allowing managers of regional operations access to this vast database and software to use it effectively in a distributed processing environment.

24 b/infosys/emiscase.html The Customer Frito-Lay salespersons can key in orders for each customer on-the-spot. Customer receives a printout of the order and a receipt, with tax, discounts, and promotions and no errors. Faster delivery and less stales

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26 HeritageAirplane maker founded in 1916, Seattle, Washington Today Largest aerospace company in the world; largest manufacturer of commercial airplanes, military aircraft and satellites 198,000 employees Major operations in 27 states, Canada and Australia Customers in 145 countries The Boeing Company

27 Company Leadership Vice Chairman Harry Stonecipher President and Chief Executive Officer, Military Aircraft and Missile Systems Jerry Daniels President and Chief Executive Officer, Commercial Airplanes Alan Mulally President and Chief Executive Officer, Space and Communications Jim Albaugh Senior Vice President, Engineering & Technology Chief Technology Officer Dave Swain Chairman and Chief Executive Officer Phil Condit Senior Vice President President, Connexion by Boeing SM Scott Carson Business Unit Leaders

28 Global Sales Dollars in billions InternationalUnited States $58.0 $51.3 $56.1 Boeing is the largest United States exporter.

29 60% 24% 1% Revenue by Market Segment Total = $51.3 billion Year-end % Other Military Aircraft and Missiles Commercial Airplanes Space and Communications

30 Commercial Airplanes In the next 24 hours, 3 million people will board 42,300 flights on Boeing jetliners, carrying them to nearly every country on Earth. Headquarters Seattle, WA Main products717, 737, 747, 757, 767, 777 and Boeing Business Jet. Commercial Airplanes is the worlds largest producer of commercial jetliners, with more than 13,000 in service worldwide.

31 Space and Communications In the next 24 hours, 335 satellites put into orbit by Boeing launch vehicles will pass overhead. HeadquartersSeal Beach in Southern California Human space flight and exploration International Space Station and Space Shuttle Missile defense and National Missile Defense and space control Information and communications Built the original 40 GPS satellites

32 Military Aircraft and Missiles In the next 24 hours, 6,000 Boeing military aircraft and missiles will be on guard with the air forces of 20 countries and with every branch of the U.S. military. HeadquartersSt. Louis, Missouri

33 Connexion by Boeing SM High-speed, two-way Internet and live television services to aircraft in flight. Personalized, real-time services for airline passenger including on-line shopping and e- mail services Aircraft personnel have access to operational data not currently available through traditional communication channels Helps to improve airline operational efficiency

34 Connexion Market Segments Private Jet Airliner Market Service is currently available for this market Commercial Airliner Market Installation is expected to begin in early 2002 Governmental Market Military planes As the market matures, future markets develop Cruise Ships Oil Drilling Platforms

35 Competitive Advantage According to Larry DeShon, Marketing Vice President for United Airlines, There is currently no service comparable to this in the market. First truly broadband communication service for people on the move First-Mover (First-to-Market) Advantage Fills the void area created by the limited choices you now have when you fly, for example: Reading Books, Watching pre-recorded Movies, and Sleeping Daily Defense International December 15, 2001

36 Competitive Advantage Our competency in satellite systems, commercial aircraft construction, and high-speed, critical data transfer methodology gives us a competitive advantage that no narrowband provider can match. Phil Condit, Boeing CEO

37 Sustainable Competitive Advantage Boeing is already the worlds largest manufacturer of commercial airliners in the world. Four of the worlds largest airline companies have signed deal with Boeing to pursue Connexion. Infrastructure to support Connexion is already in place Boeing owns the satellites required to make Connexion work Large Capital Investment Requirements keeps competitors out of field

38 The Mega Deals Three of the United States largest airlines and Boeing American Airlines Delta Airlines United Airlines All signed Letter of Intent to pursue venture Lufthansa and Boeing Industry-leading European Air Carrier and Boeing have signed a Memorandum of Understanding International launch customer for Connexion

39 Connexion and the Customers Business travelers need to stay connected in the Information Age Mobile communications have a dramatic impact on business productivity Last year, Boeings CEO Phil Condit was in the air for 600 hours or the equivalent of 75 eight-hour work days The airplanes he uses have the Connexion capabilities and they act as his sky office Leisure air travelers with has a more complete and seamless flight experience

40 Potential Problems September 11, 2001 changed the airline industry forever. The future of some airline companies and the industry as a whole is questionable. Boeing lost the largest military aircraft contract in history to Lockheed, a chief competitor. Could be good for Connexion as Boeing is forced to pursue other strategies more forcefully.

41 American Airlines SABRE Reservation System

42 Overview of American Airlines Products First Class Coach 7 Day Advance $16,377.0M Operating Revenue (1999) Customer Definition: Anyone who has the need for fast and convenient air travel, both foreign and domestic, for both business and personal trips. Sources: Morenet UMSL, Business and Company Resource Center

43 Organizational Chart Sources: Morenet UMSL, Business and Company Resource Center

44 Organizational Chart (cont.) Upper Management members of Board of Directors Needs of each division represented Different frames of reference brought into decision making CIO reports to CEO other employees $1,545,000 sales/employee Sources: Morenet UMSL, Business and Company Resource Center

45 The Traditional Purchasing Chain Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)

46 The Need for Automated Reservation 1950s introduction of jet planes dropped price of airline tickets Not enough employees to take reservations Frequently changing schedules and fares The idea of SABRE Automate Reservation Process Updated database reflecting changes in flight schedules and fares Printed tickets and boarding passes automatically

47 The Success of SABRE Processed 84,000 phone calls per day (a 40% increase) Saved 30% on Americans investment in staff alone Delivered an error rate of less than 1% What this means to the customer: Im choosing American b/c I wont have to wait as long on the phone or in line to get my ticket. Ive noticed their fares are a little cheaper than the industry. I know theyre going to get my reservation correct. Sources:

48 Problem in Sustaining Competitive Advantage Customers Needs Change One stop shopping for hotel and airline reservation available through travel agents Travel agents marketed as pampering tool and sign of status Are travel agents the enemy?

49 The Travel Agent Model No, they become the NEW CUSTOMER! Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)

50 The Success of the Travel Agent Model Be a First Mover and youll be considered the brains of the operation. SABRE used as term for every airlines entire IT operation Motivate the customer to use your product Free Microcomputer Workstation Terminals What this means to the Travel Agent Customer: Wow, American Airlines really knows a lot about technology. Theyre the industry leader. Wow, American Airlines gave me a computer! Would anyone else do that? I dont think so. And if others come around trying to sell a similar product I wont listen.

51 Problem in Sustaining Competitive Advantage Competition will attempt to shut you down Law suits poured in claiming Unfair Advantage Other airlines began drafting their own automated reservation systems Result: The US Dept. of Justice Rules SABRE continue in operation Other Airlines be allowed to create similar systems Only use one type of terminal per travel agency Sustaining Competitive Advantage, Paul Saffo 1985

52 American Sustains Competitive Advantage First Mover Already viewed as the brains of Automation Successful track record used to retain existing customers and seek out more Switching costs high Computer Terminal Commission Incentive to travel agents Lose all your previous transaction Provided listing of all flights with all airlines Travel agents made to sign contracts Source: Parker and Case, MIS: Strategy and Actions,2 nd ed., McGraw-Hill, 1993.

53 American Sustains Competitive Advantage Being the First Mover also allows you to stay ahead of the game Expanded services offered through the reservation systems Rental cars Hotel rooms Motivate everyone in the channel of distribution to request your product Commissions for the travel agencies The Pull Strategy Sustaining Competitive Advantage, Paul Saffo 1985

54 The Pull Strategy: The Frequent Flier Model Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)

55 Problems in Sustaining Competitive Advantage Once again, competition turned this into a commodity Changed the scope of business Back to the drawing board

56 The Credit Card Model Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)

57 American Sustains Competitive Advantage Competitive Advantage can spawn new business Spun SABRE off into a subsidiary ….If you told me I had to sell either the airline or the system, Id probably sell the airline. -Robert Crandall, CEO and President There is a …higher return on investment on booking tickets than by operating aircraft. - Computer Network, 1990

58 SABREs Success Today, ROI is still in excess of 500% 3 out of 5 airline tickets are purchased through SABRE Online Travel Agents SABRE Roving Agent Wireless check-in system SABRE Pass Touch Self Serve Kiosk passenger system SABRE Wireless Check-In

59 What Should You Know? CIOs Should Report to CEOs Competitive Advantage is difficult to sustain The customers needs change or the customer changes all together Competition will always imitate Lawsuits will arise with seemingly unfavorable outcomes IT Competitive Advantage can change the scope of business There is a pattern: introduce competitive advantage -> some problem makes it a commodity->reposition for advantage

60 Rarely, A Product Sustains SABRE sustained Being the first mover Offering tangible benefits to customer Making switching costs high Involving customers at every level

61 IT can Create Competitive Advantage IT can differentiate a product or service (Boeing and Frito-Lay) IT can shorten business processes: (Frito-Lay - eliminates up to 30,000 to 50,000 man hours of paperwork each week) IT can spawn new businesses (Boeing) IT can change entire industry structures ( American Airlines) Management of Information Systems, Lacity, Fall 2001

62 IT Systems

63 Best Practices for Managing IT: The CIO 1. Serves as a bridge between IS, senior management, and users. 2. Works to encourage joint problem solving 3. Provides vision and leadership to accelerate the delivery of new competitive or business- critical systems. Paradigm Shift The New Promise of Information Technology, Don Tapscott and Art Caston, 1993

64 Best Practices / Lessons Timing – first to market Innovative – offers a change to a process or product Flexibility – able to respond quickly to market Partnership – able to create customer loyalty IS480 lecture notes, Lacity, Fall 2001

65 Summary Difficult to achieve a true competitive advantage -- Access to capital -- Switching cost -- Technical skills -- Management IT skills MIS Quarterly, 1995 IT and sustained competitive advantage by Francisco Mata


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