1. What’s Happening!? Maybe a war with Iraq. Microsoft hiring push. ATP clinic this evening at 5:15 in the Baskin lounge area with Kim Glesser and myself. Toastmasters at 4:15 in room 360. First exam Feb. 4 (T) and papers are due Feb. 6 (TH)

2. ATP Tips Intel – PC Component Industry Sun – Internet Hardware and Software Industry Cisco – Telecommunications Equipment Industry Knight-Ridder – Newspaper Publishing Industry (but!) Dell – PC Segment of the Computer Industry Microsoft – Personal and Business Software Industry as a segment of the computer software industry Agilent – Test and Measurement Industry Oracle – Database and Enterprise Application Software

3. Chapter 3 The Porter Competitive Model for Industry Structure Analysis

4. Key Objectives Provide an understanding and appreciation for the use of the following models: – –Porter Competitive Model – –Value Chain

5. Porter Competitive Model Intra-Industry Rivalry Strategic Business Unit Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Figure 3-1 Source: Michael E. Porter “Forces Governing Competition in Industry Harvard Business Review, Mar.-Apr. 1979

6. Key Questions 1. 1. How significant is the structure of the industry to existing companies and possible new entrants or providers of substitute products or services? 2. 2. What is the company’s relative position within the industry? 3. 3. What does this suggest as a logical strategy for a company to strengthen its position within an industry?

7. Strategic Business Unit: Two Basic Objectives 1. 1. To create effective links with buyers and suppliers. 2. 2. To build barriers to new entrants and substitute products or services.

8. The Strategic Business Unit and Competitive Strategies Primary Strategies Differentiation Low-cost Supporting Strategies Innovation Growth Alliance

9. Generic Value Chain INBOUND LOGISTICS OPERATIONS OUTBOUND LOGISTICS MARKETING AND SALES SERVICE PRIMARY ACTIVITIES PROCUREMENT TECHNOLOGY DEVELOPMENT HUMAN RESOURCE MANAGEMENT FIRM INFRASTRUCTURE SUPPORT ACTIVITIES Figure 3-6 Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright © 1985 by Michael E. Porter.

10. Main Objective of Value Chain To maximize value-adding activities while minimizing those that do not add value to the customer.

11. Possible Exam Questions 1. 1. Identify and explain the two primary strategies and the three supporting strategies that a company can choose from when attempting to achieve a competitive advantage. Explain challenges to accomplish the successful implementation of each of these strategies. 2.Explain how the value chain can be used to focus the potential for Information Technology in a given company.

12. Chapter 4 Summary Porter Competitive Model and the Airline Industry

13. Major Chapter Topics 1. Hard Times for the Airlines 2. Business Strategy Model 3. Industry Rivalry 4. Industry Factors 5. Porter Competitive Model 6. Benefits of IS to American Airlines 7. Airline Industry Value Chain

14. Porter Competitive Model Intra-Industry Rivalry SBU: American Airlines Rivals: United, Delta, US Air, Northwest, Southwest Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Airline Industry Analysis - North American Market Travel Agents Business Travelers Federal Government Pleasure Travelers Charter Service U.S. Military Cargo and Mail Alternate Travel Services Fast Trains Boats Private Transportation Videoconferencing Groupware Aircraft Manufacturers Aircraft Leasing Companies Labor Unions Food Service Companies Fuel Companies Airports Local Transportation Service FAA IT Vendors Foreign Carriers Regional Carrier Start ups Cargo Carrier Business Strategy Change Figure 4-2

15. Industry Rivalry SBU: American Airlines Rivals: Carriers similar in operation - United - Delta - Northwest Airlines with different strategies - Singapore Airlines: international emphasis - Southwest: least cost, point-to-point city pairs strategy All with hub-and- spoke route structures and in varying degrees of serious financial trouble Both doing better financially

16. Bargaining Power of Buyers The airline industry traditionally had two tiers of buyers: travel agents and actual passengers. Online systems are reducing the role and power of travel agents. People fly for business or personal reasons with business passengers representing 80% of passenger miles flown. Passengers have little power other than picking a competitor. What do you think American said to IBM when they offered to have their employees fly exclusively on American if given a discount on fares? An exception to this are government employees who get a significant discount on fares.

17. Bargaining Power of Suppliers Aircraft manufacturers, aircraft leasing companies, fuel suppliers, food vendors, labor unions, airport operators, FAA and IT vendors are major suppliers to the Airline Industry. The power implications span a wide range. Airlines have power in negotiating with aircraft manufacturers, leasing companies, fuel and food vendors and IT vendors. The tables are turned relative to labor unions, airport operators and the FAA who retain significant power.

18. Potential New Entrants Despite the lack of good financial performance in the case of many airlines there is still the treat of new entrants. The US is the world’s largest airline market and foreign carrier would clearly like more access to US routes. There is also the threat of new startup airlines or companies like UPS deciding to shift their business strategy and focus on passenger travel.

19. Substitutes There are multiple alternatives to deal with travel demands as options of dealing with other than the SBU and its rivals.. If time is a major consideration, substitutes are generally not a viable option in a country the size of the US.

20. Porter Competitive Model Analysis Conclusions The industry represents intense rivalry among existing carriers and faces a major threat by discount airlines who are picking off high volume routes. The bargaining power of buyers is not a major influencing factor at least to date. Suppliers like unions, airport operators and the FAA have significant power in their relationship with airlines. Other suppliers of commodity items like food and fuel have no significant power which is also the case for IT vendors because there is so much competition for airline business.

21. So, why with all this failure, do some airlines succeed? Southwest Airlines: short-haul, point-to- point, least cost of operations. Singapore Airlines: central location in Asia, national strategies, good IT infrastructure.

22. Europe North American Pacific Rim MARKETS Short HaulLong Haul ROUTES AND ROUTE STRUCTURE Hub and Spoke Point to Point FARE STRATEGY Low FarePremium Fare Independent Alliances COMPANY STRUCTURE INFORMATION SYSTEMS FOCUS Figure 4-1 Latin American Business Strategy Model - Airline Industry Passengers Operations Logistics Business PRODUCT/SERVICES Scheduled Passengers Charter Services Cargo Mail Air Express Modified compared to the example in the textbook.

23. IT as a Vital Competitive Advantage Information Technology serves to give carriers the edge over its competitors through customer convenience, gaining knowledge of customers, operational efficiencies and cost savings due to the volume of tasks needed to be performed.

24. Possible Exam Questions! 1. 1. How can the Porter Value Chain be effectively used within the contents of our Analysis Term Papers? 2. 2. Does the projection that Southwest will be the largest airline in the US in the future really make sense or does this contradict the importance of the roles played by major carriers and feeder airline to service thousands of US cities?

25. Chapter 5 Introduction Information Systems Can Redefine Competitive Boundaries

26. Objectives of the Chapter How does IS help to redefine competitive boundaries? What forms of IS are used to redefine these boundaries?

27. IS Extends a Company’s Capabilities Creates interorganizational systems Allows for changes in business processes with customers and suppliers Supports strategic business alliances

28. Interorganizational Systems Figure 5-1 Your Company Customers Vendors Support Services Business Partners Competitors Industry Forces Government Associations Info Sources

29. EDI Applications Figure 5-3 Electronic Data Interchange Purchase Orders Invoices Freight Bills Advance Shipping Notices Inventory/ Sales Data

30. EDI System Obstacles Figure 5-4 Company data versus standards Cross-industry standards Standards administration Data Communications Applications Time zones and windows Communication protocols Telecommunications equipment Service cost and balance Integration Features and function supported Interface

31. Electronic Data Interchange (EDI) Through the Use of a VAN (ASP) Figure 5-5 Customer Order Time Schedule Data Format Communication Protocols Data Transmission Speed Electronic Mailbox Conversion/Translation Vendor Systems: Mainframes Minicomputers Microprocessors No computer

32. Other Examples of IS Used E-mail enabled applications The Internet

33. Conclusions IS is not only used to make a company more efficient or effective, but it’s also used to gain a competitive advantage. IS allows for interorganizational systems, changes in business processes with customers and suppliers and also supports strategic business alliances. Examples of IS used to redefine competitive boundaries include EDI systems, e-mail enabled applications, and the Internet.

34. Chapter 5 Information Systems Can Redefine Competitive Boundaries

35. Chapter Questions 1.Which word—global, international or interdependent—best describes current markets, products and services, and business relationships? 2.Why is growth such an important part of business success? 3.What is an extended enterprise and why is it an important competitive consideration? (What terms are currently more commonly used to described an extended enterprise?) 4.What role does information technology play relative to an extended enterprise? 5.Do strategic alliances really work and if so, why? 6.What are examples of EDI and an E-mail enabled application?

36. Chapter Topics A. Interorganizational Systems B. Strategic Business Alliances C. Electronic Data Interchange (EDI) (extranets versus EDI?) With an added dose of globalization.

37. Topic A Interorganizational Systems are defined as automated information systems shared by two or more companies. Enhance business relationships. Establish strategic alliances. Gain efficiencies. Lower cost of doing business.

38. Interorganizational System Goals Efficiency. Effectiveness Competitive Advantage

39. Advantage can be gained through better customer service that accrues from inter-organizational systems. Customer Satisfaction: – –We are available. – –We are interested in you. – –We are responsive. – –You can count on us. – –We want to earn your trust and respect.

40. Topic B - Strategic Alliances How (why) do they work? Companies bring strengths to the alliance table. Alliances create long term advantages. Alliances drive business growth. Alliances often are a difficult transition.

41. Strategic Alliances Why establish a strategic alliance? To build a combined capability that makes it a stronger competitor. Extended enterprise against the competitor’s extended enterprise. Difficult, costly and risky to try to deal with the challenges of a global business.

42. Topic C - EDI Electronic Data Interchange (EDI) (Predecessor to extranets) Exchange of routine business transactions in a structured environment computer-processed format. Traditional applications included purchasing, pricing, scheduling, payments and financial reporting.

43. EDI Examples Boeing Parts Logistic System: Provides information regarding parts availability to support aircraft maintenance. Links with contractors in Japan and U.S. Charles Schwab Trading systems that connect to stock exchange systems.

44. EDI Value-Added Network Services Two major elements: Telecommunications network. EDI application translation support. Connects Trading partners: Broad range of geographic locations. Provides network management-multiple routing paths and security. (Would probably be called an ISP or ASP today)

45. The Benefits of a VAN (ISP or ASP) Having 24-hour service on demand. Gaining access to national and international networks to connect to trading partners. Support for multiple telecommunications protocol conversions. Interchange support for even a smaller number of transactions, since you only pay for the services that you actually use.

46. Boundaries Across town? Throughout the state? Across multiple US regions? Encompassing the entire US? North America? Western Hemisphere? Multiple Continents? Total World? Customers? Suppliers? Support Service Providers? Business Partners? Industry Forces, Associations, Government? Mobile employees relative to the above?

47. Percentages

48. Globalization Drivers Customers are global. Channels are global. The marketplace is global. Products that travel.

49. Internetworking The Global Enterprise Internetworking The Global Enterprise Emerging Global Markets Emerging Global Markets Global Business Operations & Alliances Global Business Operations & Alliances Information Technology Information Technology Globalization Information Technology and Globalization Transportation Technology Drivers of Change Competitive Environment Business/IT Strategy Business Implementation “Products that travel”

50. Global Motivation Offense/Defense—Opportunities/Threats Global economies of scale to recoup R&D and capital costs. Build and strengthen global brands—economies of scope. If your competitors have established a global position do you really have a choice as to whether you should also compete on a global basis? Acknowledge the better standard of living and increased mobility of a greater number of people in countries around the world.

51. Therefore 1.Grasp the opportunities and challenges of the global marketplace. 2.Generate and focus the personal skills and organizational energies needed to attack the global opportunities and challenges. 3.Transform these efforts into world-class performance.

52. The Best Term? Global International Interdependent

53. IOS Conclusions Successful small information systems tend to grow into larger systems. Interorganizational systems are changing business processes, strategies and relationships.

54. Increased Competitiveness Better customer service. Higher customer satisfaction. Improved communication with business partners. Strengthened alliances. Increased competitive advantage.

55. Global Leadership Business Acumen Relationship Management Relationship Management Personal Effectiveness Culture Performance Evaluation Organizational Structure and Core Processes

56. A Sobering Thought “It takes at least 25 years to build an effective global management team.” Alfred Zeien Former CEO, Gillette

57. Changes in Concepts, Terminology and Networks Interorganizational Systems: E-Business and E-Commerce Core Processes and Outsourcing Business Alliances Internet as a global, standardized network

58. Scope E-Commerce versus E-Business. Front end versus business strategies, core business processes, policies and practices geared to succeed with an E-Commerce approach.

59. Dell Computer Occasionally, rarely, history is made when a gifted leader, who has a vision of new processes and technologies, produces a brilliant new business model. Henry Ford did it in automobiles and Michael Dell has done the same in PCs. The parallels are remarkable. Jacques A. Nasser Former President and CEO Ford Motor Company

60. Ford and Dell? Appreciated the principle of elasticity of demand. Emphasized innovation in manufacturing. Vertically integrated. (Ford in-house, Dell outsource) Stressed standardization and modularity of product. Passed cost savings along to the customer. Stressed innovation with a product in a relatively new industry that fundamentally changed the industry. The popular, low cost product had a major impact on existing products that offered similar function. The products also had a societal impact.

61. Dell Computer Dell Computer is a great American success story. In 2001 Dell became the No. 1 PC manufacturer in the U.S. and the world. This all happened because Michael Dell started selling computers from his dormitory room while he was a student at the University of Texas. When he consistently grossed $30,000 a month he concluded that he was onto a business opportunity that was too good to pass up. He quit school as a pre-med student and founded Dell Computer in May 1984.

62. Direct Business Model Dell was a pioneer and has become the leader of the customer-direct, build-to-order computer systems business. Its financial success stems from developing and implementing strategies designed to maximize the strengths of the direct business model.

63. Virtual Integration Interweaving distinct businesses so that partners are treated as if they are inside the company. (A major emphasis on outsourcing non-core business processes)

64. Dell Business Strategies 1. Speed to market. 2. Superior customer service. 3. A fierce commitment to producing consistently high quality products. 4. Custom-made computer products that provide the highest performance and the latest relevant technology to customers. 5. Early and effective exploitation of the Internet.

65. Benefits of the Direct Business Model This business model provides the following competitive advantages. 1. It bypasses computer dealers and avoids related price markups. 2. It enables Dell to build each system to a specific customer order, which eliminates inventories of finished goods to resellers and enables it to move faster to new technologies and lower-cost components.

66. 3. It provides direct contact with thousands of customers every day to tailor support offerings to fit customer target markets and to control the consistency of customer service around the world. 4. Leveraging its relationships with key technology partners enables Dell to rapidly incorporate the most relevant new technologies into its products. 5. The low inventory and low fixed-asset model results in the highest returns on invested capital in the computer industry.

67. Customer Focus The focused vision made Dell the world's leading direct computer systems company, with 29,300 employees in 33 countries around the globe. A bold concept—direct customer contact—has made Dell one of the most successful companies in the world. Nearly two-thirds of Dell's sales are to large corporations, government agencies and educational institutions. Dell also serves medium and small businesses and home PC users.

68. What About Financial Performance? Dell has consistently led the computer industry in performance against all three major priorities: growth, profitability and liquidity.

69. Competitors won’t just give all the PC business to Dell! Several of Dell’s competitors are trying to emulate characteristics of how Dell operates its PC business. IBM ceased selling PCs through retail channels. Gateway has traditionally sold direct but also operates its own retail outlets. It is fairly safe to conclude that the HP-Compaq merger was motivated by an intent to challenge Dell.

70. Dell and the Internet If you sat back and said, let’s design a technology that could radically impact this company in positive ways. It would be hard to create one better than the Internet. It essentially puts us that much closer to our customers. It is the ultimate form of direct for us. Because we were already dealing directly with our customers, it was a natural extension for us. We didn’t have to change the way we do business in order to do business on the Internet. Everything was already in place. A nice plus is that the Internet lowers the cost of doing business for us and our customers and it speeds transactions whether you are talking about sales, support or customers getting information. Michael Dell

71. Dell Premier Web Pages A tailored web page for major customers that contains: Purchasing procedures Approved computer configurations Negotiated prices Purchase authority limits Order history and discount levels This cuts order time, helps decrease order errors, keeps track of shipment status and has a record of all Dell units by serial number.

72. Product Development Dell employs over 2,000 engineers who focus on providing leading-edge products.

73. Strong Business Alliances 1. Exploit the talents and the investments of the experts. Find out where you can add the most value to your customers and shareholders and find great partners to do the rest. 2. Keep things simple. Complicated supplier relationships mean one thing--complications. Fewer suppliers mean fewer opportunities for error, less cost, less confusion and greater consistency. With suppliers, less is really more.

74. Strong Business Alliances 3. Keep your friends close, and your suppliers closer. Bringing your suppliers into your business is a hallmark of virtual integration. Keeping them geographically or electronically close results in better service, heightened communication, lower costs and faster time to market.

75. Strong Business Alliances 4. Invest in your mutual success. Take the time to communicate your company’s goals and strategies to your suppliers. There is no benefit to perpetuating the bid-buy cycle. Your suppliers can’t be a business partner if it doesn’t know what you are trying to accomplish. The challenge is to maintain a healthy level of flexibility and open channels of communication so that suppliers can provide what customers want and need. Look for complementary strengths and management styles to ensure the proper alignment of your goals.

76. Strong Business Alliances 5. Be explicit, and be objective. Your quality and defect tolerance must be detailed clearly at the outset and consistently throughout your relationship with your suppliers. Use precise metrics to gauge how well a supplier is meeting its criteria and create a self-enforcing check and balance system.

77. Strong Business Alliances Creating strong business partnerships with suppliers is fundamental to the success of your business. But using them to become a source of competitive advantage is something else altogether.

78. Cisco Systems Implemented Cisco Connection Online (CCO) in 1993 as a web-based order entry system at a cost of about $3 million. Wants to be a model user of its own equipment and “its own network.” CCO provides twenty-four/seven world access. Claims to generate 80% of its revenue through CCO. Serves 1,200 customers exclusively online. Claims an annual savings of $500 million while increasing customer satisfaction.

79. Cisco Web Awards Cisco Connection Online is ranked #1 in this year's Net Marketing 200 best business-to-business Web site. The sites were graded and ranked based on a variety of criteria, including ease of navigation, design, presentation, and e- commerce capabilities. The Association of Support Professionals bestowed the Top Ten Support Site Award upon CCO based on performance, usability, content, navigation, and appearance. CCO is Three-time Winner of CIO's 50/50 Award

80. John Chamber on Cisco If we do it right, we have a chance to become one of the most influential companies in history.

81. Intel E-Commerce Intel went from zero to $1 billion per month in six months. The close connection to Intel's business strategy gives the IT organization constant feedback on how the products impact Intel's ability to deliver in the marketplace. “It was a combination of really smart people, disciplined management, a strong team ethic, the ability to apply resources where needed and a culture that lets people switch gears rapidly.” Doug Busch, IT Vice President

82. B2B Time Line Challenge from Senior Vice President of Sales in early 1998 to take in $1 Billion in sales orders via the Web in Q4 1998. Took first order in July 1998. Arrived at $1 Billion per month by the start of Q4 1998.

83. B2B Readiness 1.Business Strategy 2.B2B Infrastructure 3.Business Processes 4.Application Development

84. Secondary Readiness 1.B2B External Initiative 2.Trading Partners 3.Solution Provider 4.Legal 5.Security 6.Audit

85. Need for Standards They knew that they needed standards. Did not want standards that would take years to develop. Standards needed a sound, extendable architecture; would have to be adopted rapidly; and would be demanded by management and supported by business and technology stakeholders in Intel’s business environment. Helped found Rosettanet—a self supporting organization to develop and support B2B standards.

86. Links with Suppliers Before Intel could satisfy its customers' just-in-time demands, it needed to make its own production capacity responsive to demand fluctuations and tighten links to its suppliers. It assessed the strength of its supply chain at the product development level by analyzing each supplier's ability to provide requisite quality and quantities of materials and equipment. The company's ongoing effort to innovate often means signing on emerging companies with breakthrough products. Reliance on such youthful suppliers can present logistical challenges: "What if a company is used to making 1,000 widgets but we need a million when we go into production?"

87. Links with Suppliers To help its suppliers develop products in harmony with Intel's production needs, the company installed new Web- based tools that allow suppliers to study product drawings and specifications as Intel engineers draft them. Intel also uses the Web to post policies and guidelines for companies seeking the certificates of compliance that Intel issues to eligible suppliers. By providing information and forms over the Web, Intel automated most aspects of the formerly paper-intensive certification process.

88. Links with Suppliers Intel is in the enviable position of being able to require its suppliers to hold inventory until it's needed on the factory floor. Intel works to balance its own inventory reduction goals with its suppliers' business needs. Some suppliers initially balk at holding inventory for Intel, the chip maker helps ease their risk by showing them how to improve their own inventory- and demand-forecasting methods.

89. IS Support You're only as good as your supply chain. That commitment to efficiency also extends to the company's IS practices. Because Intel modifies its product line at least every 18 months, manufacturing plants and the IT that supports them must be nimble. Intel has instituted a "copy exactly" strategy for systems that support 18 manufacturing, testing and assembly sites on three continents. Identical architecture and applications support ordering and production planning at every site.

90. Helping Customers Anticipate Market Needs Intel's customers, for the most part PC makers number in the thousands. Because they assemble their finished products from many components with limited shelf life, OEMs assume the highest risk associated with inventory obsolescence.

91. Links with Customers Lance Van Hooser, director of supply chain integration and architecture for worldwide procurement at Dell Computer Corp., says that the more effectively Intel matches production and delivery of its microprocessors to Dell's demand, the more Dell's efficiency improves. As supply chain communication of inventory, shipment and promise-to-delivery scheduling data approaches real-time communication, excess inventory problems will abate, and costs at every link will fall. Van Hooser confirms the value of Intel's strategy. "By optimizing the supply chain, we all win."

92. Customer Order Confirmation The improvements Intel has made to its supply chain are paying off. The company used to require at least 24 hours to confirm orders through an overnight batch system. Today, Intel is able to confirm delivery dates as orders are placed.

93. Basic Business Principle If there is no payment, there is no business transaction. No business transactions translates to no business revenue. No business revenue results in a bankrupt business.

96. Payment Process Industry Member Banks Visa, Mastercard, Discover, Amex Merchants Cardholders Businesses Individuals

97. E-Business Check List 1 REENGINEER YOUR COMPANY The Internet lets you communicate instantly with every supplier, partner, and customer--and, in many cases, lets them communicate with each other. 2 THINK BEYOND THE BOUNDARIES OF THE OLD BUSINESS MODEL Ask a very basic question: Just who are you in the Internet Age? As you face more global competition online and have to cut your prices, doesn’t it make sense to reexamine your old business model?

98. 3 REALIZE THAT THE BUYER ALWAYS WINS Understand that the buyer runs the show on the Net. Up to now, buyers faced big obstacles to getting the best prices and service--limited time and data to compare vendors' products and the cost of dealing with far-flung suppliers. No more. The anytime-anywhere Net knocks down those barriers. 4 HOLD YOUR CUSTOMER'S HAND Roll out the red carpet--or whatever the cyber-equivalent is. You can use some nifty software package that analyzes purchases and suggests other things the customer might buy. That kind of software helps sell more to customers at little extra cost and treats them as individuals. It is called Customer Relationship Management.

99. 5. OUTSOURCE NON-CORE BUSINESS JOBS The instant communications power of the Net shatters the physical-world need to do product development, manufacturing, distribution, marketing, and customer management all in-house. There are lots of specialists that can do everything from hosting our Web site to running warehouses. 6. NO WEB SITE IS AN DESOLATE ISLAND In going online, an established brand name and purchasing power can work to a company’s advantage. 7. CREATE AN ONLINE SENSE OF COMMUNITY Think global. People all over the world are congregating into virtual communities on the Web.

100. 8. FOLLOW THE MONEY The name of the game in the business world is to make a profit. 9. A WEB OF NERDS? DON'T BELIEVE IT There are 510 million people online worldwide. 10. GET EXECUTIVES LOGGED ON Only 25% of CEOs in a recent Price Waterhouse Coopers survey regularly log on to the Internet. It really helps to get your fingers on a keyboard every day. This is something you can't delegate.