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Table 1 American Airlines SABRE Reservation System
IT Assets Nature of the Competitive Action Integrated database of current flights, routes and pricing offered by multiple airlines Desktop-based software that allowed travel agents to dial-in to the system to search for available flights and prices and make direct bookings Provided travel agents with access to online reservation systems to book passenger flights with higher efficiency, speed, and flexibility (e.g., multi-destination travel). The system gained great penetration because travel agents understood its value in helping the agents to make bookings. In this booking process, American used the system to display its own flights before showing the flights operated by other airlines. This preferential ordering boosted Amercian’s bookings. As the system became the industry standard for travel agent bookings, other airlines paid American for the ability to list their flights and a higher fee for priority listing. These fees boosted American’s non-operational revenue. American gained valuable intelligence about competitors’ prices and routes and was able to utilize this information in setting its own routes and prices. Rival airlines sought regulatory intervention because they perceived SABRE to give American an unfair competitive advantage. Eventually, American divested SABRE by creating a new entity independent of its airline operation.
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Table 2 Merrill Lynch Cash Management Account
IT Assets Nature of the Competitive Action Integrated database of all of a business customer’s accounts (e.g., savings, checking, brokerage) Automated decision-making system for tracking investment opportunities and executing financial investments Offered business customers a service for integrated financial management, whereby customers could maintain the desired level of money in liquid accounts (e.g., checking and savings), while sweeping daily excess cash into higher yield brokerage accounts. The automated system kept track of market conditions and executed transactions to deliver ‘optimal’ returns to the customers, combining access to financial markets with financial expertise to deliver customers the best available returns on their cash across the different types of accounts.
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Figure 1 Rethinking Business Strategy and IT Strategy
Seed Business Strategies Target IT Priorities IT Strategy Enabler Role Support Role
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Figure 2 Identifying Ideas for Using IT to Enhance Competitiveness
Business Strategy Business Model Value Discipline Ideas for IT-enabled Competitive Actions Competitive Actions IT Strategy Strategic Role of IT 4
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Figure 3 Business Model Components
Who is the customer? What does the customer value? How does our product/service meet the customer’s needs? How is revenue generated? What is the cost structure? How exactly is profit created? Customer Value Proposition Profit Model Critical Processes Critical Resources What are the business activities critical to our being able to both provide customers with the products and services they value and do so in a profitable manner? What are the business and technology resources necessary in order to carry out critical processes in an effective and efficient manner?
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Figure 4 Components of Apple’s Business Model
High prices due to in-demand hardware products (new, stylish, high quality) Moderate manufacturing and marketing costs High margins Technically savvy segment of the mass market Seamless online access to content across multiple media Customer Value Proposition Profit Model Critical Processes Critical Resources Internal product design Product architecture Tight control of sales and marketing Outsourced manufacturing Brand Product designers and architects Electronic content delivery platforms Relationships with content providers
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Figure 5 Components of Walmart’s Business Model
Cost-sensitive segment of the mass market (‘Everyday Low Prices’) Availability of a broad range of products, enabling one-stop shopping Low prices, low costs High volume, high product turnover Customer Value Proposition Profit Model Critical Processes Critical Resources Store site selection Tailor local inventory to local market Shelf-space optimization Supplier relationships Logistical processes Retail and distribution facilities Information technology Employee talent in logistics, supplier management, merchandizing, purchasing and IT
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Table 3 Overview of the Value Disciplines
Strategic Focus Key Business Capabilities Examples Operational Excellence Product and service reliability Competitive pricing Customer convenience Order processing and fulfillment Customer service Supply chain Inventory management Merchandising Financial management Dell FedEx Walmart Customer Intimacy Customer loyalty Customer lifetime value Micro-segmentation Customer relationship mgt Advertising and marketing Campaign management Ritz Carlton Harrah’s Neiman Marcus Amazon Product Leadership innovation Creativity Leveraging internal and external knowledge Product and service development Rapid commercialization of promising products and services Quality assurance Customer support 3M Intel Johnson & Johnson
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Table 4 Strategic Roles of IT
Automation Empowerment Cost reduction Transaction cycle time improvement Responsiveness improvement Productivity improvement Data distribution and access Information distribution and access Knowledge distribution and access Business intelligence tools availability Control Collaboration Real-time event monitoring Real-time event visibility Business rule automation Complex business process execution Problem and opportunity handling Business process innovation Product and service innovation Business model innovation
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Table 5 Value Disciplines and the Strategic Roles of IT
IT-enabled Business Innovation Operational Excellence at Walmart Digitized merchandising, logistics and inventory business processes (automation, control) Cross-docking process innovation (collaboration) Customer Intimacy at Amazon 24x7, convenient shopping channel (automation, control) Personalization through collaborative filtering (collaboration, empowerment) Customer-generated product reviews (empowerment) Product Leadership at 3M Highly effective new product development processes (collaboration, empowerment)
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Figure 6 IT as a Strategic Enabler
Organization (or Work Unit) Structure Product/Service Competitive Market Positioning IT Functionality Innovative IT Functionality Business Processes Employee Skills & Roles Adapted from M.S. Scott Morton (Ed.), The Corporation of the 1990s: Information Technology and Organizational Transformation. New York: Oxford University Press, 1991.
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Table 6 Examples of IT-enabled Business Model Innovation
Organization Business Model Innovation Enabling IT Google Targeted Internet Advertising Search Engine Harrah’s Customer Life Cycle Management Customer Data Analytics Walmart ‘Everyday Low Prices’ Supply Chain Coordination Retail Store Merchandising Apple Personal Digital Content Devices (iPod, iPhone, iPad) iTunes Store Third-Party Applications Stylish, Easy-to-Use Devices eBay Customer-to-Customer Exchanges Business-to-Business Exchanges Auction Engines Auction Platform FedEx Overnight Shipping Package Tracking American Airlines Frequent Flyer Program Dell Direct Model Customer Product Configuration Amazon Effortless Online Shopping ‘1-Click’ Ordering
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Table 7 Limiting Competitor Responses to IT-Enabled Competitive Actions
Barriers to Erosion Questions for Analysis IT Resources Are barriers based on unique or rare IT assets? Do rivals possess matching IT assets? If not, how difficult will it be for rivals to build or acquire them? Complementary Resources Are non-IT assets or capabilities required? Do rivals possess these non-IT assets or capabilities? If not, how difficult will it be for rivals to build or acquire them? Project Management Capabilities How complex are the projects involved with implementing the IT-enabled competitive action? Do rivals possess sufficient project management capabilities? If not, how difficult will it be for rivals to build or acquire them? Preemption Barriers Will rival’s customers and/or trading partners face high switching costs? Is a value network required in order to implement the strategic action? If not, how difficult will it be for rivals to put together such a value network? Adapted from G. Piccoli and B. Ives, “IT-Dependent Strategic Initiatives and Sustained Competitive Advantage: a Review and Synthesis of the Literature,”MIS Quarterly, December 2005, pp
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