Using IT to Achieve a Competitive Advantage

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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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• 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

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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

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Using IT to Achieve a Competitive Advantage

• Creating the Competitive Advantage
• Features and examples of successful systems
• Sustaining the competitive advantage through IT

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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

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IS Leadership

• Implements structures, processes,
• and staffing to fill other 8 roles
• Alignment of IS strategy and business
• Fosters relationships with senior management

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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

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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

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Frito-Lay Sales 2000
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Frito-Lay Market Share 2000
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• 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

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Customers

• Grocery Stores
• Convenience Stores
• Gas Stations
• Restaurants
• Bars
• Vending Machines

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IT at Frito-Lay

• The Sr. VP of Technology is Arthur B. Anderson

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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.

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The Pioneer

• Charles Feld
• Vice president of MIS Frito-lay 1983-1992
• 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

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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

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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

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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

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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.

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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.

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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.

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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.

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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.

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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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(No Transcript)
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The Boeing Company

• 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

http//www.boeing.com
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Company Leadership
Vice Chairman Harry Stonecipher
Chairman and Chief Executive Officer Phil Condit
Business Unit Leaders
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
Senior Vice President President, Connexion by
BoeingSM Scott Carson
http//www.boeing.com
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Global Sales
Dollars in billions
Boeing is the largest United States exporter.
http//www.boeing.com
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Revenue by Market Segment
Year-end 2000
Military Aircraft and Missiles
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Commercial Airplanes
60
15
Space and Communications
1
Other
Total 51.3 billion
http//www.boeing.com
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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.

http//www.boeing.com
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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

http//www.boeing.com
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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

http//www.boeing.com
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Connexion by BoeingSM

• 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

http//www.connexionbyboeing.com
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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

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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
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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

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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

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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

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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

http//www.connexionbyboeing.com
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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.

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American Airlines

• SABRE Reservation System

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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 http//galenet.galegroup.com
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Organizational Chart
Sources Morenet UMSL, Business and Company
Resource Center http//galenet.galegroup.com
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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
• 10600 other employees
• 1,545,000 sales/employee

Sources Morenet UMSL, Business and Company
Resource Center http//galenet.galegroup.com
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The Traditional Purchasing Chain
DisintermediationLonger, Not Shorter Value
Chains are Coming. By Paul Saffo (1998)
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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

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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 www.sabre.com/about/history/index.html
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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?

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

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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
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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,2nd ed., McGraw-Hill, 1993.
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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
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The Pull Strategy The Frequent Flier Model
DisintermediationLonger, Not Shorter Value
Chains are Coming. By Paul Saffo (1998)
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Problems in Sustaining Competitive Advantage

• Once again, competition turned this into a
  commodity
• Changed the scope of business
• Back to the drawing board

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The Credit Card Model
DisintermediationLonger, Not Shorter Value
Chains are Coming. By Paul Saffo (1998)
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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

• -Computer Network, 1990

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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

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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 -gt some problem makes it a
  commodity-gtreposition for advantage

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Rarely, A Product Sustains

• SABRE sustained
• Being the first mover
• Offering tangible benefits to customer
• Making switching costs high
• Involving customers at every level

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IT can Create CompetitiveAdvantage

• 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

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IT Systems
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Best Practices for Managing IT The CIO

• Serves as a bridge between IS, senior management,
  and users.
• Works to encourage joint problem solving
• 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

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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

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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