Title: Using Information Technology for Competitive Advantage
1MIS 480 GROUP PRESENTATION
Using Information Technology for Competitive
Advantage
Jolanta Zadlo Gary Gray
2IT as a Competitive Weapon
- IT and Competitive Advantage
- Sustainability of Competitive Advantage
- Case Studies
- Sabre
- GE
- Conclusion
3Definition Information Technology
Information Technology (IT) is the amalgamation
of hardware, software, data, people and
procedures that enables or inhibits business
objectives depending on managements involvement
in IT.
Source Why General Managers Need to Understand
Information Technology, lecture notes, Lacity,
2002
4 How the information revolution affects
competition
- Changes industry structure thereby altering the
rules of competition - Creates competitive advantage by giving new
ways to outperform rivals - Spawns whole new businesses
Source How information gives you competitive
advantage, Porter and Millar, 1985
5 How IT creates a competitive advantage
- Differentiate a product or service
- Improve business processes (lower costs)
- Change a business structure
- Create new business
Source IS 480 lecture notes, Lacity, 2002
6 Competitive advantage comes from
critical differentiators
Critical Commodities Critical Differentiators
Useful Commodities Eliminate/Migrate
Critical
Useful
Commodity Differentiator
Source IS 480 lecture notes, Lacity, 2002
7IT as a Competitive Weapon - Sustainability
Very few companies sustain their competitive edge
over the long term
Sustainability occurs when it is difficult or
impossible for the competition to respond
IT as a Basis for Sustainable Competitive
Advantage, Feeny Ives
8IT as a Competitive Weapon - Sustainability
- IT Resources-Easily Duplicated
- Capital for investment
- Proprietary technology
- Technical Skills
IT as a Basis for Sustainable Competitive
Advantage, Feeny Ives
9IT as a Competitive Weapon - Sustainability
- IT Resources-NOT Easily Duplicated
- Managerial IT Skills
- Understanding business needs
- Collaborating with colleagues
- Managing market technical risk of innovation
IT as a Basis for Sustainable Competitive
Advantage, Feeny Ives
10IT as a Competitive Weapon - Sustainability
Sustainable Advantage
- How long before a competitor responds?
- Which competitors can/will respond?
- Will the response be effective?
Supply System Analysis
Competitor Analysis
Project Life-cycle Analysis
Lead Time
Competitive Asymmetry
Pre-emption Potential
IT as a Basis for Sustainable Competitive
Advantage, Feeny Ives
11IT as a Competitive Weapon - Sustainability
- 3 Pillars Supporting Sustainable Advantage
- Lead Time
- Information leaks
- Followers take short cuts
- Followers implement better solutions
- Competitor Analysis
- (Difficulty of competitor to respond or copy
application) - Supply system analysis
- Market capture
- Switching costs
12 Case studies selected
AmericanAirlines
General Electric Company
13Sabre Holdings Corporation Current Company
Background
- SP Fortune 500 Company
- 2.1B in revenues in 2001
- TSG The Sabre Group
- Traded on the NYSE 1996
- Current Price about 21
- Headquarters Dallas/Fort Worth, TX
Source www.sabre.com
14 Sabre Holdings Corporation Current Company
Background
- 7,000 employees in 45 countries
- Sabre connects more than 60,000
- travel agency locations worldwide,
- providing content for 400 airlines
- (complete flight data, seat maps, etc) ,
- 55,000 hotel properties (room availability, type,
price), 52 car rental companies, nine cruise
lines, 33 railroads and 229 tour operators.
Source www.sabre.com
15 Sabre Holdings Corporation Financial Data
- Revenues from operations declined 19 in 2001
due to 9/11 events and lower US and worldwide
travel volumes, but were more than compensated
for by revenue from outsourcing to EDS, profits
did not fare as well.
Source Sabres 2001 Summary Annual Report
16 Sabre Holdings Corporation Financial Picture
Source Sabres 2001 Summary Annual Report
17 Sabre Holdings Corporation Information Technology
- Both Carol Kelly, Senior VP and CIO,
- and Craig Murphy, Senior VP and CTO
- report to the CEO
- Sabre outsourced its mainframe and data center
to EDS. However, Sabre has retained a sizeable
investment in IT.
Source Interview of Jim Menge, VP Technology
Sales, Sabre
18What is Sabre
Semi- Automatic Business
Research Environment
Source Computerworld, Technology Takes Flight,
Sep 2002
19 IT to Improve Business Processes
American Airlines developed Sabre to automate the
process of reserving airline seats.
Source Computerworld, Technology Takes Flight,
9/02
20 American Airlines improves a business process
- 1959 American Airlines (AA) and IBM sign a
contract for the joint development of a real-time
reservation system that combines in a centralized
electronic unit, 2 basic reservation records
the passenger name record (PNR) and the seat
inventory. AA spends 150M on the development of
the system. Sabre was based upon technology
created by MIT for DOD.
Source Data Management, Sep 1981 Computerworld
Mar 1999
21 American Airlines improves a business process
- AAs reservation process used a system based on
computer cards and teletypes and required the
efforts of 12 people, at least 15 steps and up to
3 hours to record - a roundtrip reservation.
- The error rate was 8.
- Sabre reduced costs and the error rate.
Source www.sabre.com
22 American Airlines improves a business process
- 1960 American Airlines (AA) installed the
first Sabre system, a computer reservation system
(CRS). Represented state-of-the-art technology
and processed 84,000 calls per day. Research,
development and installation cost 40 million
with an investment of 400 man-years of effort.
Source www.sabre.com
23 American Airlines improves a business process
- 1964 AA completes cutover to Sabre with a
coast to coast network in the US. - Sabre is the largest, private real-time data
processing system.
Source www.sabre.com
24 Competitive Edge
Competitive advantage from process change
Source www.sabre.com
25 Competitive Edge
- AA saved 30 of its investment in staff alone
- Sabre delivers an error rate of less than 1
- Sabre creates a competitive edge that lasts for
5 to 7 years
Source www.sabre.com
26 Competitive Edge
- Other CRS providers today
- Apollo rolled out by United in 1976
- Worldspan Delta, Northwest and TWA
- Amadeus largest foreign owned CRS
- Sabre continues as the industry leader today
- Worldspan is the only airline owned CRS
Source www.sabre.com and BTMC records
27Sabre System History 1970s
- 1972 Sabre system upgraded to IBM 360s
- 1976 Sabre system first installation
- in a travel agency by year end 130 locations
- and captured about 86 of the market
- United Airlines introduces Apollo
- 1978 Sabre stores 1M fares
Source www.sabre.com
28Sabre System History 1980s
- 1981 Sabre has a slight market share
advantage over Apollo - The competitive edge has all but disappeared
- 1981 AA introduces the first airline frequent
flyer program - 1984 Sabre introduces low-fare search engine
a service unmatched in the industry
Sources Business Week, Aug 1982, Direct
Marketing, Jul 1983 and www.sabre.com
29Sabre System History 1980s
- 1985 AA allows travel agencies to use
personal computers to tap into the Sabre system
via computer online services to access airline,
hotel and car rental reservations - 1986 AA/Sabre installs the industrys first
automated yield management system - 1988 Sabre system stores 36 million fares
Source www.sabre.com
30Sabre System History 1980s
- 1987 With airlines in their 8th year of
deregulation, information and transaction
processing has become more profitable than
selling seats. AAs Sabre System produced pretax
margins of 30 vs. 5.2 percent from tickets.
Source Business Week, 1987
31Sabre System History 1980s
- 1988 Sabre system stores 36 million fares
- 1989 A computer foul-up shut down AAs Sabre
ticketing system for 12 hours, apparently the
result of a glitch written into the system. The
system failure left 14,000 travel agencies and a
large part of AA without flight information. - Lesson ?
Sources New York Times and Business Week, 1989
32Sabre System History 1990s
- 1995 Sabre begins to prepare for Y2K
software is distributed to 40,000 travel agents
in 1998. Y2K costs estimated at 78M. - 1996 Sabre names its first CIO
Source www.sabre.com Computerworld, May 1996
and Computerworld, Mar 1998
33The Web Threat
Airlines begin to focus on the Web as a means to
further reduce their distribution costs
Source www.sabre.com
34A New Way to Cut Costs
- 1995 AA and all major US carriers reduce
travel agency commissions on domestic flights.
Commission is capped at 50. - Additional reductions are made in 1997 (
decreased from 10 to 8), 1998 (international
commissions capped at 100), 1999 ( decreased to
5), 2001 (domestic caps reduced to 20) and 2002
(commissions eliminated)
Source www.sabre.com and BTMC records
35Sabre System History 1990s
- 1996 Sabre becomes a separate subsidiary of
AMR and AMR releases 18 to be publicly traded
(total spin-off in 2000) -
Source www.sabre.com
36Sabre System History 1990s
- 1996 Travelocity.com, currently the
industrys leading online consumer travel website
is launched.
Source www.sabre.com
37Sabre System History 1990s
- By 1998 Sabre had evolved into a global
distribution system (GDS) for travel reservations
connecting more than 30,000 travel agents and 3
million online customers with 400 airlines, 50
car rental companies, 35,000 hotels and dozens of
railways, tour companies and cruise lines. - About 1 of all airline tickets are purchased
on the web in early 1998.
Source Computerworld, Sep 2002 Forbes, Apr 1998
38Sabre System History 1990s
- 1999 SabreVirtually There, a web based
system that provides travelers itinerary and
destination info via the internet
Source www.sabre.com
39The Web Threat
- 1995 Sabre considers development of the first
corporate online booking tool BTS. The project
is incubated for 2 to 3 years. - 1997 Development of the BTS begins.
- 1998 BTMC agrees to beta test Sabres BTS for
Boeing travelers.
Source interview and BTMC records
40Online Booking
- 1998 Sabre is unable to expand BTS to be a
multi-CRS system. - 1999 BTMC terminates agreement with Sabre and
signs with small startup firm Internet Travel
Network for a multi-CRS system. - BTS is available today in a Spanish version
which is still in use today.
Source BTMC interview and BTMC records
41Online Booking
- 2000 Sabre acquires GetThere.com, formerly
Internet Travel Network for 757M. GetTheres
online product is currently the leading provider
of online booking solutions. Purchase completed
to gain customer base and keep competitors from
purchasing.
Sources www.sabre.com, interview
Computerworld, Aug 2000
42The Web Threat
- Sabres recent response to the web which
threatens its core business model - Sabre signs deals with Hotwire.com and
Priceline.com to provide key technology both
companies are also competitors of Sabres
Travelocity.com
Source Computerworld, Aug 2000
43The Initial Outsourcing
- In August 1996, Sabre signed a 7 year
outsourcing deal which transferred responsibility
for its travel reservations network. A
partnership of Paris-based airline network SITA
and Atlanta-based Equant essentially purchased
the network for 450M for 7 years. Sabre
transferred 80 of its network engineers to SITA.
Source Computerworld, December 1997
44Outsourcing a mature product
- In July 2001, Sabre signed a 10 year, 2.2B
outsourcing contract with EDS. EDS purchased
Sabres IT infrastructure assets and data centers
and Sabres airline technology outsourcing
business. Over 4,000 Sabre employees transferred
to EDS. This transaction represented 600M in
revenue to Sabre.
Source Computerworld July 2001 and interview
45The Future
- Sabre continues to develop and release new
products on an ever increasing pace. - Continued change required to maintain customer
satisfaction. Revenues from the traditional
CRS/GDS model must be replaced by new lines of
business.
46Success with IT Strategies
- 1980s Killer Application
- AA/UA-Reservation Systems
- American Hospital Supply-Online ordering system
- Frito-Lay-Handheld devices for sales
-
- Early 1990s Re-engineering
- Redesigning business processes around technology
- Mid 1990s Information Management
- Knowledge Management
- ERP
- CRM
http//www.cio.com/archive/050101/davenport_conten
t.html
47Success with IT Strategies
- Late 1990s e-Commerce
- Today
- e-Commerce is not enough
- IT investment in the business core (touches
customer) - Business commitment
- Commitment to change (continually re-invent and
never rest) - Using multiple technologies and management
approaches (not just one) - Company must excel in front office(e-commerce,
CRM) , back office (ERP), and data warehousing,
mining, and KM - Information focus (to make smart decisions)
http//www.cio.com/archive/050101/davenport_conten
t.html
48Its All About E
49Case StudyGeneral Electric
- Company Overview
- Digitization Strategy
- Examples
- Buy Side
- Plastics
- Appliances
- Power Systems
- Aircraft Engines
- Sell Side
- Make Side
- Summary
e-business Is Business Just Simpler, Faster, and
Better
50General ElectricCompany Overview
- Formed in 1892
- Only company part of the Dow Jones's Industrial
Index since the Indexs debut - 67,588 patents, 2 Nobel Prizes and numerous
other honors - Operates in more than 100 countries and employs
313,000 people worldwide - GE is considered to be one of the largest and
most diversified industrial corporations in the
world
www.ge.com
51General ElectricCompany Overview
- Short-cycle businesses contributed approximately
20 of GE's net earnings in 2001 - Consumer Products (Lighting Appliances)
- Plastics
- Industrial Systems
- NBC
- Specialty Materials
- Long-cycle businesses contributed approximately
40 of GE's net earnings in 2001 - Medical Systems
- Power Systems
- Transportation Systems
- Aircraft Engines
- Financial services contributed approximately 40
of GE's net earnings in 2001
52GE Digitization Strategy
- Before 1999 - IT at GE was non existent
- 1999 - Jack Welch orders each business to
Destroy your business/ Grow your business
- Use information technology to create a leaner,
faster, more customer focused company, accelerate
high margin, capital efficient growth., Jeff
Immelt, CEO
- 2001- GE Top e-business innovator (eweek)
www.ge.com
53GE Digitization Strategy
IT Spending 2000 - 2.5 billion 2001 - 3.0
billion 2002 - 3.5 billion
Gary Reiner, CIO
"You won't see one ounce of slowdown in tech
spending. Jack Welch 1/2001
http//www.eweek.com/article2/0,3959,94717,00.asp
54GE Digitization Strategy
GE Internal Presentation
55e-Business Value
56e_at_GE
Digitization provides ways to improve our
customer interface and work on our own internal
productivity at the same time. It is just
beginning. Our investments in information
technology will grow about 15 this year. It is
really going to help us transform the cost base
of GE. Its going to help us buy better. Its going
to help us interface with customers better. But
primarily its going to help us in terms of the
inner workings of GE make us more efficient,
leaner, and closer to the customer." -- Jeff
Immelt, Chairman and CEOCustomer City Swings,
April 2001
57e-Business Organizational Approach
CEO
- High Level Leader
- Knows the Business
- Track Record of Delivering
- Well Respected - Great Team Player/Influencer
- Understands Commercial Operations
- Has or Can Play on Business Leader Staff
e-Business Leader
BD Leader
Marketing Leader
CIO
Other e-Business Functional Leaders
- External or Internal
- Internet Generation
- Creative, Entrepreneurial
- Start Up Experience
- Marketing/IT Background
- External Hire
- e-Commerce Industry Experience
- Business Savvy
- Technical Expertise
CWC.com Leader Focus Enhance Build Your
Customer Web Center
Buy Side e-Commerce Leader
DYB.com/GYB.com Leader Focus Destroy Your
Business/ Grow Your Business
Chief Architect .Com Technical Team
Technical Functionality
Back End Infrastructure
GE Internal Presentation
58e_at_GE Statistics Sell
After a year of trying web sales, it really
hadnt changed the world. Gary Reiner, CIO
GE, Forbes 4/30/2001
GE Annual Reports
59e_at_GE - Sell Plastics-Overview
- Company
- Leading global manufacturer and distributor of
plastics resins and plastics, including
polycarbonate, ABS, SAN, ASA, PPE, PC/ABS, PBT
and PEI resins. - 10K employees
- 5.3 Billion in sales
- Customers
- Automotive (i.e. Ford), computers (i.e. Dell),
telecommunications, appliances, optical media,
packaging, and building and construction
www.geplastics.com
60e_at_GE - Sell Plastics-Overview
- 1994 - 1,500 pages of corporate literature,
product information, press announcements,
photographs, and design guides on the Net - 1997 - First to sell resins on the web
- Today
- industry's leading e-Commerce Web site
- speeding up and simplifying the whole range of
customer services - Voted best of the web (Forbes 9/18/2002)
- Full service portal
- 200,000 registered users, 20K visits/week, 2,000
pages of online material
61e_at_GE - Sell Plastics-Overview
- gepolymerland.com
- Web site designed to give an easy, super-fast
way to manage a resin business - Provides information needed to stay on top of
your business - Available 24 hours a day, seven days a week.
it's all about speed, efficiency and making
every minute count
www.gepolymerland.com
62e_at_GE - Sell gepolymerland.com
- Interact
- Discussion groups
- Chats
- Career center
- Calendar
- Yellow Pages
- Research
- Material selection database
- Technical Tips and case studies
- Problem solving guidelines
- Technical inquiries
- Literature online
- Buy
- Real time orders online FAST
- Shipping confirmation in minutes
- Track and trace shipments
- MSDS and Certifications online
- secure Company information
- Design Services
- Part/toll design assistance
- Computer-aided engineering services
- Design questions
it's all about speed, efficiency and making
every minute count
www.gepolymerland.com
63e_at_GE - Sell Plastics-Performance
2001 GE Annual Report http//www.line56.com/arti
cles/default.asp?ArticleID4086ml3
64e_at_GE - Sell Plastics-Summary
- Information on the net helps customers operate
more productively and save money - product information
- warehouse inventory
- shipment status
- 24x7 convenience
Chemical Week 5/10/2000
65e_at_GE - Sell Plastics-Summary
- Beyond transactions-long term value creation
- Aim to draw in engineers, plant managers, and
others - ColorXpress allows customers to match and order
color chips - Vendor Managed Inventory (VMI) uses a
proprietary online monitoring technology to
monitor storage silos and stabilize order
patterns for customers - Design Solution Centeroffers a full range of
online technical software tools to aid in
application development. - Content encourages repeat visits
- Customer support/technical assistance
- Educational offerings (online seminars)
- 500 events in 2001
- multilingual
- reached 15,000 customers
- Continually broadening its interactive base of
knowledge
www.geplastics.com
66e_at_GE - Sell Appliances-Overview
- Company
- GEA is nearly a 6 billion business in North
America, Europe, Asia and South America. - Each year GEA sells more than 15 million
appliances in 150 world markets under the
Monogram, GE Profile, GE, and Hotpoint brand
names.
www.geappliances.com
67e_at_GE - Sell Appliances-Overview
Products
- refrigerators
- freezers
- ranges
- dishwashers
- washing machines
- dryers
- microwave ovens
- speed cooking ovens
- room air conditioners
- water filtration
- softening and heating systems
Customers Retailers Individuals
68e_at_GE - Sell Appliances-Overview
- Kiosk based virtual inventory model
- Program allows customers to walk into a Home
Depot or Wal-Mart store, buy an appliance online
at a kiosk, and select a delivery date/time - Web based systems at GE warehouses help
coordinate fulfillment and promise deliveries
within 15 minutes of customer specification - Manufacturer assumes all warehousing, delivery,
and installation duties - Goal Making channel partners more successful
direct ship is going to be the differentiating
factor for competition in the future. There is
too much redundancy in the way that business is
conducted. Larry Johnston, CEO GE Appliances
Wolf, Alan, GEs Johnston Why the Web is
Imperative, Twice 10/23/2000
69e_at_GE - Sell Appliances-Performance
GE Annual Reports
70e_at_GE - Sell Appliances-Summary
- Retail Win
- No capital commitment by merchant
- Registering sales of products that are not
physically there - Elimination of inventory and delivery costs
- Customer Win
- Precision fulfillment system
- GE Win
- Increase revenue
Something as un-sexy as logistics has become the
game changer. GE Spokesperson
Wolf, Alan, Wal-mart Enters Majap Program with
GE Appliance Pilot Program, Twice 9/4/2000
71e_at_GE - Sell Aircraft Engines
- B2B web center that enables real-time
transactions with 300 customers 24x7 - Catalog of 250,000 parts
- Order entry
- Inventory status
- Order/shipping status
- Account information
- Value added services
- Enhancing customer productivity
- Saved parts list
- Configuration histories
- Advanced search tools
- On-line troubleshooting using fiber optic video
Competitors Pratt Whitney or Rolls Royce have
yet to develop anywhere near as effective a Web
Strategy as GE.
http//www.cio.com/sponsors/050100_ebiz_story2_sid
e5.html http//www.forbes.com/best/2000/0717/038
s01.html
72e_at_GE - Sell Power Systems
- Turbine Optimizer
- Web based tool
- Compares turbine performance with same models
across the world - Shows dollar value of improvement
- Ability to schedule service call for improvement
It used to take 2 weeks to analyze a problem,
now it only takes an hour.
http//www.forbes.com/best/2000/0717/038s01.html
73e_at_GE Make Internal Processes Overview
- Eliminate manual processes
- Eliminate paper generating processes
- Increases volume per sales rep
- Reduce back office processes and increase front
office face time with customer
Every process we can digitize will help reduce
our costs and further increase our speed -- both
key competitive advantages in today's
marketplace.
GE Internal Presentation
74e_at_GE Make Internal Processes Overview
- Finance
-
- HR
- Employee Evaluations
- Employee Applications
- Sales
- invoicing
- reconciling
75e_at_GE Make Internal Processes Overview
- Travel
- Booking
- Expensing
- 2001 savings 200 million in improved
efficiencies and reduced travel - Support Central
- Education
GE Internal Presentation
76e_at_GE Make Internal Processes
- Stakeholders
- Employees
- Management
- Stockholders
- Customers
77e_at_GE Make Internal Processes
2000 - 1.5 billion savings on streamlined
internal processes Future - 10 billion in
savings
e-Make is about streamlining processes and
reducing unit costs
http//www.pcmag.com/article2/0,4149,33527,00.asp
78e_at_GE Buy
- Stakeholders
- Management
- Stockholders
79e_at_GE Buy
Negotiate ? e-Auction Everything
- real-time online purchasing auction for both
incumbent and non-incumbent GE suppliers - reverse auction
- allows GE purchasing managers to monitor
competitive pricing and drive down total costs - 3 billion worth of goods and services on
auction (2000) - businesses achieved 10-20 price deflation
across the board
GE Internal Presentation
80e_at_GE Buy
Transact Capture ? Digitally Capture All
POs, Invoices, Payments
- easier to obtain current data
- fewer errors in purchase orders
- quicker turnaround reconciling bills
GE Internal Presentation
81e_at_GE Buy Supplier Workflow
GE Internal Presentation
82e_at_GE Buy
Constrict ? Usage
Implement Automated Workflow Approvals 5
on 20B 1B Contract Adherence Establish
One Data Source for Pre-Negotiated Contracts
3 on 20B 600M Productivity Streamline
Sourcing Process 5 of 3000 people 20M
GE Internal Presentation
83e_at_GE Buy Summary
- Savings
- 2001 Anticipated 600 million in savings
- Transactions
- 2000 6 billion transactions
- 2001 15 billion transactions
- Future 30 billion transactions
e-Buy is about buying smarter and processing more
efficiently
http//www.pcmag.com/article2/0,4149,33527,00.asp
84e-Business Value
Competitive Advantage through differentiation
(value added customer services) and cost reduction
85e_at_GE
e-Business strategy continues to build on the
business model that has enabled the company to
outpace SP 500 earnings growth through every
cycle
http//www.ge.com
86e_at_GE
Digitization mandate - Straight from the top
IT leveraged to cut costs and differentiate
- Differentiation
- Online tools and services
- Increased front office operations
Digitization is changing our relationship with
our customer. At the customer for the customer
(ACFC)-the way that we differentiate.
http//www.ge.com
87IT as a Competitive Weapon - Sustainability
Sustainable Advantage
Do our case studies have sustainable advantage
? Sabre GE (Plastics, Appliances)
Supply System Analysis
Competitor Analysis
Project Life-cycle Analysis
Lead Time
Competitive Asymmetry
Pre-emption Potential
IT as a Basis for Sustainable Competitive
Advantage, Feeny Ives
88Web Business Staying Power
- Simplicity
- Applying traditional business thinking to a new
channel - Use web to improve business and create valuable
services - Awareness of customer needs
- e-Business is a constantly moving target
- Need for sound relationships
http//www.cio.com/archive/120101/power_content.ht
ml Davidson, Stephen, B2B ExchaangesLessons
from the Trading Pit, Journal of Internet Law,
4/2002, v5 i10 p1(10)
89IT as a Competitive Weapon - Summary
IT can be used as a competitive weapon through
cost reduction and differentiation
Very few companies sustain competitive advantage
using IT
IT projects need to be evaluated for
sustainability in addition to traditional risk
e-Business is a constantly moving target
90Future of IT
Competitive Advantage?
or
Competitive Necessity?