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Title: What

Whats Happening?!
Lucent just reported another bad quarter with
profits down 53.
American Airlines reported a 387 million loss
for the final quarter of 2004. Northwest
reported (420 million)
eBays earnings werent as great as expected and
raised concern about slowing growth in corporate
profits in 2005.
Motorcycle sales are at the highest level since
Analysis Term Papers
  • Contacting the companies you are evaluating
  • is not necessary and in some cases not very
  • practical.

Oracle Industry Definition
Database System and Enterprise Application
Software Industry.
Business Strategy Model Product Strategy
Software categories, operating systems and
processor categories. Customer Strategy
Categories of targeted customers. Market
Strategy Geographic Development Strategy (in
lieu of manufacturing) Sales/Distribution Field
sales force, Internet direct, Value-add
resellers, retailers. Company Structure Informati
on Systems
Computer Software
Computer Software
Application Software
System Software
General- Purpose Application Programs
Application- Specific Programs
System Management Programs
System Development Programs
Programming Languages Programming Editors
CASE Packages
Operating Systems Network Management Database
Management Systems Utilities Performance
Business, Accounting Finance Engineering ERP,
SCM, CRM, etc.
  • MS Office Groupware Integrated Desktop
  • Packages

Intel Industry Definition
  • Semiconductors is too broad.

Microprocessors is too narrow.
PC Component Industry
Microprocessors Motherboards Network
devices Memory Storage
Chapter 4 Conclusion
  • Airline Industry Analysis

The Plan
  • Why the airline industry?
  • The Porter Competitive Model
  • Business Strategy Model
  • Importance of IT to the airline industry
  • Conclusions

Airline Industry
  • Learned the Porter Competitive Model in Chapter 3
  • Apply this to the airline industry
  • Why the airline industry?
  • Boundaries are clearly defined
  • Highly visible
  • Well-known industry
  • One of two technologies that are globalizing the
    business world

Porter Competitive Model
Airline Industry Analysis U.S. Market
Potential New Entrants
  • Aircraft Manufacturers
  • Aircraft Leasing Companies
  • Labor Unions
  • Food Service Companies
  • Fuel Companies
  • Airports
  • Local Transportation Service
  • FAA
  • Hotels
  • Foreign Carriers
  • Regional Carrier Start ups
  • Cargo Carrier Business Strategy Change

Intra-Industry Rivalry SBU American Airlines
Network Rivals United, Delta, US Air,
Northwest Low-cost Rivals Southwest, JetBlue,
ATA, etc.
Bargaining Power of Suppliers
Bargaining Power of Buyers
  • Travel Agents
  • Business Travelers
  • Leisure Travelers
  • Charter Service
  • Federal Government
  • U.S. Military
  • Cargo and Mail
  • Alternate Travel Services
  • Fast Trains
  • Boats
  • Private Transportation
  • Videoconferencing
  • Groupware

Substitute Products and Services
Figure 4-2
Conclusions - Porter Model
  • Competition within the US is intense
  • Customer is always first
  • Power of suppliers is mixed
  • Labor unions have strong bargaining power
  • Aircraft manufacturers, fuel and food supplier
    power shifts to airlines
  • Potential new entrants are still a threat
  • Substitutes could become a major problem
  • Video conferencing

Product/Service Strategy
Scheduled Passengers
Charter Services
Mail Air Express
Customer/Fare/Market Strategy
Business Travelers
Leisure Travelers
Senior Citizens
First Time Flyers
Frequent Flyers
Low Fare
Premium Fare
Super Saver
North American
Pacific Rim
Latin American
Routes and Route Structure Strategies
Business Strategy Model Airline Industry
Short Haul
Long Haul
Hub and Spoke
Point to Point
Sales Strategy
Reservation Agents
Travel Agents
Web Page
Company Structure Strategy
Code Sharing
Information Systems Strategy
Figure 4-1
Passengers Operations Logistics
Importance of IT to the Industry
  • Why is IT important?
  • Volumes of data
  • Complexities based on the number of flights and
  • Critical time windows dictate a need for
    real-time data
  • IS examples
  • Reservation system
  • Yield management systems
  • Operational information systems
  • Business systems

Importance of IT to the Industry Continued
  • Convenience to customers
  • Knowledge of Customers
  • Providing a foundation for other systems
  • Building a foundation for other businesses

  • Questions for airline industry
  • Can they make a profit as privately held
  • Maintain a public service responsibility?
  • Provide an effective strategic resource for their
    home country?
  • A vivid example of the dynamics of the markets
    that it serves
  • Need to establish strategies dictated by these
  • Provides a good example of IS that can
    effectively and successfully support core
    business strategies
  • An important chapter for our paper

Possible Exam Questions
  • Identify and explain two major benefits that
    information systems have provided for the airline
  • Based on the Porter Competitive Model, explain
    new entrants and substitutes conceptually and
    then explain the impact that they have had on
    American Airlines.

Chapter 5 Introduction
  • Information Systems Can
  • Redefine Competitive
  • Boundaries

Objective Of the Chapter
  • To understand the role and significance of
  • Inter-organizational Systems.
  • Business process changes involving customers and
    suppliers, with an emphasis on supply-change
  • Multiple forms of strategic business alliances.

Interorganizational Systems
  • Efficiency
  • Ex. Transmitting purchase orders electronically
    eliminates paper flow and manual input on a more
    timely basis.
  • More accurate and provides better customer
  • More cost effective.

Interorganizational Systems
  • Effectiveness
  • The broadening of the scope of tasks.
  • Breaking down barriers between companies make
    communication more effective, on a more timely
    basis, and get the job done.

Interorganizational Systems
  • Competitive advantage through customer
  • service
  • We are available.
  • We are interested in you.
  • We are responsive.
  • You can count on us.
  • We want to earn your trust and respect.

Interorganizational Systems
  • Competitive advantage through strategic
  • alliance.
  • Build a combined capability that makes your
    company a stronger competitor.
  • Our extended enterprise versus your extended

Interorganizational Systems

Figure 5-1
Support Services
Business Partners
Industry Forces
Electronic Data Interchange (EDI)
  • Still a common form of data interchange despite
    the presence of the Internet.
  • The Internet has brought extranets into
  • Exchange of routine business transactions in a
    structured, computer-processable format.
  • EDI Example -- Mervyns
  • Vendors and freight companies.
  • Extranet Example Intels Rosetta Net links
    with its
  • customers.

Business Alliances
  • Selection of business partners is an important
    factor in positioning a companys competitive
  • Evaluation criteria should emphasize building on
    mutual strengths and avoiding an attitude that an
    alliance is to address a weakness.

Building Alliances
  • Difficult to accomplish.
  • Needs to be an on-going effort.
  • Important to clearly determine roles,
    responsibilities, performance criteria, ownership
    and how to terminate the relationship.

Global Boundaries
  • International expansion is not a choice but a
  • strategic imperative for all growing, high-
  • performance companies.
  • 1994 conference of US Manufacturing companies.
  • The more global, the better.
  • Best performers were multinational companies who
    were in the three major markets North America,
    Europe and the Pacific Rim.

In Closing
  • Interorganizational systems are effective,
    efficient and help gain a competitive advantage
    both through customer service and strategic
  • Globalization is a very important factor for a
    company's success.
  • EDI systems have helped companies speed up
    business transactions without the use of paper

Chapter 5
  • Information Systems Can Redefine Competitive

Chapter Topics
  • Interorganizational Systems aka Extranets
  • aka B2B
  • B. Electronic Data Interchange (EDI)
  • (Extranets versus EDI?)
  • C. Strategic Alliances

With an added dose of globalization.
Chapter Questions
  • Which wordglobal, international or
    interdependentbest describes current markets,
    products and services, and business
  • Why is growth such an important part of business
  • What is an extended enterprise and why is it an
    important competitive consideration?
  • What role does information technology play
    relative to an extended enterprise?
  • Have the physical limits of strategic alliances
    disappeared because of current network
  • Do strategic alliances really work and if so,

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

Interorganizational System and Extranet Goals
  • Efficiency
  • Effectiveness
  • Competitive Advantage

Competitive Advantage
  • Advantage can be gained through better customer
  • service that accrues from systems that connect a
  • company to its customers.
  • Because of the Internet, arent all customers
  • potentially connected to a company?

Customer Satisfaction Becomes a Key Factor
  • Do systems and policies say loud and clear
  • to a customer
  • We are available.
  • We are interested in you.
  • We are responsive.
  • You can count on us.
  • We want to earn your trust and respect.

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 represent a difficult transition.

Strategic Alliances
  • Why establish a strategic alliance?
  • To build a combined capability that makes it a
    stronger competitor.
  • Extended enterprise against the competitors
    extended enterprise.
  • Difficult, costly and risky to try to deal with
    the challenges of a global business.
  • Alliances that are based on dealing with
    weaknesses fail more often than those that are
    based on combining strengths.

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

Why stay with an EDI system?
  • It is established and proven.
  • The network costs are not large enough to justify
    switching to an extranet approach.
  • There are other priorities within the

EDI Examples
  • Boeing
  • Parts Logistic System Provides information
    regarding parts availability to support aircraft
  • Links with contractors in Japan and U.S.

EDI Value-Added Network Services
(Would probably be called an ISP or ASP today)
  • 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.

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

Customers? Suppliers? Support Service
Providers? Business Partners? Industry Forces,
Associations, Government? Mobile employees
relative to the above?
Across town? Throughout the state? Across
multiple US regions? Encompassing the entire
US? North America? Western Hemisphere? Multiple
Continents? Total World?
Interorganizational Systems
  • Is this just another name for outsourcing?
  • Is there any difference between sending work from
    Santa Cruz to San Jose and sending it from Santa
    Cruz to Bombay?

The trend is not new and may be overstated.
According to Gartner, 10 per cent of info tech
jobs with US based technology companies were to
be based in countries in emerging markets by the
end of 2004.
It is unlikely that the federal government will
do anything to limit or ban outsourcing.
The Best Term?
  • Global
  • International
  • Interdependent

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

The Internet
  • Provides the ability to slash transaction and
    partnering costs between companies.
  • It supports the ability to mesh information, data
    and processes with other entities to created a
    new infrastructure for creating successful
    customer relations.
  • This is a rising tide that doesnt lift all
  • Only the right business model backed by the right
    business strategies will lift a specific boat.

Toyota Diversification
At a time when diversification is often suspect,
Toyota, guided by a historical perspective, is
moving into other areas such as prefab housing
and especially telecommunications.
Toyota Perspective
The companys plan is driven by historical cycles
dating to the 1700s that suggest that a single
line of business rarely prospers for more than
sixty years.
We are not arrogant enough to believe that the
automobile business can be profitable
In 2000 they achieved 10 of sales (10 billion)
from outside the auto and truck business.
The waves of change are reflected in the dominant
infrastructure of the time.
Prevailing Infrastructure
1800 Canals
1850 Railroads
1900 Highways
1950 Telecommunications
Interstate Highway System
  • Created the modern economy and reshaped the
    companies on the Fortune 500.
  • A major public works project involving 42,793
    miles of pavement.
  • Bill signed by President Eisenhower on June 29,

Impact of Interstate Highway System
  • Lead to an America that was more mobile, less
    plagued by regional differences, and vastly
    wealthier than before.
  • Sold as a savior for rural America and declining
    urban core.
  • Instead it accelerated the trend toward
  • Accelerated the transformation to chain
    restaurants, hotels, stores, chain everything.
  • The combination of the new highway system and
    shipping containers enabled overseas
    manufacturers and small domestic companies to get
    products to market faster than ever before.

Highway System Perspective
  • Federal funding of highways in the US began in
    1916 but became significant in 1956.
  • Highways became a state versus federal issue.
  • Wealthy states built their own. Poorer states
    were unable to do so.
  • Southern states gained significant economic
    benefits from the federally funded highway
  • By eliminating its transportation disadvantages
    southern states attracted manufacturers,
    retailers and shipping companies.
  • Boom cities of the second half of 20th century
    did their growing along the lines determined by
    Interstate planners.

Los Angeles, Atlanta, Dallas, San Jose, Denver,
Phoenix and Las Vegas.
Impact of Interstate Internet Highway System
  • Lead to an America that was more mobile, less
    plagued by regional differences, and vastly
    wealthier than before.
  • Sold as a savior for rural America and declining
    urban core.
  • Instead it accelerated the trend toward
  • Accelerated the transformation to chain
    restaurants, hotels, stores, chain everything.
  • The combination of the new highway system and
    shipping containers enabled overseas
    manufacturers and small domestic companies to get
    products to market faster than ever before.

Necessary Questions
  • How does the Internet impact the structure of the
  • Is a networked enterprise a better vehicle to
    compete and succeed than a vertically integrated
  • Does this dictate that a company needs to be
    smaller to be agile, flexible and responsive?
  • Can enough of the benefits of the Internet be
    realized through intranets, extranets and similar

Necessary Questions
  • 5. Should mergers be emphasized to realize a
    virtual company approach?
  • 6. Does outsourcing an important business
    function represent loss of control?
  • 7. How is this different from traditional
  • 8. How do you decide what is a core function?
  • 9. What happens next that will dictate a major

Information Technology and Globalization
Drivers of Change
Competitive Environment
Business/IT Strategy
Business Implementation
Products that travel
Internetworking The Global Enterprise
Emerging Global Markets
Global Business Operations Alliances
Information Technology
Transportation Technology
Global Motivation
Global economies of scale to recoup RD and
capital costs. Build and strengthen global
brandseconomies 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?
Acknowledges the better standard of living and
increased mobility of a greater number of people
in countries around the world.
  • Grasp the opportunities and challenges of the
    global marketplace.
  • Generate and focus the personal skills and
    organizational energies needed to attack the
    global opportunities and challenges.
  • Transform these efforts into world-class

A Sobering Thought
It takes at least 25 years to build an effective
global management team.
Alfred Zeien Former CEO, Gillette
IOS Conclusions
  • Successful small information systems tend to grow
    into larger systems.
  • Interorganizational systems are changing business
    processes, strategies and relationships.

Changes in Concepts, Terminology and Networks
  • E-Business and E-Commerce
  • Core Processes and Outsourcing
  • Internet as a global, standardized network
  • Business Alliances

E-Commerce versus E-Business.
Front end versus business strategies, core
business processes, policies and practices geared
to succeed with an E-Commerce approach.
Basic Business Principle
If there is no payment, there is no business
No business transactions translates to no
business revenue.
No business revenue results in a bankrupt
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Payment Process Industry
Member Banks
Visa, Mastercard, Discover, Amex
  • Cardholders
  • Businesses
  • Individuals

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
Dell Computer
Dell Computer is a great American success story.
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.
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.
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.
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)
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.
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.
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
What About Financial Performance?
Dell has consistently led the computer industry
in performance against all three major
priorities growth, profitability and liquidity.
Competitors wont just give all the PC business
to Dell!
Most of Dells competitors are trying to emulate
characteristics of how Dell operates its PC
business. It is fairly safe to conclude that
the HP-Compaq merger was motivated by an intent
to challenge Dell. IBM stopped selling through
retail channels and has sold its manufacturing of
Dell and the Internet
If you sat back and said, lets 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 didnt 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
Dell Premier Web Pages
  • A tailored web page for major customers that
  • 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.

Product Development
Dell employs over 2,000 engineers who focus on
providing leading-edge products.
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
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. They took the first order
in July 1998. Arrived at 1 Billion per month by
the start of Q4 1998.
B2B Readiness
  • Business Strategy
  • B2B Infrastructure
  • Business Processes
  • Application Development

Secondary Readiness
  • B2B External Initiative
  • Trading Partners
  • Solution Provider
  • Legal
  • Security
  • Audit

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
Intels business environment. Helped found
Rosettaneta self supporting organization to
develop and support B2B standards.
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?"

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.
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.
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.
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.
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
E-Business (IOS) 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
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,
doesnt it make sense to reexamine your old
business model?
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.
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.
an established brand name and purchasing power
can work to a companys advantage. 7. CREATE AN
all over the world are congregating into virtual
communities on the Web.
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.
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