Competitve Advantage of IT
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Transcript of Competitve Advantage of IT
2 - 1Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
2-1
• Technology is no longer an afterthought in business strategy, but the cause and driver
• IT can change the way businesses compete
• A strategic information system is any information system that uses IT to help an organization…
• Gain a competitive advantage
• Reduce a competitive disadvantage
• Or meet other strategic enterprise objectives
Strategic ITStrategic IT
2 - 2Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Does IT matter?
• No• Nicholas Carr argues that IT is infrastructure,
much like electricity• Too commonplace to offer a competitive
advantage
• Yes• It is not just networks and computers• The important part is the software and information
and how IT is used
Case 1: GE, Dell, Intel, GM and OthersCase 1: GE, Dell, Intel, GM and Others
2 - 3Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Do you agree with the argument made by Nicholas Carr to support his position that IT no longer gives companies a competitive advantage?
• Do you agree with the argument made in support of the competitive advantage that IT can provide to a business?
• What are several ways that IT could provide competitive advantage to a business?
Case Study QuestionsCase Study Questions
2 - 4Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• To succeed, a business must develop strategies to counter these forces…
• Rivalry of competitors within its industry
• New entrants into an industry and its markets
• Substitute products that may capture market share
• Bargaining power of customers
• Bargaining power of suppliers
Competitive ForcesCompetitive Forces
2 - 5Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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Competitive Forces and StrategiesCompetitive Forces and Strategies
2 - 6Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Cost Leadership
• Become low-cost producers
• Help suppliers or customers reduce costs
• Increase cost to competitors
• Example: Priceline uses online seller bidding so the buyer sets the price
• Differentiation Strategy
• Differentiate a firm’s products from its competitors’
• Focus on a particular segment or niche of market
• Example: Moen uses online customer design
Five Competitive StrategiesFive Competitive Strategies
2 - 7Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Innovation Strategy
• Unique products, services, or markets
• Radical changes to business processes
• Example: Amazon’s online, full-service customer systems
• Growth Strategy
• Expand company’s capacity to produce
• Expand into global markets
• Diversify into new products or services
• Example: Wal-Mart’s merchandise ordering via global satellite tracking
Competitive Strategies (continued)Competitive Strategies (continued)
2 - 8Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Alliance Strategy
• Establish linkages and alliances with customers, suppliers, competitors, consultants, and other companies
• Includes mergers, acquisitions, joint ventures, virtual companies
• Example: Wal-Mart uses automatic inventory replenishment by supplier
Competitive Strategies (continued)Competitive Strategies (continued)
2 - 9Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• These strategies are not mutually exclusive• Organizations use one, some, or all
• A given activity could fall into one or more categories of competitive strategy
• Not everything innovative serves to differentiate one organization from another• Likewise, not everything that differentiates
organizations is necessarily innovative
Using Competitive StrategiesUsing Competitive Strategies
2 - 10Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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Ways to Implement Basic StrategiesWays to Implement Basic Strategies
2 - 11Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Lock in Customers and Suppliers• Deter them from switching to competitors
• Build in Switching Costs• Make customers and suppliers dependent on
the use of innovative IS
• Erect Barriers to Entry• Discourage or delay other companies from
entering the market• Increase the technology or investment
needed to enter
Other Competitive StrategiesOther Competitive Strategies
2 - 12Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Build Strategic IT Capabilities• Take advantage of strategic opportunities
when they arise• Improve efficiency of business practices
• Leverage Investment in IT• Develop products and service that would not
be possible without a strong IT capability
Other Competitive StrategiesOther Competitive Strategies
2 - 13Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• What is the business value in being customer-focused?• Keep customers loyal• Anticipate their future needs• Respond to customer concerns• Provide top-quality customer service
• Focus on customer value• Quality, not price, has become the primary
determinant of value• Consistently
Customer-Focused BusinessCustomer-Focused Business
2 - 14Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Companies that consistently offer the best value from the customer’s perspective…
• Track individual preferences
• Keep up with market trends
• Supply products, services, and information anytime, anywhere
• Tailor customer services to the individual
• Use Customer Relationship Management (CRM) systems to focus on the customer
Providing Customer ValueProviding Customer Value
2 - 15Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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Building Customer Value via the InternetBuilding Customer Value via the Internet
2 - 16Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• View the firm as a chain of basic activities that add value to its products and services• Primary processes directly relate to
manufacturing or delivering products
• Support processes help support the day-to-day running of the firm and indirectly contribute to products or services
• Use the value chain to highlight where competitive strategies will add the most value
The Value Chain and Strategic ISThe Value Chain and Strategic IS
2 - 17Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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Using IS in the Value ChainUsing IS in the Value Chain
2 - 18Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• A company that emphasizes strategic business use of IT would use it to gain a competitive differentiation
• Products
• Services
• Capabilities
Strategic Uses of ITStrategic Uses of IT
2 - 19Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Strategic Information SystemsStrategic Information Systems
Definition:
• Any kind of information system that uses information technology to help an organization gain a competitive advantage, reduce a competitive disadvantage, or meet other strategic enterprise objectives.
2 - 20Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Competitive Strategy ExamplesCompetitive Strategy Examples
2 - 21Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Other Competitive StrategiesOther Competitive Strategies
• Locking in customers or suppliers by building valuable new relationships with them and Lock out Competitors
• Building switching costs so a firm’s customers or suppliers are reluctant to pay the costs in time, money, effort, and inconvenience that it would take to switch to a company’s competitors.
2 - 22Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Other Competitive StrategiesOther Competitive Strategies
• Raising barriers to entry that would discourage or delay other companies from entering a market, by increasing Investments in Technology required to compete.
• Leveraging investment in information technology by developing new products and services that would not be possible without a strong IT capability.
2 - 23Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Advantage vs. NecessityAdvantage vs. Necessity
• Competitive Advantage – developing products, services, processes, or capabilities that give a company a superior business position relative to its competitors and other competitive forces
• Competitive Necessity – products, services, processes, or capabilities that are necessary simply to compete and do business in an industry
2 - 24Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Value Chain ExamplesValue Chain Examples
• Support Processes
• Career development intranet can help the human resources management function provide employees with professional development training programs.
• Computer-aided engineering and design extranets enable a company and its business partners to jointly design products and processes.
2 - 25Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Value Chain ExamplesValue Chain Examples
• Support Processes
• Extranets can dramatically improve procurement of resources by providing an online e-commerce website for a firm’s suppliers.
2 - 26Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Value Chain ExamplesValue Chain Examples
• Primary Processes
• Automated just-in-time warehousing systems to support inbound logistic processes involving storage of inventory, computer-aided flexible manufacturing (CAM) systems for manufacturing operations, and online point-of-sale and order processing systems to improve outbound logistics processes that process customer orders.
2 - 27Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Value Chain ExamplesValue Chain Examples
• Primary Processes
• Support of marketing and sales processes by developing an interactive target marketing capability on the Internet and its World Wide Web.
• Customer service can be dramatically improved by a co-ordinated and integrated customer relationship management system.
2 - 28Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Business Process ReengineeringBusiness Process Reengineering
Definition:• Fundamental rethinking and radical
redesign of business processes to achieve dramatic improvements in cost, quality, speed, and service.
• Examples: VMI using Internet & Extranets• CRM using corporate Intranets• Cross functional ERP solution for
integrating manufacturing, distribution, finance and HR processes
2 - 29Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Business Process ReengineeringBusiness Process Reengineering
The Role of Information Technology• Information technology plays a major
role in reengineering business processes. The speed, information processing capabilities and connectivity of computers and Internet technologies can substantially increase the efficiency of business processes, as well as communication and collaboration among the people responsible for their operation and management.
2 - 30Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
BPR vs. Business ImprovementBPR vs. Business Improvement
2 - 31Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• IT plays a major role in reengineering most business processes
• Can substantially increase process efficiencies
• Improves communication
• Facilitates collaboration
The Role of Information TechnologyThe Role of Information Technology
2 - 32Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• Many processes are reengineered with…
• Enterprise resource planning software
• Web-enabled electronic business and commerce systems
A Cross-Functional ProcessA Cross-Functional Process
2 - 33Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
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• IT that supports this process…
• CRM systems using intranets and the Internet
• Supplier-managed inventory systems using the Internet and extranets
• Cross-functional ERP software to integrate manufacturing, distribution, finance, and human resource processes
• Customer-accessible e-commerce websites for order entry, status checking, payment, and service
• Customer, product, and order status databases accessed via intranets and extranets
Reengineering Order ManagementReengineering Order Management
2 - 34Copyright © 2006, The McGraw-Hill Companies, Inc. All rights reserved.
Cross-Functional ProcessesCross-Functional Processes
PPT Slides by Dr. Craig Tyran & Kraig Pencil
B. Role of Information Technology (IT)
1. Conception of information technology – and status – has evolved
1950s 2000s
Number Crunching
Report Generation
Decision Support
Strategic Weapon
PPT Slides by Dr. Craig Tyran & Kraig Pencil
B. Role of Information Technology (cont.)
2. A key goal for business (and MIS 320)• Learn to recognize and identify opportunities
for strategic applications of IT
3. How to do this???• Combine
• Strategy concepts• Business knowledge• IS knowledge
Multiple perspectives are required
PPT Slides by Dr. Craig Tyran & Kraig Pencil
C. Competition and Strategy1. Positioning is key
• Competition is fierce
• Can’t be “all things to all people”
• To survive, organizations adopt a specific “strategy”
2. Ways to gain competitive advantage: Examples• “Do it cheaper … or do it better”
3. Examples of business strategy• Lower Cost
• Cost efficiency, lower prices
• Differentiation• Higher quality, faster, unique product/service
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Value Chain Activities
The Value Chain includes nine common categories of organizational “activities”
PPT Slides by Dr. Craig Tyran & Kraig Pencil
E. IS and the Value Chain (cont.)
3. Value chain: Linkages• Internal linkage: Information/goods shared across
activities within one firm • External linkage: Information/goods shared across
activities between different firms
• “Linkages” are defined by• VC activities involved• Information exchanged
• Examples of linkages: see figures
PPT Slides by Dr. Craig Tyran & Kraig Pencil
Internal Linkages: Examples
A. Sales sends production request to Production Dept
(“Operations” activity)
B. Production Dept (“Operations” activity) sends raw materials request to Warehouse
(“Inbound Logistics” activity)
PPT Slides by Dr. Craig Tyran & Kraig Pencil
External Linkages: ExamplesSupplier
Desk Chair, Inc. (DCI)
Corporate Buyer
B. Supplier’s Outbound Logistics activity sends shipment invoice (and
shipment) to DCI’s Inbound Logistics activity
C. DCI’s Marketing/Sales activity sends marketing
and sales related information to Buyer’s Procurement activity
A. DCI’s Procurement activity sends purchase
order to Supplier’s Marketing/Sales activity
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IS & Value Chain Analysis: Amazon – a Value-Added Activity
• Problem: How to encourage follow-up purchases? How to target ads to the needs/wants of the customer?
• Solution: Add value to Marketing activities through data mining. “Customers who have purchased ABC also enjoy XYZ.” Data mining can reveal patterns, such as what products certain types of consumers might be interested in.
PPT Slides by Dr. Craig Tyran & Kraig Pencil
InboundLogistics
Production OutboundLogistics
Marketing/Sales Service
IS & Value Chain Analysis: Talbot Ties – New Live LinkagesProblem: Sales people do not know inventory status and therefore cannot guarantee delivery on time.
Solution: Add value by creating a new linkage between Sales and Warehousing.
Sales activities: In-stock guarantee: • Support better information on what products are available for the
customer • How? Live linkage between Sales and Warehousing.
Request Inventory Status
Send Inventory Status
ProductDatabase
Field Rep
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IS & Value Chain Analysis: Portland Pine Products – Redraw Linkages
Portland Pine Products
Customer
Linkage between Customer and PPP for orders was a critical linkage. Problem: Time wasted via “back and
forth” flows. (dotted arrows)
New approach: Eliminate the bottle neck by using IT to empower
the Warehouse to accept/process orders.
(solid arrows)
Problem: Paperwork delaysSolution: Rapid order fulfillment by
rerouting and automating the linkage to/from external customer, bypassing Marketing
PPT Slides by Dr. Craig Tyran & Kraig Pencil
G. Strategic Information Systems1. Strategic information system (SIS)
– A system that significantly shapes or supports an organization’s strategy
– A famous SIS: Dell’s “sell-source-ship” approach to the PC retailing process
• Approach was enabled by IS applications
PPT Slides by Dr. Craig Tyran & Kraig Pencil
IT for Competitive Advantage: Dell Computer Example
• Traditional Retail Model: Buy-Hold-Sell– Buy: PC Retailer buys
from maker/distributor– Hold: PCs sit in
warehouse, sit on store shelves
– Sell: Sell PC
Note: Some PCs are sold – and some are not
• Direct Sell Model: Sell-Source-Ship– Sell: Customer buys a
PC online– Source: PC
components are purchased (sourced) & assembled using “Alliance Partners”
– Ship: PC is shipped to customerNote: No unsold PCs – only sold PCs
PPT Slides by Dr. Craig Tyran & Kraig Pencil
G. Strategic Information Systems (cont.)
2. Sustainability of Strategic Information Systems• Is a SIS going to provide
competitive advantage forever???
• Not likely Business landscape changes over time
• Need to reanalyze VC and competitive forces periodically Modify/enhance SIS,
develop new SIS, etc.
Management Information Systems, Sixth Edition 48
Strategy and Strategic Moves
• Strategy: framework, or approach, to obtaining an advantageous position
• Business strategy: a plan to help an organization outperform its competitors– Often done by creating new opportunities, not
beating rivals
• Information system may be built to solve a problem or to seize an opportunity
Strategy and Strategic Moves (continued)
• Strategic information system (SIS): an information system that helps seize opportunities
• Strategic advantage: using strategy to maximize company strengths
• Competitive advantage: having maximized an organization’s strengths to beat its rivals
• Using the Web strategically can be advantageous– Simply extending business to the Web is no longer
a strategic advantage
Management Information Systems, Sixth Edition 49
Management Information Systems, Sixth Edition 50
Achieving a Competitive Advantage
• Competitive advantage is achieved when a for-profit company increases its profits significantly, usually through increased market share
• Many initiatives can be used to gain competitive advantage
• Strategic moves often combine two or more initiatives
• The essence of strategy is innovation
Management Information Systems, Sixth Edition 51
Achieving a Competitive Advantage (continued)
Management Information Systems, Sixth Edition 52
Achieving a Competitive Advantage (continued)
Management Information Systems, Sixth Edition 53
Initiative #1: Reduce Costs
• Customers want to pay as little as possible for products or services
• Reduce costs to lower price• Automation greatly reduces manufacturing costs• Web can automate customer service activities• Companies that are first to adopt advanced
systems that reduce labor enjoy competitive advantage until their rivals do likewise
Management Information Systems, Sixth Edition 54
Initiative #2: Raise Barriers to Market Entrants
• Less competition is better for company• Gain competitive advantage by making it difficult
or impossible for others to produce the same product or service
• To lower competition, raise barriers to entrants– Obtain legal protection of intellectual property
(copyrights and patents on inventions, techniques, and services)
– Examples: Amazon’s one-click, Priceline’s reverse auction
Initiative #2: Raise Barriers to Market Entrants (continued)
• Build unmatchable information systems– Rivals must do likewise or license your
technology
– Example: State Street Corp.’s pension fund management ISs
Management Information Systems, Sixth Edition 55
Management Information Systems, Sixth Edition 56
Initiative #3: Establish High Switching Costs
• Switching costs: expenses incurred when customer stops buying from one company and starts buying from another– Explicit: charge customer for switching (early
termination of contract)
– Implicit: indirect costs over period of time, such as implementation of new product, staff retraining
• High switching costs lock in customers– Example: proprietary software, such as ERP
systems, that have custom modifications
Management Information Systems, Sixth Edition 57
Initiative #4: Create New Products or Services
• Having a unique product or service gives competitive advantage for a period of time
• First mover: organization that is first to offer a new product or service– Usually results in superior brand name, better
technology, more experience, or critical mass
• Critical mass: body of clients that is large enough to attract other clients
• Examples: eBay, Apple’s iPhone
Management Information Systems, Sixth Edition 58
Initiative #4: Create New Products or Services (continued)
Initiative #4: Create New Products or Services (continued)
• Being a first mover is not a guarantee of long-term success– Netscape
– Infoseek
• Must continue to improve and innovate to maintain competitive advantage
Management Information Systems, Sixth Edition 59
Management Information Systems, Sixth Edition 60
Initiative #5: Differentiate Products or Services
• Product differentiation: persuading customers that your product is better than competitors’– Usually achieved through advertising and
customer experience
– Exemplified by brand name success
– Promotes brand name
• Example: Skype, YouTube
Initiative #5: Differentiate Products or Services (continued)
Management Information Systems, Sixth Edition 61
Management Information Systems, Sixth Edition 62
Initiative #5: Differentiate Products or Services (continued)
Management Information Systems, Sixth Edition 63
Initiative #6: Enhance Products or Services
• Enhance existing products or services to increase value to consumer
• Many products and services have been enhanced by use of the Web– Examples: Charles Schwab, Progressive Groups
Management Information Systems, Sixth Edition 64
Initiative #6: Enhance Products or Services (continued)
Management Information Systems, Sixth Edition 65
Initiative #7: Establish Alliances
• Alliance: two companies combining services– Makes product more attractive
– Reduces costs
– Provides one-stop shopping
• Affiliate program: linking to other companies and rewarding the linker for click-throughs
Management Information Systems, Sixth Edition 66
Initiative #7: Establish Alliances (continued)
Management Information Systems, Sixth Edition 67
Initiative #8: Lock in Suppliers or Buyers
• Accomplished by achieving bargaining power• Bargaining power: leverage to influence buyers
and suppliers– Achieved by being major competitor or
eliminating competitors
– Uses purchase volume as leverage over suppliers
• Lock in buyers by making them fear high switching costs
Initiative #8: Lock in Suppliers or Buyers (continued)
• Lock in clients by:– Giving away a product to make it become a
standard (Microsoft’s Internet Explorer, Adobe’s Acrobat Reader, Macromedia’s Flash player)
– Creating a physical or software limitation on using technology (Apple Computer’s iTunes)
Management Information Systems, Sixth Edition 68
Management Information Systems, Sixth Edition 69
Creating and Maintaining Strategic Information Systems
• Many opportunities to accomplish competitive edge with information technology
• Innovative software can establish a competitive advantage
• Strategic information systems can be created from scratch or by modifying a previous system
• To be an SIS, an information system must:– Serve an organization goal
– Collaborate with other functional units of company
Management Information Systems, Sixth Edition 70
Creating an SIS
• Top management must be involved throughout the process
• Strategic information system must be part of the overall organizational strategic plan
• Management should ask questions to determine whether to develop a new SIS
• Estimating the financial benefits of SIS is extremely difficult– Many fundamental business changes may be
involved
Management Information Systems, Sixth Edition 71
Creating an SIS (continued)
Management Information Systems, Sixth Edition 72
Reengineering and Organizational Change
• To implement SIS, organizations must rethink the way they operate
• Reengineering: Eliminating and rebuilding operations from the ground up– Often involves new machinery and elimination of
management layers
– Frequently involves information technology
– Goal is to achieve huge efficiency improvements
• New SIS requires revamping business processes
Management Information Systems, Sixth Edition 73
Competitive Advantage as a Moving Target
• Competitive advantage is often short-lived• Competitors soon imitate the leader, diminishing
the advantage• SIS quickly becomes a standard business
practice• Must continually modify and enhance technology
to sustain competitive advantage
Management Information Systems, Sixth Edition 74
JetBlue: A Success Story
• JetBlue: airline company that entered a formerly hurting market with great success– Ticketless travel
– Automation with IT
– Reduced costs
– Improved service
Management Information Systems, Sixth Edition 75
JetBlue: A Success Story (continued)
Management Information Systems, Sixth Edition 76
Massive Automation
• JetBlue developed Open Skies software to automate ticket handling– Avoids travel agents and their fees
– Uses reservation agents who work from home using VoIP
– Encourages Internet flight booking by customers
• Maintenance information system used to log airplane parts and time cycles for replacement
Massive Automation (continued)
• Flight planning to maximize occupied seats is automated
• Operational data is updated flight by flight and available to management at all times
• Training management system eliminates need for paper records, allows tracking of employee training
Management Information Systems, Sixth Edition 77
Management Information Systems, Sixth Edition 78
Away from Tradition
• JetBlue used innovative technique for routing airplanes– Does not use hub-and-spokes method, only point
to point
– Take most profitable route between cities
• Keeping flight manuals on laptop computers allows for paperless cockpits– Saves preflight time associated with calculating
weight of plane (annual savings of ~4800 hours)
Away from Tradition (continued)
• Uses biometrics for authentication and authorization
• Implemented a paperless frequent flier program
Management Information Systems, Sixth Edition 79
Management Information Systems, Sixth Edition 80
Enhanced Service
• Technology helps JetBlue offer better service– Leather seats
– Real-time in-flight television
– On-schedule departures and arrivals
– Fewest mishandled bags in the industry
– Rapid check-in times and fast baggage retrieval
– Better security
Management Information Systems, Sixth Edition 81
Impressive Performance
• Most important metric in airline industry is cost per available seat-mile (CASM)– Measures how much it costs to fly a passenger
one mile
• JetBlue had lowest or second-lowest CASM for its first three years of operations– Less than 7 cents (industry average is 11 cents)
• JetBlue fills 78% of its seats, while competitors fill only 71%
Management Information Systems, Sixth Edition 82
Late Mover Advantage
• Late mover: enters the market later than other competitors– Can be viewed as advantage
– Implements latest available technologies
– Not burdened with legacy systems
• JetBlue used 40% beta software
Management Information Systems, Sixth Edition 83
Ford on the Web: A Failure Story
• Some strategic moves end up being colossal failures
• May fail because of lack of attention to details• Unable to predict customer or business partner
response• Ford’s great failed initiative was undertaken by
Jacque Nasser, CEO of Ford
Management Information Systems, Sixth Edition 84
The Ideas
• Nasser was eager to push Ford to the Web; his ideas included:– Install devices in vehicles to enable drivers and
passengers to access Web
– Establish Web site to market parts to auto manufacturers via auctions to encourage price competition among parts suppliers
– Push vehicle sales to Web and bypass dealers and their fees
Management Information Systems, Sixth Edition 85
Hitting the Wall
• Customers not very interested in Web access in vehicles in 2000
• Other car companies learned to use online part auctioning
• State franchising laws did not allow car companies to bypass dealers– Online sales initiative failed
Management Information Systems, Sixth Edition 86
The Retreat
• Ford abandoned plan to sell directly to consumers online
• Web site used to select proper model only, but consumers must still utilize a dealer
• Web site sold cars, but not enough to save Nasser’s job
Management Information Systems, Sixth Edition 87
The Bleeding Edge
• Ford case shows that being a first mover is risky• Pioneers sometimes get burned even with
careful planning• Bleeding edge: failure occurring because of
company trying to be on leading edge– No prior experience from which to learn
– Implementation costs are greater than anticipated
– Technology ends up losing money for company
Management Information Systems, Sixth Edition 88
The Bleeding Edge (continued)
• Due to bleeding edge, companies often wait before implementing newer technologies
• Microsoft’s approach is to seize an existing idea, improve it, and promote it with marketing power– Also known as competing by emulating and
improving