Using IT to Achieve a Competitive Advantage
Presented by:Paula Hayes, Tara Hines, Bill
Krampe and Andy Roth
“I guess we’ve 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
What is IT?
Information Technology is the amalgamation of hardware, software, data, people, and procedures that enables or inhibits business objectives depending on management’s involvement in IT.
IS480 lecture notes, Lacity, Fall 2001
Using IT to Achieve a Competitive Advantage Creating the Competitive
Advantage
Features and examples of successful systems
Sustaining the competitive advantage through IT
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
Nature of Information Technology, Lacity, Fall 2001
• Implements structures, processes, and staffing to fill other 8 roles
• Alignment of IS strategy and business
• Fosters relationships with senior management
IS LeadershipContribution to Business Operations
Critical
Service
excellence
Service
excellence
Useful
Low cost
Migrate/ Eliminate
Commodity Differentiate
Contribution to Business Positioning
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
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
PepsiCo 2000 Annual Report
Frito-Lay Sales 2000
PepsiCo 2000 Annual Report
Frito-Lay Market Share 2000
PepsiCo 2000 Annual Report
Lay’s Potato Chips Ruffles Potato
Chips Doritos Tortilla
Chips 3D’s Snacks Tostitos Tortilla
Chips Cheetos Cheese
Flavored Snacks
Sunchips Cracker Jack Grandma’s
Cookies Chester’s Popcorn Funyuns Onion
Rings Rold Gold Pretzels Orbertos Meat
Snacks
Customers Grocery Stores Convenience Stores Gas Stations Restaurants Bars Vending Machines
IT at Frito-Lay
The Sr. VP of Technology is Arthur B. Anderson
Expert Advice - Timing is Everything - CIO Magazine September 1, 1997
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.
Charles Feld - Tough Optimist - CIO Magazine September 15, 1997
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
Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001
The Problem The field sales guys technically
owned the merchandise once they took it out of the warehouse
Their day wasn’t done until the books were settled
Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001
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
Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001
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
Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001
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.
http://www.smeal.psu.edu/misweb/infosys/emiscase.html
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.
http://www.smeal.psu.edu/misweb/infosys/emiscase.html
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.
http://www.smeal.psu.edu/misweb/infosys/emiscase.html
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.
http://www.smeal.psu.edu/misweb/infosys/emiscase.html
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.
http://www.smeal.psu.edu/misweb/infosys/emiscase.html
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”
• Heritage—Airplane 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
The Boeing Company
http://www.boeing.com
Company Leadership
Vice Chairman
Harry Stonecipher
President andChief Executive Officer,
Military Aircraft andMissile Systems
Jerry Daniels
President andChief Executive Officer,Commercial Airplanes
Alan Mulally
President andChief Executive Officer,
Space and Communications
Jim Albaugh
Senior Vice President, Engineering & TechnologyChief Technology Officer
Dave Swain
Chairman andChief Executive Officer
Phil Condit
Senior Vice PresidentPresident,
Connexion by BoeingSM
Scott Carson
Business Unit Leaders
http://www.boeing.com
Global Sales
Dollars in billions
International United States
29.6 34.5 33.7
26.523.5
17.6
0
10
20
30
40
50
60
70
1998 1999 2000
$58.0$51.3
$56.1
Boeing is the largest United States exporter.
http://www.boeing.com
60%60%
24%
1%
Revenue by Market Segment
Total = $51.3 billion
Year-end 2000
15%15%
Other
Military Aircraftand Missiles
Commercial Airplanes
Space and Communications
http://www.boeing.com
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 products—717, 737, 747, 757, 767, 777 and Boeing Business Jet. Commercial Airplanes is the world’s largest producer of commercial jetliners, with more than 13,000 in service worldwide.
http://www.boeing.com
Space and Communications
In the next 24 hours, 335 satellites put into orbit by Boeing launch vehicles will pass overhead.
Headquarters—Seal 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 satelliteshttp://www.boeing.com
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.
Headquarters—St. Louis, Missouri
http://www.boeing.com
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
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
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
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
Sustainable Competitive Advantage
Boeing is already the world’s largest manufacturer of commercial airliners in the world.
Four of the world’s 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
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
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, Boeing’s 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
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.
American Airlines
SABRE Reservation System
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 Centerhttp://galenet.galegroup.com
Organizational Chart
T h o m as W . H a rtonC F O
M ich ae l W . G unV P , M arke ting
Jo h n R . S a m u e lV P , Te ch no lo gy
D o n a ld J . C a rtyP re sid e n t a n d C E O
Sources: Morenet UMSL, Business and Company Resource Centerhttp://galenet.galegroup.com
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/employeeSources: Morenet UMSL, Business and Company Resource Center
http://galenet.galegroup.com
The Traditional Purchasing Chain
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)
The Need for Automated Reservation 1950’s 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
The Success of SABRE Processed 84,000 phone calls per day (a
40% increase) Saved 30% on American’s investment in
staff alone Delivered an error rate of less than 1% What this means to the customer:
“I’m choosing American b/c I won’t have to wait as long on the phone or in line to get my ticket.
I’ve noticed their fares are a little cheaper than the industry.
I know they’re going to get my reservation correct.”
Sources: www.sabre.com/about/history/index.html
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?
The Travel Agent ModelNo, they become the NEW CUSTOMER!
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)
The Success of the Travel Agent Model
Be a First Mover and you’ll 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. They’re the industry leader.
“Wow, American Airlines gave me a computer! Would anyone else do that? I don’t think so. And if other’s come around trying to sell a similar product I won’t listen.”
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
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.
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
The Pull Strategy: The Frequent Flier Model
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)
Problems in Sustaining Competitive Advantage
Once again, competition turned this into a commodity
Changed the scope of business
Back to the drawing board
The Credit Card Model
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)
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, I’d 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
SABRE’s 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
What Should You Know? CIOs Should Report to CEOs Competitive Advantage is difficult to sustain
The customer’s 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 -> some problem makes it a commodity->reposition for advantage
Rarely, A Product Sustains SABRE sustained
Being the first mover
Offering tangible benefits to customer
Making switching costs high
Involving customers at every level
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
IT Systems
Contribution to Business Operations
Critical
Frito-Lay
American Airlines
Useful
Commodity Differentiate
Where will Boeing be?
Best Practices for Managing IT: The CIO
1. Serves as a bridge between IS, senior management, and users.
2. Works to encourage joint problem solving
3. 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
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
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
Top Related