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Using IT to Achieve a Competitive Advantage

Using IT to Achieve a Competitive Advantage. Presented by: Paula Hayes, Tara Hines, Bill Krampe and Andy Roth.

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Using IT to Achieve a Competitive Advantage

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  1. Using IT to Achieve a Competitive Advantage Presented by: Paula Hayes, Tara Hines, Bill Krampe and Andy Roth

  2. “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

  3. 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

  4. Using IT to Achieve a Competitive Advantage • Creating the Competitive Advantage • Features and examples of successful systems • Sustaining the competitive advantage through IT

  5. 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

  6. IS Leadership • Implements structures, processes, • and staffing to fill other 8 roles • Alignment of IS strategy and business • Fosters relationships with senior management Nature of Information Technology, Lacity, Fall 2001

  7. 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

  8. 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

  9. Frito-Lay Sales 2000 PepsiCo 2000 Annual Report

  10. Frito-Lay Market Share 2000 PepsiCo 2000 Annual Report

  11. 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 PepsiCo 2000 Annual Report

  12. Customers • Grocery Stores • Convenience Stores • Gas Stations • Restaurants • Bars • Vending Machines

  13. IT at Frito-Lay The Sr. VP of Technology is Arthur B. Anderson

  14. 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. Expert Advice - Timing is Everything - CIO Magazine September 1, 1997

  15. 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 Charles Feld - Tough Optimist - CIO Magazine September 15, 1997

  16. 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

  17. 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

  18. 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

  19. 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. Survival Tips from the Pioneers - Early Adopters - CIO Magazine March 15, 2001

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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” http://www.smeal.psu.edu/misweb/infosys/emiscase.html

  25. The Boeing Company • 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 http://www.boeing.com

  26. Company Leadership Chairman and Chief Executive Officer Phil Condit Vice Chairman Harry Stonecipher Business Unit Leaders President and Chief Executive Officer, Military Aircraft and Missile Systems Jerry Daniels President and Chief Executive Officer, Space and Communications Jim Albaugh President and Chief Executive Officer, Commercial Airplanes Alan Mulally Senior Vice President President, Connexion by BoeingSM Scott Carson Senior Vice President, Engineering & Technology Chief Technology Officer Dave Swain http://www.boeing.com

  27. United States International 70 $56.1 $58.0 60 $51.3 50 23.5 26.5 17.6 40 30 20 34.5 33.7 29.6 10 0 1998 1999 2000 Global Sales Dollars in billions Boeing is the largest United States exporter. http://www.boeing.com

  28. Revenue by Market Segment Year-end 2000 Military Aircraft and Missiles 24% Commercial Airplanes 60% 15% Space and Communications 1% Other Total = $51.3 billion http://www.boeing.com

  29. 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

  30. 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 satellites http://www.boeing.com

  31. 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

  32. 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

  33. 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

  34. 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

  35. 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

  36. 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

  37. 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

  38. 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

  39. 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.

  40. American Airlines SABRE Reservation System

  41. Overview of American Airlines • Products • First Class • Coach • 7 Day Advance • $16,377.0M Operating Revenue (1999) • Customer Definition: Anyone who has the need for “fast and convenient air travel, both foreign and domestic, for both business and personal trips.” Sources: Morenet UMSL, Business and Company Resource Center http://galenet.galegroup.com

  42. Organizational Chart Sources: Morenet UMSL, Business and Company Resource Center http://galenet.galegroup.com

  43. Organizational Chart (cont.) • Upper Management members of Board of Directors • Needs of each division represented • Different frames of reference brought into decision making • CIO reports to CEO • 10600 other employees • $1,545,000 sales/employee Sources: Morenet UMSL, Business and Company Resource Center http://galenet.galegroup.com

  44. The Traditional Purchasing Chain Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo (1998)

  45. 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

  46. 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

  47. 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?

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

  49. 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.”

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