What’s Happening?!

1. What’s 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) eBay’s earnings weren’t as great as expected and raised concern about slowing growth in corporate profits in 2005. Motorcycle sales are at the highest level since 1979.

2. Analysis Term Papers Contacting the companies you are evaluating is not necessary and in some cases not very practical.

3. 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: Information Systems:

4. 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 & Security Business, Accounting & Finance Engineering ERP, SCM, CRM, etc. MS Office Groupware Integrated Desktop • Packages

5. Intel Industry Definition Semiconductors is too broad. Microprocessors is too narrow. PC Component Industry Microprocessors Motherboards Network devices Memory Storage

6. Chapter 4 Conclusion Airline Industry Analysis

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

8. 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

9. 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

10. 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

11. Product/Service Strategy Scheduled Passengers Charter Services Mail Air Express Cargo Customer/Fare/Market Strategy Business Travelers Leisure Travelers Senior Citizens First Time Flyers Frequent Flyers Low Fare Super Saver Premium Fare North American Europe 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 Alliances Independent Information Systems Strategy Figure 4-1 Passengers Operations Logistics Business

12. Importance of IT to the Industry • Why is IT important? • Volumes of data • Complexities based on the number of flights and connections • Critical time windows dictate a need for real-time data • IS examples • Reservation system • Yield management systems • Operational information systems • Business systems

13. 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

14. Conclusions • Questions for airline industry: • Can they make a profit as privately held companies? • 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 markets • Provides a good example of IS that can effectively and successfully support core business strategies • An important chapter for our paper

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

16. Chapter 5 Introduction Information Systems Can Redefine Competitive Boundaries

17. 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 management. • Multiple forms of strategic business alliances.

18. 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 service. • More cost effective.

19. 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.

20. 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.

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

22. Interorganizational Systems Figure 5-1 Customers Vendors Company Support Services Business Partners Industry Forces Competitors

23. Electronic Data Interchange (EDI) • Still a common form of data interchange despite the presence of the Internet. • The Internet has brought extranets into prominence. • Exchange of routine business transactions in a structured, computer-processable format. • EDI Example -- Mervyn’s • Vendors and freight companies. • Extranet Example – Intel’s Rosetta Net links with its • customers.

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

25. 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.

26. 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.

27. In Closing… • Interorganizational systems are effective, efficient and help gain a competitive advantage both through customer service and strategic alliance. • 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 work.

28. Chapter 5 Information Systems Can Redefine Competitive Boundaries

29. 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.

30. Chapter Questions • Which word—global, international or interdependent—best describes current markets, products and services, and business relationships? • Why is growth such an important part of business success? • 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 capabilities? • Do strategic alliances really work and if so, why?

31. 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.

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

33. 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, aren’t all customers potentially connected to a company?

34. 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.

35. 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.

36. Strategic Alliances Why establish a strategic alliance? • To build a combined capability that makes it a stronger competitor. • Extended enterprise against the competitor’s 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.

37. 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.

38. 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 organization.

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

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

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

42. Boundaries? 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?

43. 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.

44. The Best Term? • Global • International • Interdependent

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

46. 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 doesn’t lift all boats. • Only the right business model backed by the right business strategies will lift a specific boat.

47. 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.

48. Toyota Perspective The company’s 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 perpetually.” 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.

49. Prevailing Infrastructure 1800 Canals 1850 Railroads Airlines? 1900 Highways 1950 Telecommunications

50. 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, 1956.