IT as a Competitive Advantage. Presented by: Grant Epstein Erin Miltenberger Darren Van Booven. The Importance of IT in an Organization. Understanding IT and its Role can… Gain a competitive advantage Improve efficiency of business processes Expand/revolutionize markets
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IT as a Competitive Advantage Presented by: Grant Epstein Erin Miltenberger Darren Van Booven
The Importance of IT in an Organization • Understanding IT and its Role can… • Gain a competitive advantage • Improve efficiency of business processes • Expand/revolutionize markets • Not Understanding IT and its Role can… • Lead to Wasted IT budget • Lead to Business Failure
IT as a Competitive Advantage • “the ability to maintain an initial gain in business performance from strategic IT” • Concept that has grown in importance and acceptance. • Kettinger, Grover, Guha, and Segars. Strategic Information Systems Revisted: A Study in Sustainability and Performance – MIS Quarterly 1994, page 32
IT as a Competitive Advantage • Systems that can lead to a competitive advantage in the short or long run have a high value to the initiating company • Systems that cannot maintain the advantage will lead to the initiating company being surpassed by the competition. Kettinger, Grover, Guha, and Segars. Strategic Information Systems Revisted: A Study in Sustainability and Performance – MIS Quarterly 1994, page 32
IT as a Competitive Advantage • Federal Express: Package tracking system • Mitek: Computerized roofing design system • Baxter Healthcare: Hospital supply ordering system Firms That Have Made it Work
IT as a Competitive Advantage - Framework • Three Pillars of Sustainable Competitive Advantage • Project Life Cycle Analysis – How long until a response? • Competitor Analysis – Who can respond? • Supply Chain Analysis – How effective will response be? Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as aStrategic Resource, Willcocks, Leslie, Feeny, David. McGraw-Hill Education-Europe, 1997, pp 43-61.
Pillar 1: Project Life Cycle • Focuses on the idea that when a company uses IT to gain a competitive advantage, it can expect competitors to respond. • Project life cycle is the time between release of the new system and competitor response. • Awakening • Win approval • Project Build • Project Launch Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as aStrategic Resource, Willcocks, Leslie, Feeny, David. McGraw-Hill Education-Europe, 1997, pp 43-61.
Pillar 2: Competitor Response • What Competitors Can Respond? • Three Components • Competitive Scope • Geographic, Segment, Vertical, Industry • Organizational Base • Structure, Culture, and Physical Assets • Information Resources • Technology Infrastructure, Application Inventory, Data bases, Knowledge bases Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as aStrategic Resource, Willcocks, Leslie, Feeny, David. McGraw-Hill Education-Europe, 1997, pp 43-61.
Pillar 3: Supply Chain AnalysisWill a Response Work? • Steps to Insure a Response Will Not be Effective. • Find exploitable link – Find a point in the supply chain where resources are limited and few participants control the link. • Secure the “pole position” – Create a unique relationship with the market. • Increased value will result in a more secure relationship and prevent loss to competition. Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as aStrategic Resource, Willcocks, Leslie, Feeny, David. McGraw-Hill Education-Europe, 1997, pp 43-61.
Pillar 3: Supply Chain Analysis • Keep the Gate Closed – Create a perception amongst users of tangible and intangible switching costs. This is the basis for maintaining a competitive advantage. • Applications – Users will have to learn a new system • Database – Loss of stored information during a switch • Community – Switching may have an adverse effect on the way the user does business – IT has become a part of its infrastructure.
Case Study Analysis • Progressive • Sabre • Celera Genomics
Why Choose Progressive? • Pioneering efforts in the use of IT in the auto insurance industry • Leading the way in the use of the Internet to improve communication with customers, independent agents, and prospects.
History and Background • Founded in 1937 by Jack Lewis and Joseph Green. www.progressive.com/progressive/history.asp, viewed February 9, 2003
History and Background • Early innovations • 1990 – first insurance provider to provide 24 hour claims service at the accident site • 1992 – first insurance provider to offer competitor quotes as well as its own. • 1994 – launched Immediate Response Vehicles (IRVs) allowing claims agents to settle many claims at the accident site. • 1995 – first major insurance provider with a presence on the Internet • www.progressive.com/progressive/history.asp, viewed February 9, 2003
History on the Internet • Prior to 1995, no major insurance providers were on the Internet. • Progressive launched its site in 1995. • Site had mostly a brochure look “It was a matter of getting to know the technology… to get something up and see what we can do.” – CEO Glenn Renwick (Glenn Renwick, CEO of Progressive, interviewed by phone by Grant Epstein, March 14, 2003) www.progressive.com • In 1996, Progressive allowed customers to get competitive bids online. www.progressive.com/progressive/prg_firsts.asp, viewed February 9, 2003
History on the Internet • First insurance company to let customers buy online (1997) “We see the trend moving more and more to online buying” (Glenn Renwick, CEO oof Progressive, interviewed by phone by Grant Epstein, March 14, 2003) • First insurance company to let customers access their account online in 1998. • Launched agent site, ForAgentsOnly.com in 1998. www.progressive.com/progressive/prg_honors.asp, viewed February 9, 2003. and information provided by Progressive’s PR Department
Insurance Products • Auto, commercial vehicle, motorcycle, personal watercraft, ATV, and RV insurance. • Primary target range is drivers aged 18 – 34. • Also provide information about insurance to teens and driving issues they face on progressive.com • Progressive Facts, provided by Progressive’s PR Department, February 2003
Insurance Products • Progressive writes insurance in 48 states and the District of Columbia. • Currently not doing business in MA or NJ. • Drivers can buy over the phone, online, or from one of Progressive’s 30,000 agents. Progressive Facts, provided by Progressive’s PR Department, February 2003
IT’s Importance at Progressive • CEO Glenn Renwick believes in the philosophy that “technology and business alignment are key.” “…Ray (Voelker) is an integral part of the decision process. The organization builds technology into the business decision process.” “Our business plan and IT are inextricably linked because their job objectives are.” Glenn Renwick, CEO of Progressive, interviewed by phone by Grant Epstein, March 14, 2003 Gallagher, Julie, “Business-savvy CIO turns tech-savvy CEO” Insurance and Technology, July 2001.
Importance of IT • Information on Progressive’s employee count in the IT Department not currently available. • Has averaged around 2000 over the last five years • Information on Progressive’s IT annual budget also not available. Information Week.com, 2000. Gallagher, Julie, “Business-savvy CIO turns tech-savvy CEO” Insurance and Technology, July 2001.
Progressive’s Growth and Market Share • Since 1993, growth rate has far exceeded that of the industry • Growth rate has ranged between 13.6% and 36%. • Industry growth rate has ranged between 2.6% and 5.9% • Exception is 2000, when the entire industry experienced minimal growth. Progressive Facts, Provided by Progressive’s PR Department, February 2003
Progressive’s Growth and Market Share • Industry rank has increase from No. 34 to No. 3 in the last 20 years • Rank has gone from No. 15 to No. 3 since it began offering competitor rates and developed a web presence. • State Farm and Allstate are #1 and #2 respectively. • Market share • Increased 1% over the last three years (2000 – 2002). Progressive Facts, Provided by Progressive’s PR Department, February 2003
Progressive’s Critical Differentiator • The insurance companies that are most likely to develop a competitive advantage in the industry are those that employ technology in a manner that more effectively delivers their business model. -Ted Devine, Principal of McKinsey and Company Erlanger, “Enhance web site value, carriers told” National Underwriter Vol 16 July 2002. Pp – 15-16
Progressive’s Critical Differentiator • Progressive’s critical differentiator is not that it allows customers to shop and buy online. • “Now we don’t think, ‘Boy, we’re the only one that allows customers to buy policies online.’ It’s just part and parcel of our entire strategy that focuses on the Internet and putting the information back into the client’s hands.” MacSweeney, Greg “Progressive, inside and out” Insurance and Technology, Vol 24 Sept. 30, 1999. Pp 13-14.
Progressive’s Critical Differentiator • This attitude carries on down the line of Renwick’s management team. • “Our guiding principal is to provide customers with a well-developed, easy-to-use Web-site that meets the spectrum of their needs.” – Toby Alfred, Internet Site Manager MacSweeney, Greg “Progressive, inside and out” Insurance and Technology, Vol 24 Sept. 30, 1999. Pp 13-14.
Critical Differentiator – Where it all began • Progressive’s critical differentiator is that it has fully integrated technology into it business process decisions and its interaction with prospects, customers, and agents
Critical DifferentiatorWhere it all Began • Began in 1990 with the launch of Immediate Response and continued in 1994 with its IRVs and in 1997 with it’s Claims Workbench software. • Allows claims agents to cut checks for policy holders at the site of the accident. • Former CEO Peter Lewis… • Progressive is “leading a wave of change.” Salter, Chuck, “Progressive Makes Big Claims” Fast Company Issue 19, Nov. 1998 pp 176.
History of Progressive’s Internet and IT Advantage • At the time progressive.com was launched, no other major providers had an online presence. • Progressive was not even sure what the reaction in the market would be. • “…we figured the Internet would be a good thing for us to get into… we wanted to get out there and see how people would respond.” Alan Bauer, President of Direct Group Alan Bauer, President – Direct Group of Progressive, interviewed by phone by Grant Epstein, March 3, 2003
History of Progressive’s Internet and IT Advantage • After strong initial response, Progressive decided to take its website from informational to functional. • “There are people who like to buy online and we are an option for them.” - Alan Bauer. • Progressive was in a great position to take its website to a more functional level and allow customers to buy online. • Call center already set up to sell directly • Automated approval process(no need to interact with an agent) • Necessary technology was already in place. Alan Bauer, President – Direct Group of Progressive, interviewed by phone by Grant Epstein, March 3, 2003
What does the future hold? CIO Ray Voelker says his vision is to see the true, Internet-only insurance policy. “If you buy a policy today, you’re still going to get a paper policy in the mail. It’s rare, if it is happening at all, for a completely paperless process.” Hulme, George, “Premium Put on Web Initiatives” Information Week, September 11, 2000
Does Progressive Have a Sustainable Competitive Advantage? • Pillar 1: Life Cycle analysis: Time to competitor response • Awakening, Approval, Building the System, Product Launch While it would not take substantial time to build a “brochure” website, most competitors did not see the web as a viable channel for communicating with the market. Unlike its competitors, Progressive’s business model made the transition very easy and logical.
Does Progressive Have a Sustainable Competitive Advantage? • Pillar 2: Competitor analysis: Who can respond? • Competitive Scope • Organizational Base • Information Resources • Could competition respond? • Limited website content • Increased fucntionality required changes in competitor business process. • By the time competitors reached Progressive’s benchmark, it had already moved it further out.
Does Progressive Have a Sustainable Competitive Advantage? • Pillar 3: Supply Chain Analysis: Will Copying Help? • Find Exploitable Link • Capture Pole Position • Keep the Gate Closed • Competitors have followed suit in part or whole. • Though churn is an issue in the industry, whether or not competitors following suit will erode its competitive advantage remains to be seen. • Progressive has maintained its lead through continued innovation. • Progressive displays continued growth that far exceeds that of the industry and continues to climb the market share ladder.
Conclusion Progressive’s self-assumed role of innovator and change agent in the auto insurance industry has led to a distinct competitive advantage and has maintained that advantage through continued innovation.
Sabre Company Background • Provider of technology and distribution and marketing services for travel industry • Leadership position in every travel marketing and distribution channel • Travel Agency • Online Consumer • Online Corporations • Known for its notable “firsts” and “bests” Sabre Annual Report Pg 2
Sabre Company Background • Headquarters: South Lake, Texas • 6,500 employees located in 45 countries • Carol Kelly – Senior Vice President and CIO • Reports to CEO http://www.sabre.com/about/index2.html?b=1&a=history/index.html, viewed on March 5, 2003
Sabre Customers • Airlines • Car Rental Agencies • Corporate Travel • Cruise Lines • Hotels • Tour Operators • Travel Agents • On Line Travel Consumers www.sabre.com/products/index.html, viewed March 12, 2003
Sabre Financials • Total 2001 Revenue • $2.1 billion, 8% increase from 2000 Get There – 2% Airline Solutions – 9% Travelocity – 11% Travel Marketing and Distribution – 78% Sabre Annual Report Summary Page
Sabre Financials • 2001 was a difficult year due to Sep 11 but Sabre has seen a gradual improvement. Sabre Annual Report Pg 16
Sabre Bookings Share Sabre’s global booking share is 38%. Sabre has the number one booking share in 3 regions. Sabre Annual Report Summary Page
History of Sabre System • 1960 – IBM and American Airlines had a plan to automate the process of reserving airline seats. • Booking process involved 12 people, 15 procedural steps and up to 3 hours. • Created Sabre – Semi-Automatic Business Research Environment • Processed 84,000 telephone calls per day • Development cost was almost $40 million www.sabre.com/about/history/index.html, viewed on March 6, 2003; Scheier, Robert, “35 years of IT Leadership: Technology takes Flight” Computerworld, Vol 36, 40, 2002, pp. 34-36.
History of Sabre System • 1964 – Final Sabre system cutover is complete • Network extends coast to coast • Largest, private real-time data processing system • Internal inventory system owned by airline • Installed only at airports and airline ticket offices • Used to track airline’s seats, flights and operational information www.sabre.com/about/history/index.html, viewed on March 6, 2003; Scheier, Robert, “35 years of IT Leadership: Technology takes Flight” Computerworld, Vol 36, 40, 2002, pp. 34-36.
History of Sabre System • Benefits of Sabre • Manage inventory and seats faster and more accurately • Get paid quicker for tickets purchased • Saves American 30% on investments in staff alone • Error rate of less than 1% www.sabre.com/about/history/index.html, viewed on March 6, 2003
Competition • Competitive Edge lasts for 5 to 7 years • United’s Apollo System • Amadeus – European Airlines www.sabre.com/about/history/index.html, viewed on March 6, 2003
Sabre – The Next Step • 1976 – Sabre moves to travel agencies • By the end of the year it is installed in 130 locations. • 86% of top agencies in competitive markets use Sabre. • American began to “co-host” other airlines on Sabre for a fee • Helped airlines compete against United where American had no routes • Gave Sabre competitive edge with travel agencies • One stop shopping • Evolved into Global Distribution System (GDS) www.sabre.com/about/history/index.html, viewed on March 6, 2003; Scheier, Robert, “35 years of IT Leadership: Technology takes Flight” Computerworld, Vol 36, 40, 2002, pp. 34-36.
Sabre – 1980s • 1986 – Sabre installs first automated yield management system • Prices airline seats to yield maximum revenue for each flight • 1988 – Sabre stores 36 million fares which can be combined to create over 1 billion fare options http://www.sabre.com/about/index2.html?b=1&a=history/index.html, viewed on March 25, 2003
Is the competitive advantage to great? • November 1984 – 11 airlines file an anti-trust suit against Sabre • Claimed reservation system restraining competition • American had advantage because their system was on travel agents desks and their flights were shown first • American decided to end preferential treatment for their own flights. http://www.pcma.org/resources/convene/archives/displayArticle.asp?ARTICLE_ID=3392 , viewed on March 25, 2003