Week 1 Monday, January 23

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Week 1Monday, January 23

• Strategy IT

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From Automation to Integration
MIS Reporting
Decision Support
Enterprise Systems
EDP
Automation (Productivity and Efficiency)
Organization Integration
25 years
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Strategic Planning

• What is strategic planning?
• What is the significance of strategic planning?
• How does information technology (IT) fit into a
  strategic plan?
• Are all strategic plans the same?
• Why do some organizations succeed and other fail?

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AmericanAirlines and SABREUsing IT to Gain a
Competitive Advantage
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American Airlines and SABRE

• After World War II, air travel in America became
  very popular
• Large jetliners were soon to replace
  propeller-driven airplanes
• A large number of passengers could be carried
  with one flight
• The current method of processing passenger
  reservations needed to be changed to accommodate
  greater demands

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American Airlines and SABRE Passenger
Reservations
Sacramento
New York
Dallas
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American Airlines and SABRE Passenger
Reservations
Sacramento
New York
Dallas
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American Airlines and SABRE Passenger
Reservations
Sacramento
New York
Dallas
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American Airlines and SABRE Passenger
Reservations
Sacramento
New York
Dallas
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Problem with Matching Passenger Names to Seats
Reservation List Passenger Flight Date
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Problems with Manual Passenger Reservations

• Difficult to match passenger names to seats
• Resulted in poorly managed inventory (i.e., seats
  on a flight)
• Overbooking Dissatisfied customers
• Underbooking Lost revenue
• Aircraft with greater seating capacity and
  greater frequency of use on the horizon
• More inventory and passengers to keep track of

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Capacity Shifts
48-105 passengers
Douglas DC-7
Cruising speed 365 mph
Greater number of passengers
?
114-149 passengers
Greater utilization of resources
Boeing 707
Cruising speed 550-600 mph
?
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American Airlines and SABRE

• In 1953, C.R. Smith, president of American
  Airlines initiated a five-year study with IBM to
  assess the technical feasibility of an automated
  and integrated passenger name reservation system.
• In 1958, American and IBM sign an agreement to
  develop and implement Americas first automated
  passenger reservation system
• The system is named SABER (Semi Automated
  Business Environment Research)

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American Airlines and SABRE System Objectives

• Match passenger to seats
• Contain seat availability on all the carriers
  schedules
• Print passenger itineraries
• Issue boarding passes
• Perform all of the above in a travel agents
  office

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American Airlines and SABRE Initial System

• Installation begins 1961
• System comprised of
• Two IBM 7090 mainframe computers
• Six magnetic drums with 7.2 megabytes of
  storage
• Records of seat inventory
• Flight schedules
• Application programs
• Memory to handle 1,100 concurrent customers

IBM 7090 Processing System
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American Airlines and SABRE Initial System

• Cont.
• Sixteen disk storage units with 800 megabytes of
  storage
• Passenger reservations
• Duplicate copies of all information stored on the
  drums
• The system was fully operational by 1964

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American Airlines and SABRE Upgraded System

• Subsequent upgrades included
• Fare quotation
• Advance check-in
• Boarding pass issuance
• Stand-by passenger handling
• Itinerary generation

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Retail Automation and theAirline Deregulation
Act of 1978

• Retail automation
• Objective Extend the reach of the reservations
  system beyond the airline's organizational
  boundaries to the industry's distribution system
• OperationalizePlaced reservation system
  terminals in travel agencies and in large
  corporate offices
• CooperationFormed a joint task force with
  travel agencies and hardware vendors to solicit
  further specifications of the system (1974)
• Use the system to exploit the deregulated market

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Retail Automation

• American installs SABRE terminals with
  specifications made by the joint task force in
  travel agencies
• Reservations centralized in Tulsa, Oklahoma

Tulsa, Oklahoma
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American Airlines and SABRE Retail Automation
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Co-Host Programs

• American would display the schedules of other
  airlines on SABRE for a fee
• Intended to increase SABREs presence in markets
  American did not service
• Extended Americans reach to markets served by
  rival United

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Anti-Trust Law Suit

• In 1984, eleven domestic airlines filed a suit
  against American and United claiming they
  possessed a monopoly in the electronic booking of
  seat reservations
• Involved anti-trust violations
• No carrier could afford to give up the chance to
  sell tickets to customers of travel agents
  booking a large portion of its revenues in the
  region it serves

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Anti-Trust Law Suit (Cont.)

• Both American and United required travel agents
  using their systems to become franchised dealers,
  selling tickets on other carriers only to the
  extent the host permitted
• The systems were powerful, anti-competitive
  weapons

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Anti-Trust Law Suit (Cont.)

• The government ruled
• When a vertically integrated monopolist controls
  a non-duplicable resource at one level that is
  essential to competition at a second level, it
  must offer the resource to all on the same terms

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American Airlines and SABRESummary

• Competitive Advantages
• Accurate passenger inventories allowed American
  to manage under/overbookings to jointly optimize
  passenger service and capacity utilization levels
• Reduced labor content in the reservations process
  while increasing the productivity of the
  remaining reservation personnel (efficiency)
• Increased their presence in current markets
• Increased their presence in markets not served

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Business Model and Strategy

• What is a business model?
• What is strategy and strategic planning?
• What is the significance of strategic planning?
• How does information technology (IT) fit into a
  strategic plan?
• Are all strategic plans the same?
• Why do some organizations succeed and other fail?

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Anthony's Levels of Management
Strategic Planning
Management Control
Operational Control
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American Airlines and SABRE
Strategic
Tactical
Reservations
Operational
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American Airlines and SABRE
Strategic
Retail Automation Co-hosting
Tactical
Marketing Tool
Operational
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Business Model

• Defines how an enterprise interacts with its
  environment to define a unique strategy, attract
  the resources and build the capabilities to
  execute it
• Creates values for all stakeholders

Defines how inputs are converted to outputs
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What are strategy, strategic plans and strategic
management?
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What is Strategy?

• Strategy is the pattern of missions, objectives,
  policies, and significant resource utilization
  plans stated in such a way as to define what
  business the company is in (or is to be in) and
  the kind of company it is or is to be. It
  defines
• The product line, markets and market segments for
  which products are to be designed
• The channels through which these markets will be
  reached
• The means by which the operation is to be
  financed
• The profit objectives

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What is Strategy?

• Cont.
• The size of the organization
• The image which it will project to employees,
  suppliers and customers Bullen and Rockart,
  1981

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What is Strategy?

• Defines the revenue and growth potential of the
  organization
• Focuses attention and resources on a specific set
  of goals and the projects required to achieve
  them Applegate, Austin and McFarlan

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Mission, Goal and Objectives
What segment of the market do we want to target?
Target Market
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Levels of Management

• Strategic Planning
• "Strategic planning is the process of deciding on
  objectives of the organization, on changes in
  these objectives, on the resources used to attain
  these objectives, and on the policies that are to
  govern the acquisition, use, and disposition of
  these resources."
• Management control
• "Management control is the process by which
  managers assure that resources are obtained and
  used effectively and efficiently in the
  accomplishment of the organization's objectives."

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Levels of Management (Cont.)

• Operational control
• "Operation control is the process of assuring
  that specific tasks are carried out effectively
  and efficiently."

Anthony, 1965
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Differences in Activities
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Some Distinctions Between Strategic Planning and
Management Control
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Some Distinctions Between Strategic Planning and
Management Control (cont.)
Robert Anthony
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Some Distinctions Between Management Control and
Operational Control
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Some Distinctions Between Management Control and
Operational Control (cont.)
Robert Anthony
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Planning within the Organization
Strategic
Strategic Plan
Planning
Tactical Plan
Management Control
Operational Control
Operational Plan
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Information Technology

• Coordinated application of
• Hardware
• Software
• Networks
• Workstations
• Robotics
• Smart chips

Elements
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IT and the Organization

• IT enables fundamental changes in the way work is
  done
• IT enables the integration of business functions
  at all levels within and between organizations
• IT causes shifts in the competitive climate of
  many industries
• IT presents new strategic opportunities for
  organizations that reassess their mission and
  goals
• Successful application of IT requires changes in
  management and organization structure
• A major challenge exists for management to lead
  their organizations through the transformation
  necessary to prosper in the globally competitive
  environment

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Changes in Information Technology

• Three major advances in technology of the 1990s
• Telecommunications
• Storage devices
• Desktop computing

We have the ability to access, store and process
more data faster and in different ways.
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Model of Strategic IT Planning
Management of IT depends on how the business
views IT
High
Strategic Strategic IT plan, initiatives
Factory Operational IT
Impact on Business Operations
Support Basic elements
Turnaround Gradual adoption
Low
High
Low
Impact on Strategy
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Strategic Grid

• Quadrants
• Support goals target local improvements and
  incremental cost savings (e.g., office
  automation)
• Factory designed to reduce costs and improve
  performance of the core operations
• Automation and computerize functions
• Turnaround designed to exploit emerging
  strategic opportunities
• Integration of the organization
• Strategic commitment to use IT to enable both
  core operations and core strategy
• IT an integral part of strategy

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For example
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Peapod
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Peapod
Virtual store
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Peapod
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Peapod
Due to the nature of the merchandise (i.e.,
highly perishable, low profit margin), customer
expectations and the high cost of fuel, logistics
becomes an major concern
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Raley's Foods
"Bricks and mortar" retailer
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Raley's Foods
Limited web shopping
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Role of IT

• Defined by the organizations business model and
  strategy
• Peapod IT is embedded in its business model and
  strategy (i.e., web-enabled)
• Raleys IT plays a supporting role in providing
  efficient and product operations

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Introducing Strategy into the Organization
Inductive Change
Deductive Change
Top-Down
Bottom-Up
Mission Statement
Mission Statement
Context
Strategic Plan
Strategy
Initiatives
Policy
Tactical Plan
Implementation Adoption
Operational Plan
How does an organization introduce changes in IT?
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Top-Down Planning Dilemma
Should change come from the strategic plan or the
IT strategic plan?
Should an IT strategic plan precede an
organizational strategy?
Enabling technologies
?
Information Technology Strategic Plan
Organization Strategic Plan
Should the strategic plan specify the
technologies to adopt?
Direction
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Strategic Positioning Choices

• Market/Channel determines the choice of
  customers to serve, the needs and expectations
  that will be met, and the channels to reach those
  customers
• Product Positioning determines the choice of
  products and service to offer, the features of
  those offerings, and the price that will be
  charged
• Value chain/value networking determines the
  role an organization plays and the activities it
  performs within an extended network of suppliers,
  producers and distributors and partners
• Boundary positioning determines markets,
  products, business NOT to be persued

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1. Market/Channel Positioning
E-commerce vs. Bricks and Motar
Peapod.com
Raleys Foods
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2. Product Positioning
Full service vs. Low-cost
United Airlines
Southwest Airlines
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3. Value Chain/Value Network Positioning
Vertical integration vs. Horizontal integration
One World (horizontal integration)
Boeing (vertical integration)
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American Airlines and Strategic Alliances
Co-host
Travel agents, corporate offices, public
Codeshare Alliances
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Boeing Aircraft and SuppliersAssembling an
Aircraft
Boeing 787
Risk sharing partners
Work coordination
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Boeing and Primary Vendors
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4. Boundary Positioning
Mass merchandiser vs. Narrowly defined scope
Amazon.com
Zippys Restaurant
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Strategic Positioning

• Is influenced by and influences the choice of
  business models
• The strategic positioning choice will have an
  impact on how IT is adopted and leveraged
• IT by itself does not provide any competitive
  advantage
• Competitive advantages are realized only when IT
  is used to leverage another business function
• ITs advantages are only short-term
• As the technology matures, it becomes readily
  available to other organizations

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Strategic Shifts

• Enhancements incremental changes to existing
  products, markets, channels or value networks
• Expansions launch of new products or product
  categories, entry into new markets, or launch of
  a new channel to complement an existing channels
• Extensions launch of a new business or business
  model
• Exits drop a product or product category, exit
  a market, and/or close a channel or business

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Strategic Shifts
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Strategic Alignment

• Alignment between the business and IT strategies
• Alignment between strategy and capabilities

Business
IT
Strategy
Strategy
Value

• IT infrastructure
• Technology IT infrastructure
• Human IT infrastructure

Capabilities
Capabilities
Including infrastructure
Including infrastructure
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Opportunities
Crisis (weiji)
Opportunity (jihui)
Opportunities grow out of crises
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Search for Opportunities

• Can IT change the basis of competition?
• Can IT change the nature of relationships and the
  balance of power among buyers and suppliers?
• Can IT build or reduce barriers of entry?
• Can IT increase or decrease switching costs?
• Can It add value to existing products and
  services or create new ones?

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Strategic Risks

• Can emerging technologies disrupt current
  business models?
• Asset specificity Can investments be reused?
• Are we too early or too late to exploit an IT
  opportunity?
• Leaders vs. followers
• Does IT lower barriers of entry?
• Does IT trigger regulatory action?

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