Week 1
Monday, January 23
Strategy & IT
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
1
From Automation to Integration
EDP
MIS
Reporting
Decision
Support
Automation
Enterprise
Systems
Organization Integration
(Productivity and Efficiency)
25 years
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
2
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?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
3
AmericanAirlines and SABRE:
Using IT to Gain a Competitive Advantage
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
4
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
5
American Airlines and SABRE
Passenger Reservations
Sacramento
New York
Dallas
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
6
American Airlines and SABRE
Passenger Reservations
Sacramento
New York
Dallas
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
7
American Airlines and SABRE
Passenger Reservations
Sacramento
New York
Dallas
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
8
American Airlines and SABRE
Passenger Reservations
Sacramento
New York
Dallas
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
9
Problem with Matching Passenger Names
to Seats
Reservation List
Passenger Flight Date
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
10
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
11
Capacity Shifts
48-105 passengers
Douglas DC-7
Cruising speed: 365 mph
Greater
number of
passengers  114-149 passengers
Boeing 707
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Cruising speed: 550-600 mph
Greater
utilization
of resources
12
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 America’s first automated
passenger reservation system
• The system is named SABER
(Semi Automated Business Environment Research)
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
13
American Airlines and SABRE:
System Objectives
•
•
•
•
•
Match passenger to seats
Contain seat availability on all the carrier’s schedules
Print passenger itineraries
Issue boarding passes
Perform all of the above in a travel agent’s office
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
14
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
IBM 7090 Processing System
• Records of seat inventory
• Flight schedules
• Application programs
• Memory to handle 1,100 concurrent customers
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
15
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
16
American Airlines and SABRE:
Upgraded System
• Subsequent upgrades included:
– Fare quotation
– Advance check-in
– Boarding pass issuance
– Stand-by passenger handling
– Itinerary generation
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
17
Retail Automation and the
Airline 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
– Operationalize:
Placed reservation system terminals in travel agencies
and in large corporate offices
– Cooperation:
Formed 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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
18
Retail Automation
• American installs SABRE terminals with specifications
made by the joint task force in travel agencies
• Reservations centralized in Tulsa, Oklahoma
Tulsa, Oklahoma
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
19
American Airlines and SABRE:
Retail Automation
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
20
Co-Host Programs
• American would display the schedules of other airlines
on SABRE for a fee
• Intended to increase SABRE’s presence in markets
American did not service
• Extended American’s reach to markets served by rival
United
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
21
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
22
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
23
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
24
American Airlines and SABRE:
Summary
• 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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
25
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?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
26
Anthony's Levels of Management
Strategic Planning
Management
Control
Operational Control
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
27
American Airlines and SABRE
Strategic
Tactical
Operational
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Reservations
28
American Airlines and SABRE
Strategic
Retail Automation
Co-hosting
Tactical
Operational
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Marketing Tool
29
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
Inputs
Processes
Outputs
Defines how inputs are converted to outputs
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
30
What are strategy, strategic plans
and strategic management?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
31
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
32
What is Strategy?
Cont.
– The size of the organization
– The image which it will project to employees,
suppliers and customers
Bullen and Rockart, 1981
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
33
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
34
Mission, Goal and Objectives
What segment of the market do we want to target?
Target Market
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
35
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."
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
36
Levels of Management (Cont.)
• Operational control
"Operation control is the process of assuring that
specific tasks are carried out effectively and efficiently."
Anthony, 1965
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
37
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R. Ching, Ph.D. • MIS Area • California State University, Sacramento
38
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R. Ching, Ph.D. • MIS Area • California State University, Sacramento
39
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R. Ching, Ph.D. • MIS Area • California State University, Sacramento
40
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R. Ching, Ph.D. • MIS Area • California State University, Sacramento
41
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Robert Anthony
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
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Planning within the Organization
Strategic
Planning
Management
Control
Operational
Control
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Strategic Plan
Tactical Plan
Operational Plan
43
Information Technology
• Coordinated application of
– Hardware
– Software
– Networks
Elements
– Workstations
– Robotics
– Smart chips
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
44
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
45
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.
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
46
Model of Strategic IT Planning
Management of IT depends on how the business views IT
High
Factory
Operational IT
Impact on
Business
Operations
Support
Basic elements
Strategic
Strategic IT plan,
initiatives
Turnaround
Gradual adoption
Low
Low
High
Impact on Strategy
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
47
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
48
For example…
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
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Peapod
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
50
Peapod
Virtual store
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
51
Peapod
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
52
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
53
Raley's Foods
"Bricks and mortar"
retailer
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
54
Raley's Foods
Limited web shopping
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
55
Role of IT
• Defined by the organization’s business model and
strategy
– Peapod – IT is embedded in its business model and
strategy (i.e., web-enabled)
– Raley’s – IT plays a supporting role in providing
efficient and product operations
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
56
Introducing Strategy into the Organization
Inductive Change
Top-Down
Deductive Change
Bottom-Up
Mission Statement
Mission Statement
Context
Strategic Plan
Strategy
Initiatives
Tactical Plan
Policy
Operational Plan
Implementation
& Adoption
How does an organization introduce changes in IT?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
57
Top-Down Planning Dilemma
Should change come from the strategic plan or the IT strategic plan?
Enabling
technologies
Organization Strategic
Plan
Should an IT strategic plan
precede an organizational
strategy?
?
Should the strategic plan
specify the technologies to
adopt?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Information Technology
Strategic Plan
Direction
58
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
59
1. Market/Channel Positioning
E-commerce vs.
Bricks and Motar
Peapod.com
Raley’s Foods
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
60
2. Product Positioning
Full service vs. Low-cost
United Airlines
Southwest Airlines
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
61
3. Value Chain/Value Network Positioning
Vertical integration vs.
Horizontal integration
One World (horizontal
integration)
Boeing (vertical integration)
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
62
American Airlines and Strategic Alliances
Co-host
Travel
agents,
corporate
offices,
public
Codeshare Alliances
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
63
Boeing Aircraft and Suppliers:
Assembling an Aircraft
Boeing 787
Risk sharing partners
Work coordination
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
64
Boeing and Primary Vendors
Main
Location
787 Work Statement
Boeing Commercial Airplanes (announced Nov.
and Dec. 2003)
Washington
Airplane development, integration, final assembly, program leadership
Alenia/Vought Aircraft Industries (announced
Nov. 2003)
Italy, Texas
Horizontal stabilizer, center fuselage, aft fuselage
Boeing Fabrication (announced Nov. 2003)
Washington,
Canada,
Australia
Vertical tail assembly, movable trailing edges, wing-to-body fairing, interiors
Spirit Aerosystems Inc. (announced as Boeing Wichita Nov. 2003; Apr. 2004)
Kansas,
Oklahoma
Fixed and movable leading edges, flight deck, part of forward fuselage, engine pylons
Fuji Heavy Industries (announced Nov. 2003)
Japan
Center wing box, integration of the center wing box with the main landing gear wheel well
Kawasaki Heavy Industries (announced Nov.
2003)
Japan
Main landing gear wheel well, main wing fixed trailing edge, part of forward fuselage
Mitsubishi Heavy Industries (announced Nov.
2003)
Japan
Wing box
Hamilton Sundstrand (announced Feb. 2004,
March 2004, July 2004, Sep. 2004)
Connecticut
Auxiliary power unit, environmental control system, remote power distribution units, electrical power generating and
start system, primary power distribution, nitrogen generation, ram air turbine emergency power system,
electric motor hydraulic pump subsystem
Rockwell Collins (announced Feb. 2004)
Iowa
Displays, communications/ surveillance systems
Honeywell (announced Feb. 2004, July 2004)
Arizona
Navigation, maintenance/crew information systems, flight control electronics; exterior lighting
Smiths (announced Feb. 2004, Jun. 2004)
United Kingdom
Common core system, landing gear actuation and control system, high lift actuation system
Goodrich ( announced March 2004; April 2004,
June 2004, Nov. 2004, Dec. 2004)
North Carolina
Fuel quantity indicating system, nacelles, proximity sensing system, electric brakes, exterior lighting, cargo handling
system
Messier-Dowty (announced March 2004)
France
Landing gear structure
Dassault Systèmes (announced Feb. 2004)
France
Global collaboration tools/software
Boeing Interiors Responsibility Center
(announced March 2004)
Washington
Interior
FR-HiTemp (announced March 2004)
United Kingdom
Pumps and valves
Rolls-Royce (announced April 2004)
United Kingdom
Engines
Company/Business Unit
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
65
General Electric (announced April 2004)
Ohio
Engines
Boeing Propulsion Systems Division (announced April 2004)
Washington
Propulsion systems engineering and procurement services
Moog Inc. (announced May 2004)
New York
Flight control actuators
Kidde Technologies (announced May 2004)
North Carolina
Fire protection system
Toray Industries (announced May 2004)
Washington
Prepreg composites
Kaiser Electroprecision (announced June 2004)
California
Pilot control system
Thales (announced July 2004, Aug. 2004)
France
Electrical power conversion, integrated standby flight display
Labinal (announced July 2004)
France
Wiring
Parker Hannifin (announced Sep. 2004)
Ohio
Hydraulic subsystem
Messier-Bugatti (announced Nov. 2004)
France
Electric brakes
Latecoere (announced Nov. 2004)
France
Passenger doors
Monogram Systems (announced Nov. 2004)
California
Water and waste system
Air Cruisers (announced Nov. 2004)
New Jersey
Escape slides
Delmia Corp. (announced Nov. 2004)
Michigan
Software
Intercim (announced Nov. 2004)
Minnesota
Software
Panasonic (announced Dec. 2004)
Japan
Cabin services system
Bridgestone (announced Dec. 2004)
Japan
Tires
Ultra Electronics Holdings (announced Dec. 2004)
United Kingdom
Wing ice protection system
GKN Aerospace (announced Dec. 2004)
United Kingdom
Composite mat for the wing ice protection system
Korry Electronics (announced Jan. 2005)
Washington
Flight-deck control panels
Ipeco (announced April 2005
United Kingdom
Flight-deck seats
Diehl Luftfahrt Elektronik (announced April 2005)
Germany
Main cabin lighting
Jamco (announced Apr. 2005, May 2005)
Japan
Lavatories, flight deck interiors, flight deck door and bulkhead assembly
Northwest Composites Inc. (announced April 2005)
Washington
Sidewalls, window reveals, cargo linings, door linings and door surrounds
Securaplane (announced April 2005)
Arizona
Wireless emergency lighting system
Donaldson Company, Inc. (announced May 2005)
Minnesota
Air purification system
Astronautics Corp. of America (announced May 2005)
Wisconsin
Electronic Flight Bag (EFB)
CTT Systems (announced August 2005)
Sweden
Zonal Drying system
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
66
4. Boundary Positioning
Mass merchandiser vs.
Narrowly defined scope
Amazon.com
Zippy’s Restaurant
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
67
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
• IT’s advantages are only short-term
– As the technology matures, it becomes readily
available to other organizations
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
68
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
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
69
Strategic Shifts
Enhance
Expand
Extend
Exit
Product
Improve quality,
lower cost,
increase ease-ofuse, add features
Add new products
or services
N/A
Drop a feature,
service or product
Market
Attract new
customers within
existing markets
Expand into new
markets, segments
or geographies
N/A
Exit a market,
segment or
geographic region
Channel
Improve quality,
cost or capacity
Add new channels
N/A
Exit a channel
Value chain/
value
network
Improve operations
and/or
relationships with
current suppliers,
partners, etc.
Add new suppliers
or partners,
outsource an
activity
N/A
Stop doing
business with a
supplier or partner,
in-source an
activity
Business
model
Improve alignment
or economics of
current business
model
Add new revenue
stream
Extend into a new
business or adopt a
new business
model
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
Exit a business or
business model
70
Strategic Alignment
• Alignment between the business and IT strategies
• Alignment between strategy and capabilities
Business
IT
Strategy
Strategy
Value
Capabilities
Including infrastructure
Capabilities
Including infrastructure
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
IT infrastructure
• Technology IT
infrastructure
• Human IT
infrastructure
71
Opportunities
“Crisis” (weiji)
“Opportunity” (jihui)
Opportunities grow out of crises
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
72
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?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
73
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?
R. Ching, Ph.D. • MIS Area • California State University, Sacramento
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R. Ching, Ph.D. • MIS Area • California State University, Sacramento
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