Innovation Through Information Systems
Michael Djurovic
ISM 158 – Winter ‘04
Prof. Jack Callon
Table of Contents
Introduction ..................................................................................................................................... 3
I. Industry Analysis: Test & Measurement Industry ....................................................................... 4
Industry Profile ........................................................................................................................... 4
Competitive Strategies ................................................................................................................ 5
Porter Model Evaluation ............................................................................................................. 7
Bargaining Power of Suppliers ............................................................................................... 7
Bargaining Power of Buyers ................................................................................................... 7
Potential New Entrants ........................................................................................................... 8
Substitute Products and Services ............................................................................................ 8
Porter Analysis Conclusion..................................................................................................... 8
Globalization of the Industry ...................................................................................................... 9
Information Technology in the Industry ..................................................................................... 9
II. Company Analysis: Agilent Technologies ............................................................................... 10
Company Profile ....................................................................................................................... 10
Key Personnel ....................................................................................................................... 10
Market and Financial Performance ........................................................................................... 11
Market Details ....................................................................................................................... 11
Financial Details ................................................................................................................... 11
Competitive Strategies .............................................................................................................. 12
Significance of IS ...................................................................................................................... 13
Strengths and Weaknesses ........................................................................................................ 13
Strengths ............................................................................................................................... 13
Weaknesses ........................................................................................................................... 14
Overall................................................................................................................................... 14
III. Structured Analysis of Information Systems .......................................................................... 15
Why Information Systems?....................................................................................................... 15
Strategic Option Generator ....................................................................................................... 15
Target .................................................................................................................................... 16
Thrust .................................................................................................................................... 16
Mode ..................................................................................................................................... 16
Direction ............................................................................................................................... 17
Roles, Roles and Relationships ................................................................................................. 17
Redefine and/or Define ............................................................................................................. 18
Significance of Telecommunications ........................................................................................ 22
Success Factor Profile ............................................................................................................... 24
Culture................................................................................................................................... 24
IS Integral to the Business .................................................................................................... 24
Linkage to Suppliers ............................................................................................................. 24
IS Marketing ......................................................................................................................... 24
IV. The Success of Agilent Technologies..................................................................................... 25
Success of Business Strategy and IT Use ................................................................................. 25
An Effective Posture for the Future .......................................................................................... 25
Bibliography ................................................................................................................................. 26
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Introduction
Test and measurement tools are essential components for building new technologies. Such tools
have evolved from something as simple as a ruler, to advanced tools like spectrometers and
oscilloscopes. Without electronic test and measurement tools, the world would be
unrecognizably archaic in comparison to the lifestyle that most Americans are used to. The
wireless Internet, desktop computers, passenger aircraft, an electrical infrastructure – all are
examples of items that could not exist without electronic test and measurement tools to assist in
their construction.
The test and measurement industry deals with the manufacture, research, and development of
advanced test and measurement tools required for use in many other industries. Of the many
companies involved in the test and measurement industry, Agilent Technologies lies at the
forefront of innovation and market capitalization. Though Agilent has four industries in which
they compete, this analysis will focus only on their activities in the test and measurement
industry. More specifically, this analysis will focus on the success of Agilent Technologies over
their competitors in the world market.
The first section will deal with the test and measurement industry as a whole. This will include
an analysis of the industry’s major competitors and their competitive strategies. A Porter model
evaluation will be performed on the test and measurement industry, using Agilent Technologies
as the strategic business unit. This evaluation should provide the reader with a perspective on
the industry as it relates to Agilent Technologies. A brief analysis of the globalization of the test
and measurement industry will be performed, as well as and analysis of how information
technology relates to the industry.
Section two will contain an analysis of Agilent Technologies. This analysis will describe the key
players at Agilent Technologies, competitive strategies, and the company’s financial
performance. The analysis will also contain information on Agilent’s uses of information
technology, and how it relates to the company’s competitive strategy. An analysis of Agilent’s
strengths and weaknesses will also be performed.
Section three will narrow down the company analysis, and focus specifically on the Information
Systems in use at Agilent. Strategic advantages are gained through the strategic option
generator. Roles, roles and relationships describe the users of information systems, managers of
information systems, how the information systems are managed, what information systems are
being used, and how they are all related to create a competitive environment. Information
systems may have also played a role in defining or redefining certain aspects of the company.
Telecommunications are essential for any business, and an analysis will be done to examine it’s
role in the company. Finally, a success factor profile will be performed to analyze the
company’s strengths.
The final section will wrap up the analysis of Agilent Technologies. A summary of the
company’s successes will be provided. In conclusion, the analysis will end with a short
explanation of Agilent’s posture for the future.
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I. Industry Analysis: Test & Measurement Industry
Industry Profile
Agilent Technologies Inc. is a multifaceted company involved in several different industries.
This analysis will focus primarily on what Agilent refers to as the “Test and Measurements”
industry. The term “test and measurements” is still somewhat ambiguous, and too broad to
measure companies that compete in the same industry as Agilent. Test and measurements could
refer to analytical lab testing, as is done by Curtis and Tompkins Ltd., located in Berkeley, CA.1
Agilent is not a lab, rather, they produce products that may be used by Curtis and Tompkins.
Even still, Agilent’s test and measurements division might not produce such products, but rather
the life sciences division would.
The actual industry that Agilent’s test and measurements division competes in is more accurately
classified as the “electronic instruments and controls” industry.2 Since Agilent maintains in their
documentation that they compete in the “test and measurements” industry, we will refer to the
industry as the “test and measurements” industry, although our research is based on the
“electronic instruments and controls” industry.
Agilent’s test and measurements division produces a multitude of products used in various
industries. Test and measurement products most often aid in the manufacture of electronic
products, but they are also widely used for maintaining various electronic-based infrastructures,
such as cable television, telephone, and electricity. The amount of different products that
Agilent manufactures is tremendous, but some examples include: spectrum analyzers, network
analyzers, signal generators, power meters, noise figure analyzers, oscilloscopes, logic analyzers,
emulation trace port analyzers, network & protocol analyzers, microwave test accessories, etc.
Some uses for these devices include analysis of microwaves, light-waves, and network and
electrical signals.
Currently, the test and measurements industry is suffering from a lack of demand. Customers of
test and measurement products are usually large companies who require such products for
research and development purposes. Some of Agilent Technologies’ biggest customers: AT&T
and SBC are both telecommunications companies who purchase similar products from Agilent.
In recent years, the telecommunications industry has taken a turn for the worse, especially in the
“wired” sectors. Many of Agilent’s products, such as network and protocol analyzers and
SONET/SDH/OTN testers have seen poor sales due to the lack of demand.
Nonetheless, Agilent remains a key player in the test and measurement industry. Competitors in
the industry include: Acterna, Fluke Corporation, Tektronix Inc., Advantest Corporation,
National Instruments, Telecordia, Anritsu, Rhode Schwartz, and Teradyne. According to Yahoo!
Finance, two of Agilent’s direct competitors are Tektronix and Teradyne. (Note that IBM was
also listed as a competitor, but I omitted them since they are too broadly associated with business
1
2
http://www.curtisandtompkins.com/about.html
http://finance.yahoo.com/q/pr?s=A
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machinery, and a document from Agilent Technologies did not list IBM as a direct competitor to
their test and measurements division.3) The following is a graph depicting the approximated
market share of the industry according to Yahoo! Financial, in addition to an approximated
adjustment for lesser competitors.
Market Share
1%
19%
69%
11%
Agilent
Tektronix
Teradyne
other
Figure 1-1: Electronics Instruments and Controls Industry Competitors’ Market Share
Competitive Strategies
Of the two main competitive strategies – differentiation and least cost – the test and
measurement industry grants a greater market share to those who differentiate their products. A
least cost strategy cannot be used for basic reasons. Test and measurement items are very costly
to produce. Companies cannot afford to lower the prices of their products to a level where they
would capture a significant market share. Doing so would cause a test and measurement
company to incur losses on each unit sold.
Differentiation is the only alternative method to compete, rather than least cost. Companies in
the test and measurement industry typically focus on customer service, ease of use with their
products, and specialized product features in order to increase sales.
Of the three supporting strategies for competition – innovation, growth, and alliances – at the
current time most companies choose to focus on innovation. Growth at this time has been
stunted, due to the lack of sales in the industry, and the desire of test and measurement
companies to reduce their operating expenses. Alliances for the most part have already been
well established. Such an alliance exists between Sprint Global Communications Services, and
Agilent Technologies. Sprint is already a major customer of Agilent’s wired and wireless
3
http://www.agilent.com/about/newsroom/facts/agilentfactbook.pdf
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telecommunications testing equipment. Agilent chose Sprint to handle their high volume of data
transfer between Agilent campuses using Asynchronous Transfer Mode (ATM) service. 4
Innovation remains as the dominant supporting strategy, helping to differentiate test and
measurement products to better suit the needs of customers.
Figure 1-2: Business Strategy Model for Test and Measurement Industry5
4
5
http://www.tmcnet.com/enews/061203f.htm
http://www.agilent.com/quality/qualityman.pdf
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Porter Model Evaluation
Figure 1-3: Porter Model Evaluation of Industry Forces in the US Market
Figure 1-2 above shows the industry forces acting on Agilent; a top player in the test and
measurements industry. Agilent’s main competitors are Teradyne, and Tektronix, who also
manufacture test and measurement equipment for signal analysis. Although Agilent appears to
be the dominant leader in the industry, Teradyne and Tektronix are still fierce competitors, and
own a significant market share.
Bargaining Power of Suppliers
Companies in the test and measurement industry require both manufactured and raw materials in
order to produce their main product. Semiconductors are key components of test and
measurement devices. Though it shows up as a significant industry force, Agilent is one
company that is not adversely affected by the bargaining power of semiconductor companies.
This is because Agilent has its own semiconductor division, giving them a distinct advantage
over their competitors. Other chip manufacturers, such as Texas Instruments, may play a
significant role in setting the prices for products.
Bargaining Power of Buyers
The major customers of test and measurement equipment are almost exclusively other companies
who produce products that are eventually sold to businesses or consumers. Every product that is
electronic in nature needs to be tested with various testing devices manufactured within the test
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and measurements industry. Customers of the test and measurement industry rely on companies
like Agilent to either quality assure their products, or sell them the means to quality assure their
products before they are released to market. The bargaining power of buyers is large under
certain conditions. If the buyer needs a testing device that is common, then the buyer’s power is
great because there are several companies in the industry that can produce the testing device they
need. If the buyer needs a testing device that is unique, chances are that the buyer will turn to
Agilent, or another well-known company to produce the product. The buyer still has some
power, but there are fewer companies willing to produce that kind of product. This may be due
to insufficient resources, or bad profit margins on producing the product. In any case, the
buyer’s bargaining power is reduced somewhat, but remains significant.
Potential New Entrants
New entrants to the test and measurement industry are small niche companies; however, various
barriers to entry exist. Startup costs would be high because of the cost of manufacturing
facilities, as well as establishing relationships with vendors to attain the materials required to
produce the product. There are also a significant number of competitors established in the
industry already. It is unlikely to see a startup in the test and measurements industry, just as it
would be unlikely to see a startup in the airline manufacturing industry, but it is possible. The
influence of new entrants to the test and measurements industry is not very significant; however,
it would cause a shift in business strategy with the large players in the industry. If the small
niche company developed certain technology that would be beneficial, one of two
counterstrategies may occur. Either the large players would commit resources to research and
development to create a competitive product, or they may pursue attempts to buy out the smaller
company.
Substitute Products and Services
Few online testing products and services exist for test and measurements. If companies wanted
to save money, they could buy outdated and used equipment; however, that would be comparable
to buying an inferior computer system. Saving money initially would cause money to be wasted
later on due to the need to replace equipment sooner, and possibly an inefficient business process
flow. Another substitute is to hire a firm to do outsource test and measurements. A few
companies in the test and measurement industry will do this. It may be cost effective for a
company to outsource if they do not need to do test and measurements on a regular or long-term
basis, rather than to buy the equipment. Outsourcing causes substitute services to be significant
in affecting the test and measurement industry.
Porter Analysis Conclusion
The test and measurement industry is a very well established industry with many barriers to
entry. The threat of new entrants to established companies is minimal. The effect of substitute
products is negligible. Suppliers do have some bargaining power over smaller companies, but
buyers remain influential in setting the prices for products. Competition between the major
competitors locks prices for testing devices at a certain level.
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Globalization of the Industry
The test and measurements industry has existed as a global entity for many years. Each
company mentioned earlier as a competitor of Agilent has operational facilities outside the
United States. Most manufacturing for these companies is performed in China, Korea, and
Taiwan. Customer service centers are located in India and the US. Sales, marketing, and
financial offices are found throughout Europe and the US.
There are several reasons for test and measurement companies to maintain a global presence.
First and foremost, by strategically locating certain operations of the company, like
manufacturing or customer service, operating costs can be dramatically reduced. The same work
for certain departments can be performed overseas for less cost per employee. Secondly, in
order to compete in the test and measurement industry, a company must have a global presence.
Most if not all of the companies involved in the test and measurement industry have established
their brand name throughout much of the world, and claimed their respective market share.
Being a global presence in the industry is also important for meeting customer needs. Global
facilities reduce the time to market for products, as well as shipping costs. Customers tend to
pay less for their products and receive them in a timely manner.
Information Technology in the Industry
The test and measurements industry is very dependent on information technology. IT is very
much involved with the manufacturing of test and measurement products, tracking their uses and
defects. Customer relationship management is a top priority for most test and measurement
companies because it allows the company to provide superior service, and thus differentiate from
their competitors. Since most companies in the test and measurement industry have a global
presence, enterprise resource planning systems are widely used. They allow the company to
manage personnel, workflows, finances, etc. between their worldwide campuses.
Without IT, it would be nearly impossible to manufacture test equipment. The equipment must
be designed on computers and built with precision by automated machines.
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II. Company Analysis: Agilent Technologies
Company Profile
Agilent Technologies Inc. is a spin-off of Hewlett Packard Inc. based in Palo Alto, California.
The spin-off of Agilent was due to a corporate realignment of Hewlett Packard, which allowed
HP to focus on the computer industry. On November 18, 1999, Agilent was listed as a public
company on the New York Stock Exchange, with an initial public offering of stock valued at
$2.1 billion.6 Agilent is a worldwide competitor in several different industries. The four major
industries in which Agilent competes are: test and measurements, automated testing,
semiconductors, and life sciences/chemical analysis. As of fiscal year 2003, the test and
measurements division generated the most net revenue in comparison with the other divisions of
the company: $2.529 billion.7
Key Personnel
Edward (Ned) W. Barnholt is the current chairman, president, and chief executive
officer of Agilent Technologies Inc. A graduate of Stanford University with both
a bachelor’s and master’s degree in electrical engineering, Barnholt has proven
his business, engineering, and leadership skills while climbing the corporate
ladder at Hewlett Packard.8 Barnholt is known for being a man who can “speak to
the issue of corporate ethics with authority”.9 He is the backbone of Agilent’s
corporate culture.
Thomas White is the senior vice president and also general manager of Agilent’s
communications solutions group. He has held these positions since August 1999
(before Agilent’s IPO). His past experience included various managerial
positions at Hewlett Packard’s London division. White's responsibilities include
manufacturing, marketing and support of the telecom and datacom product lines
for the communications solutions group. White has a bachelor’s degree in
electrical engineering from the University of Liverpool in London, England.10
6
http://www.agilent.com/quality/qualityman.pdf
http://www.agilent.com/about/newsroom/facts/agilentfactbook.pdf
8
http://www.agilent.com/about/newsroom/execs/bios/barnholt.html
9
http://telephonyonline.com/ar/telecom_ned_barnholt_agilent/
10
http://www.agilent.com/about/newsroom/execs/bios/white.html
7
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William P. Sullivan is Agilent’s executive vice president, chief operations officer,
as well as general manager of the electronic products and solutions group. While
employed at Hewlett Packard, he developed considerable expertise in
telecommunications, data communications, and computers. After Agilent
technologies was spun-off from HP, he was named vice president and general
manager of the semiconductor products group. With Sullivan’s broad skill set, he
has since made the transition to managing the electronic products and solutions
group.11
Market and Financial Performance
Market Details
The industry suffered a sharp decline in sales since 2001. Since then sales have continued to
decline gradually. Price competition has been fierce, reducing any profit margin Agilent may
have had with their products. The current weak state of the market is attributed to a decline in
demand for telecommunications equipment.12 Many of Agilent’s products focus on testing
wireline communications; however, that market has continued to decline ever since wireless
communications became mainstream. Agilent will have to diversify their wireless testing
equipment in order to capture more of a market share, but that may be a difficult task due to
research and development costs, as well as pressure from competitors.
Financial Details
At the end of the 2003 fiscal year, Agilent Technologies had company wide net revenue of
$6.056 billion. Of that, $2.529 billion was from the test and measurement division. Revenue
declined in the 2003 fiscal year, somewhat due to the fact that customers were more focused on
maintaining current equipment, rather than purchasing new equipment. Agilent attributes this to
military actions taken during 2003; the learning curve required for customers interacting with
new products was unacceptable during a time of crisis. Agilent claimed a net operating loss in
their test and measurements division of approximately $315 million, which was down from $710
million in 2002. 13
Due to the faltering economy, Agilent embarked on a three-year restructuring plan to reduce
their net loss from operating costs. Referred to as “the 2001, 2002, and 2003 plans”, various
strategic cutbacks were made in headcount, operations, and real estate. Most significantly,
Agilent decided to vacate 110 facilities worldwide; about 22% of their property, and instead of
occupying the space, they would pay lease termination penalties on said properties. Agilent
avidly defends their decisions on cutbacks. “All of our plans were designed to reduce costs and
expenses in order to return the company to profitability. As of the end of 2003, we have reduced
11
http://www.agilent.com/about/newsroom/execs/bios/sullivan.html
http://biz.yahoo.com/e/031222/a10-k.html
13
http://biz.yahoo.com/e/031222/a10-k.html
12
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our workforce by approximately 15,000 people (approximately 13,400 from involuntary
terminations and approximately 1,600 from net attrition) to 29,000 employees.”14
According to Agilent’s current figures, they are experiencing an annual net revenue per
employee of approximately $208,827.59. This figure includes all 29,000 employees of Agilent,
not limited to the test and measurement division. Unfortunately, this figure is meaningless in
comparison to the current state of the company. Agilent will continue to reduce head count into
fall of 2004 in order to save on operating expenses.
2003
2002
2003 over
2002 over
2001 2002 Change 2001 Change
(in millions)
Orders
$2,413
$2,549
$3,569
-5%
-29%
Net revenue from products
$2,135
$2,219
$4,036
-4%
-45%
394
393
511
0%
-23%
$2,529
$2,612
$4,547
-3%
-43%
-315
-710
52
56%
N/M(a)
-12%
-27%
1%
15 points
(28) points
Net revenue from services and other
Total net revenue
(Loss) income from operations
Operating margin (deficit)
Figure 2-1: Test and Measurement Earnings Statistics for Fiscal Years 2001 - 2003
Competitive Strategies
Agilent’s mission is to, “apply expertise in design, test and measurement to help customers
improve business results.”15 What they have stated is clearly a strategy for product
differentiation: to make superior products that cannot be easily matched by their competitors.
Agilent also focuses on superior customer service. They provide support even for discontinued
products
14
15
http://biz.yahoo.com/e/031222/a10-k.html
http://www.agilent.com/about/newsroom/facts/agilentfactbook.pdf
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Significance of IS
Agilent Technologies is a very large corporation with literally hundreds of offices around the
world. In order to interconnect these offices, and ensure coordination throughout the
corporation, Agilent must use various information systems. In 2003, approximately $180 million
was spent on enterprise resource planning and customer relationship management systems alone.
This amount seems excessive, considering that Agilent is trying to cut back on operating
expenses as soon as possible; however, they predict that in the long run, they will receive large
returns on investment by replacing legacy systems and reducing head count.16
The majority of Agilent’s property, plant and equipment purchases in 2003 were related to
investments in information technology programs, such as ERP and CRM. A more centralized
ERP system will save Agilent from having the need to maintain multiple integrated systems
throughout the company. This will allow them to reduce headcount in the IT department, by
keeping only a few technicians who know how to maintain the ERP system. They could also
choose to eliminate most or even the entire department responsible for maintaining systems, and
replace them with new technicians who already know the new ERP system. Given the current
economic situation, they are likely to find potential employees who are willing to work for
salaries that are lower in comparison to the original staff.
CRM is a major issue right now for Agilent. Investing in this system will improve
communications with their customers, and allow them to better suit the needs of their customers.
Since a low cost strategy will not work in the test and measurements industry, Agilent would like
to focus on providing superior customer service, in addition to selling innovative technology.
Strengths and Weaknesses
Agilent will survive a downturn in the market simply because its strengths outweigh its
weaknesses. Unfortunately, Agilent’s weaknesses are keeping the company from becoming
profitable again. Until these weaknesses are addressed, Agilent will have to deal with a negative
cash flow.
Strengths
Agilent’s main strength with regards to the test and measurements industry is that they are on
top. They own a considerable amount of the market share, and need only focus on keeping it.
Agilent has a popular, trusted, and reliable brand name. Most companies turn to Agilent first
when deciding to purchase test and measurement equipment.
Agilent has a devoted customer base of large-scale companies. Such companies include: AT&T,
Hitachi, SBC, Boeing, Lucent, Siemens, Ericsson, Motorola, Solectron, General Electric, Nokia,
and Vodaphone.
16
http://biz.yahoo.com/e/031222/a10-k.html
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Agilent is a huge company and has a large amount of capital. Even if they do suffer considerable
financial losses, they can continue without worrying about running out of cash. Their financial
position is likely one of their greatest strengths.
Being a spin-off of HP, Agilent has a well-established company culture. They need not worry
about internal issues that new companies must deal with. The employees know what is expected
of them, without question.
Agilent’s leadership includes some of the most experienced minds in the industry. The leaders
of the company have the experience and intuition to make strategic business decisions, even if
those decisions are difficult and cause minor inconveniences to employees. Such decisions
included pay cuts and layoffs at strategic points in time. Still the company has held together,
maintaining their values.
Weaknesses
Agilent’s operating costs outweigh sales revenue. This is unfortunate, but necessary to deal
with. Were the economy better, Agilent’s sales would be much higher, and the problem of high
operating costs would be a non issue. Over the past three years, Agilent worked hard to reduce
their operating expenses, but they will have to go further in order to achieve profitability.
In the past two years, Agilent has laid off a large percentage of their staff, as well as
implemented forced pay cuts. This has no doubt reduced company morale.
Due to the nature of competition in the test and measurements industry, Agilent is forced to
continue spending large amounts of money on research and development. One of Agilent’s
ideals is to be at the forefront of innovation, obviously to differentiate their product from their
competitors.
Because of the large amount of spending on research and development, Agilent cannot grow
their market share by reducing the price of their products.
Overall
Agilent’s strengths outweigh its weaknesses. They are fortunate to be in a position where they
have enough capital to survive for a while, despite their losses of hundreds of millions of dollars
per year – strength. Unfortunately, they are in an industry where they cannot alter their business
strategy to earn more than what they are earning; however, their position in the industry is still a
strength. This is because the industry has too many competitors, providing a barrier to entry,
thus reducing further competition. In addition, Agilent is doing a decent job of gradually
reducing operating expenses without sacrificing the quality of their product. As soon as the
economy picks up, and sales begin to flourish, it will be smooth sailing for Agilent, so long as
they can ride out the storm.
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III. Structured Analysis of Information Systems
Why Information Systems?
Information systems play a vital role in company operations. Section III of the analysis of
Agilent Technologies focuses on the use of information systems at the company. This analysis
will relate information systems to the company’s ability to gain a competitive advantage, the
roles IS plays, how IS has defined and/or redefined the business, and the significance of
telecommunications within the company. In conclusion, a success factor profile will describe the
areas where Agilent technologies was strongest in implementing their information systems.
Strategic Option Generator
The strategic option generator is a concept that helps to determine how a company gains a
competitive advantage through the use of information systems. First, the company chooses a
target for their strategy. The target may be the customer, supplier, or a competitor. Next, the
company uses a Porter competitive strategy that best suits their operations. An offensive or
defensive mode determines if the company is a leader or follower in their particular strategy and
use of information systems. Finally, a direction relates to the company’s usage of information
systems: either the company uses the information systems to gain an advantage, or may provide
the information systems to partners or vendors outside the company, or both. These factors
combined form a strategic advantage through the use of Information Systems. Figure 3-1
demonstrates Agilent Technology’s strategic advantage through the use of the strategic option
generator. A description of each element of the strategic option generator is provided on the
following page.
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TARGET
SUPPLIER
CUSTOMER
COMPETITOR
THRUST
DIFFERENTIATION
COST
INNOVATION
GROWTH
ALLIANCE
MODE
OFFENSIVE
DEFENSIVE
DIRECTION
USE
PROVIDE
EXECUTION
STRATEGIC
ADVANTAGE
Figure 3-1: Strategic Option Generator for Agilent Technologies
Target
Agilent Technologies targets the customer. Their goal is to provide the most advanced testing
products to a global customer base. They hope to grow this customer base through their
reputation for having superior products. In turn, this strengthens the Agilent brand name.
Thrust
Agilent uses a differentiation strategy. Least cost is not a viable option because of the expense
involved in manufacturing. Agilent is able to differentiate because they are a well-known name,
and accessible worldwide. Their secondary strategy is innovation. Through superior research
and development resources, Agilent is able to provide customers with leading edge test and
measurement tools.
Mode
Since Agilent is a leader in the test and measurement industry, they are in an offensive mode.
They easily dominate any competitors in the test and measurement industry.
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Direction
Agilent’s use of Information Technology falls into the category of use and provide. The
company’s extensive use of Oracle’s ERP system is required for communication both within the
company, as well as to manage vital company data between partners. In the provide category,
Agilent presents a wealth of information for their customers on their company website. Their
suppliers are also provided with e-procurement interfaces, such as iSupplier. This would classify
them as being a provider of information systems.
Roles, Roles and Relationships
Information systems play a key role at almost any company in today’s industries. For Agilent
Technologies, information technology is required for communications, data transfer, data
mining, purchasing, accounting, customer service, research and development; the list goes on
and on. With so many different possibilities for the usage of information technology, it becomes
complicated to make sure that the right systems of technology and people are implemented in
order to provide efficient and cost-effective operations. This is the main reason as to why
information systems are not the deciding factor in what makes a company successful. Success is
based on the company’s ability to compete, and how information systems are implemented to
assist in the company’s competitive power.
This brings up a question, what role do information systems play at Agilent? Clearly, they do
not define the success of the company. Most of the success is determined by the strong
leadership of Agilent’s executive staff, as well as the talented engineers who develop the
products. Information systems are required however, and they play an essential supporting role.
The CEO of Agilent, Edward Barnholt, does not make most of the intricate decisions regarding
information systems at Agilent. Thomas White and William Sullivan head the test and
measurement division of Agilent, and report directly to Barnholt. White is the general manager
of the communications solutions group and also the senior vice president of Agilent. Sullivan is
an executive vice president, and also the Chief Operations Officer. The information technology
group reports to the COO (Sullivan). Sullivan makes the final decision on company-wide
technology implementations, and evaluates if the costs of such systems are justified.
Of course, implementing new technologies at Agilent is much more complex than Bill Sullivan’s
yes or no approval. The departments themselves have their own special needs that must be
addressed by information technology. Since Sullivan is also the general manager of the
electronic products and solutions group, it is his responsibility to make sure that the right
technologies are implemented within his group. It is also important to note that those
technologies may need to interact between other departments in the company, most likely via
Oracle. Sullivan is not responsible for the technical details; however, he must be informed of the
operation of the system, and be aware that information is being passed appropriately between the
departments. Sullivan’s IT manager is responsible for reporting to Sullivan – keeping him
informed of such matters.
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Tom White plays a similar role as general manager of the communications solutions group. He
makes the interim decisions for information technology implementation. An information
technology manager also reports to White regarding IS issues in the CS group. White and
Sullivan are equally leveled in the Agilent organization chart (see figure 3-2 in the next
subsection); however, White reports to Sullivan regarding high-level information systems issues.
Information technology only relates to the actual hardware and software, but information
systems include information technology plus the people who use the technology. People
interacting with technology and interacting with other people is the basic composition of an
information system. Sullivan and White are more concerned with the technology aspect, its costs
and benefits. The people aspect is left to the managers of those who interact with the
information systems themselves. Issues with people are usually dealt with by lower level
managers; however, serious issues such as pay cuts and layoffs must be dealt with by Sullivan
and White.
Redefine and/or Define
A company cannot survive if it resists change. Companies must adapt to changes in their
industry in order to be competitive, and keep or grow their market share. Adapting to changes
requires a company to redefine aspects of the business, or define new aspects. What should a
company redefine or define? It depends on the nature of competition in the industry. There are
however, three major aspects of a business that a company may choose to change. They are: the
business, the products or services they offer, or the processes that run the business.
Redefining/defining these options should ultimately be done to provide value to the customer.
Agilent Technologies is a spin-off company from parent company Hewlett-Packard. HewlettPackard redefined their business by performing a corporate realignment, and forming Agilent
Technologies to focus on several highly profitable industries aside from computer hardware. At
the time, critics claimed that the loss of the HP name from test and measurement devices would
be detrimental to sales for the newly formed Agilent Technologies. On the plus side, Agilent
started out as a profitable behemoth with a strong name which means “agile” – an enforcer of
quality, service, speed, and innovation.17 The economy was also booming at the time, and the
$45.50 IPO price was certainly not out of the question for buyers. 18 Now HP had two strong
companies, and built a brand name for its child. Moreover, they became highly competitive by
splitting their focus: HP focusing on computer hardware; Agilent focusing mostly on test and
measurements, but also semiconductors, and biological and chemical analysis. Placing a focus
on certain products meant a more efficient allocation of resources. Thus a better product could
be produced with less overhead, and ultimately providing value to the customer.
Agilent itself had to restructure the business at the beginning of its formation in order to maintain
focus on the several industries it competes in. The following is an organization chart for
Agilent’s current executive staff, the major divisions of the company, and the breakdown of
17
18
Article from Frost & Sullivan Online
http://finance.yahoo.com/q/hp?s=A&a=08&b=18&c=1999&d=11&e=5&f=1999&g=d
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executive staff by department. Again, organizing resources allows a product to be produced
more efficiently, thus providing value to the customer.
Figure 3-2: Agilent Technologies Organization Chart
With respect to information systems, Agilent redefined some of their business processes. When
the company was first formed in 1999, most transactions with vendors took place through
electronic data interchange (EDI). Recently, in 2002, Agilent decided to move away from EDI
and other legacy systems, and integrate the same functionality into an enterprise resource
planning (ERP) system from Oracle.
The Oracle system has many different subsystems with various functions. It is known that
Agilent has many different suppliers; however, not all of these suppliers communicate with
Agilent using the same standardized software. In order to keep up with all the different types of
software which serves Agilent’s vendors, Agilent created a specific website to inform suppliers
of how to set up their software for use with Agilent’s new system from Oracle. Only certain
types of software are acceptable, and those types of software are described on the website.
Agilent also offers assistance for installing such software. Placing limits on the software that
Agilent is willing to use with its vendors allows Agilent to phase out legacy software, but it also
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coerces vendors to use software that would be more efficient for business transactions with
Agilent. This has changed the way Agilent does businesses with its suppliers in the sense that
proprietary software must be used to maintain efficiency in the purchasing process, and to
centralize vital supplier information.
Most of the software required for the suppliers to use is web-based. The reason for using webbased software is two-fold. One, the actual program that the supplier interfaces with is not stored
on the supplier’s local machine; it is stored on a server at Agilent. Agilent has complete control
over the program, and accepts accountability for the functionality of the application. If the
application were not centralized, a problem would be more difficult to pinpoint, and take more
time to resolve. Second, the setup process for the supplier is very simple. In some cases, the
supplier needs only to fill out a web-based form to register an account with the program.
Defining ease of use is crucial to overcoming resistance to change when implementing new
systems. The following figure illustrates Agilent’s migration to Oracle.
Figure 3-3: Steps for Migration to a Consolidated Oracle ERP System 19
iSupplier is a web-based portal interface that allows suppliers to directly access information and
enter business transactions online in a secure, self-service environment. Some of the key
purchase order features of iSupplier are the ability to: acknowledge purchase orders online,
change promised delivery dates on purchase orders, enter advance shipment notifications, view
forecast information, and combine schedules from Agilent operating units for easy viewing by
the supplier. The iSupplier system also allows vendors to view and manipulate data for
19
http://www.agilent.com/oracle_supplier/generalinformation.shtml
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manufacturing orders. Some of these features include viewing details on: purchase order
revisions, delivery schedules, history of receipts and returns, on-time performance, invoices and
payments, and a complete summary of the aforementioned items.20 By implementing the
iSupplier system, Agilent has given its suppliers access to a very organized interface for tracking
purchase orders, thus improving the relationship with vendors.
Another system integrated with the Oracle system is the evaluated receipt settlement (ERS)
system. When Agilent needs to make purchases from their suppliers, a purchase order is created
in the ERS system. The supplier then ships the items to Agilent. Further efficiency of the
system comes into play once the items arrive at Agilent. Once the items are received in the
system, a self-billing invoice is created, and sent to both the supplier, and Agilent’s buyer. The
invoice is paid under the terms previously set forth by Agilent and the supplier. 21 The major
advantage of the ERS system is that Agilent’s suppliers always get paid on time, every time.
Suppliers who use the ERS system do not need to worry about 30-60-90 accounts receivable
from Agilent, and thus, implementing this system has improved business relationships with
Agilent’s suppliers, and provides incentive for new suppliers to sell to Agilent. The competition
between suppliers has the added effect of lowering the price Agilent pays for items.
Agilent implemented Nocturne, which is a supplier managed inventory (SMI) system. “The
Nocturne tool is an internet-based supply chain management process that enables buyers and
suppliers to achieve inventory and operation efficiencies through collaborative information
sharing.”22 Agilent’s vision for Nocturne is to have one simple and centralized application to
interface with Oracle, for use by all of Agilent’s suppliers. Much like iSupplier, Nocturne is a
web-based application where suppliers and buyers can collaborate, and view real-time data to
tighten supply chain links. Using Nocturne allows for the strict control of Agilent’s inventory,
and automatic replenishment upon consumption. These basic functions of Nocturne make up an
inventory control system that is almost completely automated. Since Agilent implemented
Nocturne’s interface with their Oracle ERP system, they have been able to cut costs and time to
market for their products, and pass on the value to their customers.
Agilent also has other systems that interface with Oracle, such as a CRM system from
Peoplesoft.23* Other systems include an automated newsletter system from Vignette. Agilent
redefined their customer relationships with the Vignette system, giving their newsletters a more
personalized feel, based on what their customers are buying.24
This multitude of systems at Agilent seems overwhelming; however, they are all a necessary
piece of the puzzle in the great scheme of the Agilent value chain. In order to provide easy
access to the systems, Agilent partnered with Tibco to create a business integration solution
system. Tibco’s BIS ties in all of Agilent’s system interfaces into one easy to use shell. Behind
the scenes, the Tibco system maintains data integrity while it is passed between the client
20
http://www.agilent.com/oracle_supplier/downloads/isp_supplier_guide.pdf
http://www.agilent.com/oracle_supplier/downloads/ERS_supplier_guide.pdf
22
http://www.agilent.com/oracle_supplier/downloads/nocturne_training.pdf
23
http://www.findarticles.com/cf_dls/m0ECZ/2000_Oct_25/66379108/p1/article.jhtml
* Note: Peoplesoft’s CRM system was implemented in 2000. It’s unknown whether the system is still active.
24
http://www.vignette.com/Downloads/CS_Agilent.pdf
21
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system, and the Oracle database. This is yet another redefinition of business processes, to
provide workflow efficiency, and ultimately cost savings to the customer.
The following diagram illustrates the value provided to the customer through the redefinition of
business processes at Agilent Technologies. Most of the processes that have been streamlined
are due to the implementation of superior information systems at Agilent. The systems provide
visibility into vital company data, make workflows more efficient, sustain strong relationships
with Agilent’s key suppliers, instigate competition between suppliers, and improve time to
market. All these factors ultimately provide a superior product to the customer, as well as
savings in cost from past manufacturing efforts.
Value to Customer Analysis:
Agilent
Integrated CRM systems
QA reporting tools
Streamlined supplier systems
Support for legacy EDI system
Test and Measurement Tools
•
•
•
•
Delivery Process
Product/Service
•
•
•
•
Value-add Process
Innovative test and measurement tools
The best value for the money
Easily accessible online technical support
Piece of mind from the Agilent brand
What the Customer Buys
Value to Customer
Figure 3-4: Value to customer analysis for Agilent technologies
Significance of Telecommunications
Agilent Technologies has a worldwide presence in the Test and Measurement industry.
Structuring a global business without an efficient telecommunications network would be futile to
operations. An automatic call distribution (ACD) system is used for customer and technical
support processes in order to efficiently handle customer inquiries. Because of Agilent’s
extensive customer base, they literally receive thousands of calls per day. The calls are
automatically routed through the ACD system to the appropriate departments or individuals. If
the call is technical or customer related, then information must be entered into the CRM system.
The CRM system communicates through the Internet with the Oracle database.
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Suppliers also play a major role in the company’s telecommunications infrastructure. The
systems described in the previous section (which included iSupplier, ERS, Nocturne, and others)
must all communicate with Oracle. Each of the supplier systems uses a web-based interface. By
entering information on a web page, suppliers can communicate crucial information to Agilent
via the Internet. Once the data is sent, it is immediately stored in the Oracle database upon
receipt.
As mentioned in the previous section, Agilent moved to streamline their IT operations by
moving most of them to Oracle. For some suppliers, Agilent has still provided support for EDI
on an interim basis, pending the complete migration of their suppliers to the Oracle-compatible
systems. (See Figure 3-) The following figure demonstrates how each system is integrated with
Oracle. It also shows a general flow of data over multiple telecommunications networks, colorcoded in the diagram. Green represents an internal company network (intranet), red represents
data transfer over the Internet, and yellow represents data transfer over traditional phone lines.
Legacy
Supplier
EDI
iSupplier
ERS
Nocturne
Direct
Oracle
Peoplesoft
Agilent Input
Data
Processing
Other Oracle
Compatible Application
Figure 3-5: General telecommunications infrastructure
Without telecommunications, Agilent would not be able to conduct business with customers and
suppliers as efficiently as possible. Telecommunications are essential for cutting down lead
times, providing superior customer service, and cutting the potential costs that would be required
in running a non-automated supplier and inventory system.
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Success Factor Profile
Culture
Agilent defines its company culture as “a dedication to innovation; trust, respect and teamwork;
and uncompromising integrity.”25 Edward Barnholt mentioned in Agilent’s 2003 annual report
that Agilent has, “a culture that fosters innovation”. Through difficult economic times, Agilent
has worked to maintain the quality of their products, but the company’s culture played a strong
role in making that happen. Innovation has been a key driving force in keeping Agilent ahead of
its competitors. The employees that work at Agilent believe in the culture, and continue to
innovate, creating superior products in the test and measurement industry.
IS Integral to the Business
The many information systems implemented at Agilent Technologies has redefined the way in
which they do business. CRM systems have provided pertinent data into what customer needs
are, and what Agilent can do to innovate and create superior products. The Tibco shell system
provides easy access and seamless integration of various systems. Implementing Oracle’s ERP
system has saved the company millions by providing visibility into vital company data for both
Agilent and its suppliers. These systems functioning together have allowed Agilent to speed up
its supply chain, produce superior products through innovation and quality assurance, and form
strong bonds with its quality suppliers.
Linkage to Suppliers
Through the use of various information systems, Agilent has made its linkage to suppliers a top
priority. These information systems provide an automated approach to purchasing through
electronic procurement. Agilent’s systems serve to strengthen the relationship between the
company and its suppliers. The supplier’s inventory is automatically updated. They need only
to ship the items to Agilent, who takes care of the majority of the financial paperwork. The
systems save man-hours, and eliminate the need for paper purchase orders. Suppliers appreciate
the cost savings passed on to them through the implementation of these systems. This is why
Agilent has many companies who wish to be suppliers; however, Agilent forces suppliers to
compete using rigid quality standards, which only the best suppliers can meet. The benefits are
apparent to both Agilent and their suppliers. Suppliers get constant, guaranteed business from
Agilent, with the most prompt payment in the industry. Agilent gets the best suppliers providing
the best quality products on their terms.
IS Marketing
The manner in which Agilent markets their uses of IS on the web to its suppliers is expertly
done. Through excellent organization of a site geared solely to suppliers, Agilent mildly coerces
and educates suppliers on new systems to be implemented. The pdf presentations give suppliers
an easy understanding of the new systems, and provide incentive to use those systems. This has
in effect caused competition for becoming a supplier for Agilent.
25
http://www.agilent.com/about/newsroom/facts/agilentfactbook.pdf
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IV. The Success of Agilent Technologies
Success of Business Strategy and IT Use
Agilent Technologies has been a big player in the test and measurement industry for several
reasons. First, they have a worthy brand name. Second, they have a strong company culture,
based on innovation. Third, they have made their brand name worthy through innovation and
effective quality controls. Finally, they used information systems that strongly supported
production of high quality items, while lowering costs and time to market.
The organization could not have achieved such strong success without the use of information
systems. Though Agilent has always had a large amount of capital to back them up, they spent
this money wisely on systems that would save time and money, as well as improve relations with
their suppliers. They have been forward-looking with respect to information systems; spending
more now for future returns. In an economy where all competitors are suffering, they took
advantage of the climate to spend their capital on technology that would likely cost more in a
strong market. Though Agilent may not see strong returns on their investment for some time,
they can at least be assured that they have enough capital to survive right now.
Already, the information systems in place are paying off. The large returns will not been
realized until the economy recovers, and sales increase. Taking advantage of the current
situation is almost like a test run for their newly implemented technology. The Oracle system is
proving itself when it comes to saving on operating costs, improving on communications, and
strengthening relationships with suppliers. These are Agilent’s advantages over their
competitors.
The organization has accomplished much with its business strategies. They have successfully
built a large and loyal customer base, differentiated through superior quality products and ample
customer service. Through abiding by their company culture, their state of the art products
captured more market share than any of their competitors.
An Effective Posture for the Future
The future of our economy is unlikely to get worse. Agilent has done a superior job at surviving
the downturn in the economy. They are effectively positioned for the future because of the
information systems currently in place. The more transactions performed with the Oracle
system, the more cost savings are realized. Agilent’s future will be very strong, as they have
retained market share in the test and measurement industry, upheld their strong company culture,
kept knowledgeable leaders in key positions, and successfully implemented superior information
systems. Success in business comes from efficiency, effectiveness, and competitive advantage.
Agilent Technologies has maintained all three, and is certain to remain as a highly competitive,
multi-billion dollar corporation in the future.
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The Top 3 Sources
1. The Agilent Fact Book: had a lot of good consolidated information on the company, it’s
industry, and it’s key people.
2. Agilent’s 10-k: had all the financial data I needed for the most part.
3. Supplier Training Nocturne Tool: had some good information on suppliers and how
they interact more efficiently with Agilent by using this new system.
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