MIS 480 GROUP PROJECT
INFORMATION TECHNOLOGY
FOR COMPETITIVE ADVANTAGE
Derrell Carter
Gerald Lommen
Dana Perkins
CIO Wish List
• Competitive Advantage
• Adding value
• Setting strategic agendas
Reference #1
IT Contribution Matrix
CONTRIBUTION
COMMODITY
DIFFERENTIATOR
CRITICAL
Critical Commodities
*** Critical
Differentiators ***
USEFUL
Useful Commodities
Eliminate/Migrate
Reference #23
IT Impact on Competitive
Advantage
• Prime Mover
– Recognized leader in industry
• Barriers to Entry
– High infrastructure cost
• High Switching Costs
– Initial customer buy-in
Reference #5
IT Impact on Competitive
Advantage
• Changes Industry Structure, Alters
Rules of Competition
• Gives Companies New Ways to
Outperform Rivals
• Spawns New Business/Divisions from
Existing Operations
Reference #5
Challenges in Exploring IT
• Focusing IT efforts to support business
strategies
• Using IT innovations to develop new,
superior strategies
• Devising and managing strategies to
deliver low-cost, high-quality IT services
• Choosing right platform
Using IT for Competitive Advantage
Building CA is like a NASCAR race
• Everyone starts with similar vehicles
– Ideas, tools, goals
• Fine tuning during course of the race
– Alter strategy/focus
• Changes give drivers advantage to lead/win
the race
Using IT for Competitive Advantage
• Advances in IT affect competition and
the sources of competitive advantage
• IT is more than hardware/software
– Data, automation
• IT should be used company-wide to
bolster value chain
Using IT for Competitive Advantage
• Explore three successful company’s
– FedEx – Package Tracking & Logistics
• By Derrell Carter
– Baxter Health Care – Medical Supplies
• By Gerald Lommen
– Sabre Inc. - Technology Distribution
• By Dana Perkins
Why using IT as a CA is important
IT Pros & Cons
• Rewards are high if used properly,
but success is not guaranteed
• IT’s obsolescent nature makes it
time sensitive for CA
• Competition is using same thing to
beat you
Federal Express
• Package Tracking and Logistics
– Derrell Carter
FedEx At-a-Glance
• Overnight delivery, transportation,
information and logistics solutions
• Headquartered in Memphis, TN;
215,000 employees worldwide
• Created in 1973 by Fredrick W. Smith
Reference #7
Company info-Cont.
• 30% market share for B2C deliveries
• 2000 Revenue of $20 billion
• 5 million daily shipments to 210
countries (90% of world’s GDP)
• 100 million daily electronic transactions
• 650 aircraft, 60,000 vehicles
Reference #11
Birth of Overnight Delivery
• Federal Express invented the ground/air
express industry
• Industry growth came from three trends
– globalization of business
– demand for value-added services
– advances in IT and uses for process efficiencies
Reference #7
Major Products
Customer Characteristics
• Businesses looking to reduce
distribution costs through logistics
operation
• Anyone needing reliable, next-day
delivery
• State-to-state, country-to-country
• Dell, National Semiconductor,
Omaha Steaks, Cisco Systems
Competitors
• UPS-Since 1986 has spent $9 billion on
IT, formed five alliances to build logistics
software; ships more than 55% of
Internet orders
• DHL-has spent $1.25 billion on
worldwide logistics system
• TNT-launched one-stop online resource
for distribution and delivery
Reference #7
IT Structure
• Robert B. Carter-Exec. VP & CIO;
reports to CEO
• Responsible for setting IT strategy and
developing apps & IT infrastructure
• 5,000 IT employees worldwide
• Seven domestic data centers (Memphis,
Leiden, Holland & Singapore)
Reference #9
IT Structure-Cont.
• FedEx invests $1.5 billion annually
in IT infrastructure, capital and
expenses
• IT systems provide around-the-clock
global support (applications,
networks and data centers)
Reference #9
IT Structure-Cont.
• IT dept. has history of innovation
– Gave customers free PCs and software to
track shipments
– Issued first handheld scanners and bar codes
– Launched first online package tracking
website (1994)
– Developed software for customer networks
Reference #8
Support from the top
• IT has a prominent place in strategic
business discussions, allowing
funding, focus and initiatives to flow
• CEO views IT as the core element of
FedEx’s business formula
• “Information about the package is as
important as the package itself.”
Fred Smith
Reference #7
Critical Difference
• Package tracking and logistics
capabilities
• FedEx wanted to be wherever
business was, help customers take
advantage of international market
Reference #7
History of Innovation
1979-----1984-------1985------1986-------------1993--1994------->
COSMOS-------------------------------------------------------------------->
PowerShip---------------------------------------------------->
Bar coding---------------------------------------->
SuperTracker------------------------>
MultiShip----------------->
Internet tracking->
Reference #2
Critical Difference -Cont.
• COSMOS (1979)-kept track of all
packages handled by FedEx;
computer network relayed data on
package movement, pickup,
invoicing & delivery
• Managed people, packages, routes &
weather on real-time basis
Reference #10
Critical Difference-Cont.
• COSMOS linked to central database in
Memphis (used bar coding at each stage
of delivery cycle)
• PowerShip (1984)-provided most active
customers with proprietary online
services
– Frequently used addresses, label printing, online
pickup requests, tracking
Reference #10
Critical Difference-Cont.
• MultiShip (1993)-allowed customers to
process packages shipped by other
providers
• Electronic Data Interchange (EDI)allowed FedEx to track back through
customer supply chain to provide logistics
management services
– Transportation, inventory control, purchasing, sales
& customer support
Reference #10
How’s it Used
• Dell-direct sell for PCs; FedEx
provided system for tracking and
monitoring PC assembly orders;
allows for custom-built orders &
short delivery time
Reference #7
How’s it Used
• National Semiconductor-outsourced
warehousing to FedEx; six factories
ship to FedEx distribution center,
reduced delivery cycle from four
weeks to two days; distribution costs
went from 2.9 % to 1.2 % of sales
Reference #7
How It’s Used-(Cont.)
• Omaha Steaks-orders
simultaneously relayed to warehouse
and FedEx; FedEx generates
tracking and shipping labels, orders
sent to FedEx hub for delivery
Reference #7
How It’s Used-(Cont.)
• Cisco-coordinates Cisco’s shipping,
to eliminate warehousing costs;
FedEx created system that
automatically selects routes and
most effective mode of
transportation; all info available
over Internet
Reference #2
Challenges to Sustainability
• UPS taking lead in ground shipping and
online purchase delivery by copying
FedEx system
• UPS handles 55% of all online
purchases, 11% revenue growth in 1999
• FedEx handles 10% of online purchases,
8% revenue growth
Reference #4
Challenges-Cont.
• FedEx still leads overnight shipping
(39% share)
• FedEx made customers adopt its
proprietary system
• UPS designed universal system
• Partnered with Oracle & IBM
Reference #3
Race for the Future
• Wireless access to web-based tracking
info from any device, worldwide
• FedEx Ground
– real-time tracking & delivery confirmation info
– in-vehicle computers
– ring scanners
Reference #10
Race for Future-Cont.
• FedEx Return system
• Signature imaging
• ISIS
– Extends biz intelligence apps via Internet
across supply chain
Reference #8
References
(1) Competing Interests; CIO, Oct. 1, 1995; Author: Richard Pastore
(2) Core IS Capabilities for Explaining IT; Sloan Management
Review, 1998; Author: Leslie Willcocks, et.al.
(3) Ground Wars; Newsweek, May 21, 2001
(4) Gaining an Edge: It’s All About IT; Computerworld, Nov. 16,
1998; Author: John Verity
(5) How Information Gives You Competitive Advantage; Harvard
Business Review, July-Aug. 1985; Author: Michael E. Porter, et.al.
(6) Strategic Information Systems Revisited: A Study in
Sustainability; MIS Quarterly, 1994; Author: Kettinger, et.al.
References
(7) FedEx Corp.: Structural Transformation Through E-Business;
University of Hong Kong, 2000; Author: Pauline Ng
(8) Are We There Yet?; CIO, June 1, 1997; Author: James P. Saviano
(9) Next Day Change Guaranteed; CIO, May 15, 2001; Author: Mark
Gordon
(10) FedEx website (www.fedex.com)
(11) Hoovers.com website (www.hoovers.com)
Baxter Health Care
• Medical Supplies
– Gerald Lommen
American Hospital Supply
Corporation (AHSC) Product Line
• Hospital and laboratory sector
– General and specialized patient care items
(intravenous solutions, gloves, gowns,
syringes, etc.).
– Biomedical & industrial laboratory supplies.
•
Medical specialty products
– Diagnostic equip
– Surgical inst
Reference #12
–Heart valves
–Blood-collection systems
Early Stages of Race (AHSC)
• Tel-American was result of initial
move to a customer order entry
system in early 1960’s.
– West Coast manager put punch cards in
hospital’s purchasing department and in
AHSC distribution center. Card punches
were read and duplicated at AHSC.
Reduced problems with late and incomplete
deliveries.
Reference #12
Early Stages of Race (AHSC)
• (Cont.)
– System quickly picked up by 200 other
customers
– Into mid-1970’s, promoted as part of a hospital
materials management system.
– Example of an “accidental” strategic system.
– “We changed the industry, we really did” said
AHSC product manager.
Reference #12
AHSC/ Baxter Customer
Characteristics
• 1970s
– Customers were brand loyal and not very
sensitive to supply cost.
– Hospitals, accounting for 2/3 of revenue, and
labs, accounting for 1/4.
– Supplies and associated logistical costs made
up 30-45 percent of hospital costs.
Reference #12
Race to Competitive Advantage
(AHSC)
• ASAP (Analytic Systems Automatic
Purchasing) succeeded Tel-American in
mid-1970s.
– Developed by laboratory mfg division.
– Five versions through 1984.
– Gradual improvements in input methods, from
punch card system connected directly to AHSC
mainframe to PC input.
Reference #12
Race to Competitive Advantage
(AHSC)
– Eventually automated entire purchasing
process for customer except actual approval.
• ASAP succeeded in several ways.
– Competitive advantage gained because
competitors first had to computerize their
own inventories in order to offer
computerized system to customers. 50
percent of orders came through ASAP.
Reference #12
Race to Competitive Advantage
(AHSC)
• (Cont.)
– Salesmen spent less time with paperwork and
more time selling. Evidenced by sales tripling
between 1975 and 1984 with little to no increase
in sales staff.
– Shifting of order entry and related activities to
customer saved time and money.
– “The computer is at the heart of our success”
said AHSC CEO.
Reference #12
AHSC/Baxter
IT Organization and Budget
• Hospital Systems Division had
organizational responsibility for
ASAP.
– Six to nine people full-time for ongoing
maintenance of ASAP.
– Reported through Corporate Vice President
for Planning and Services to CEO
Reference #12
AHSC/Baxter
IT Organization and Budget
• $30 million to build ASAP
• $3 million annual operating costs
Reference #12
Company Info
• American Hospital Supply Corporation
(AHSC) through ASAP’s glory years.
– Sales increased by 13 percent a year, from $1
billion in 1975 to $3.5 billion in 1984.
– Profits increased about 18 percent per year.
Reference #12
Mid-race Adjustments (Baxter)
• AHSC completed merger with Baxter in
1987. ASAP was a “major plus” in
Baxter’s consideration.
• CA started to disappear
– Development staff had little time for
enhancements.
– Competitors had systems that were competitive
and, in some cases, technically superior.
Reference #13
Baxter Healthcare Product Line
• BioScience
– Therapeutic proteins to treat blood-related
diseases
– Vaccines
– Blood-collection containers
• Medication Delivery
– Intravenous solutions & equipment.
• Renal
– Dialysis solutions & Equipment.
Reference #15
Mid-race Adjustments (Baxter)
• Consulting study resulted in
development of ASAP Express, an allvendor system.
– Cooperative effort between Baxter and General
Electric Information Services. The latter
providing telecommunications network.
– Hospitals would enter orders for participating
vendors in standard format. Baxter orders
processed through ASAP and others routed to
clearinghouse for pickup.
Reference #13
Mid-race Adjustments (Baxter)
• (Cont.)
– Baxter expected benefits in multiple ways,
including: revenue from vendors, control over
customer contact point, and additional product
“pull-through” (free hardware and software for
purchase commitments).
Reference #13
Mid-race Adjustments (Baxter)
• ASAP Express was an immediate
success—used by 2,300 hospitals to
reach 1,500 vendors—but during
early to mid-1990’s:
– Saw little change in functionality because IS
staff was too busy fighting fires.
– Baxter was losing market share to other
healthcare companies.
Reference #14
Mid-race Adjustments (Baxter)
• (Cont.)
– Customers felt limited by proprietary format
and limited functionality (orders).
– Baxter felt ASAP was becoming a millstone
around their necks.
Reference #14
AHSC/ Baxter Customer
Characteristics
• 1990s
– Customers more supply cost sensitive and
less brand loyal.
– More alternative sites (doctor’s offices, walkin emergency and medical centers).
Reference #14
Racing into the Future (Baxter)
• In mid 1990’s, Baxter changed its
competitive approach, moving to an
open environment with the OnCall
system.
– Jointly developed with other players in the
hospital supplies market, to combat market
fears of a new Baxter domination on EDI.
TSI Software (now Mercator) supplied
software.
Reference #14 / 16
Racing into the Future (Baxter)
• (Cont.)
– Using generic format, OnCall mapped data
entry from customer into a standard format that
was converted to internal format when received
by vendor.
– Customers such as hospitals and healthcare
providers buy a kit to facilitate business with
specific vendor, which could include vendorunique capabilities—a strategic differentiator for
Baxter.
Reference #14 / 16
Racing into the Future (Baxter)
• In 2000, Baxter—with four other
healthcare suppliers—added another
open environment option, Global
Healthcare Exchange.
– Operates as an independent company with
suppliers having an equity interest.
Reference #17
Racing into the Future (Baxter)
• (Cont.)
– Internet exchange intended to streamline
procurement by providing single source for
health-care purchases.
– Users now number more than 100 suppliers
and 400 hospitals.
Reference #17
Racing into the Future (Baxter)
• OnCall and Global Health Exchange
reflected Baxter’s new strategy.
– Use information from open environment to
develop value-adding applications to
customers.
– Demonstrate to customers the cost-reduction
opportunities from using these tools.
Reference #14 / 17
Company Info
• Baxter Healthcare
– $6.9 billion sales and $738 million earnings
from continuing operations in 2000.
– Sales up 50 percent from 1996.
Reference #15
References
(12) Harvard Business School case 9-186-005, copyright 1985
(13) Harvard Business School case 9-188-080 copyright 1988
(14) Harvard Business School case 9-195-103 copyright 1994
(15) Baxter Healthcare web site (www.baxter.com)
(16) Mercator web site (www.mercator.com.au)
(17) Global Health Exchange web site (www.ghx.com)
Sabre Incorporated
• Technology Distribution
– Dana Perkins
Company History
• Sabre Inc. (Semi-Automated Business
Research Environment)
• 1959-60 American Airlines & IBM joint
venture, 1964 nation wide, Spun Off
March 2000
• AMR Corp parent company to American
Airlines owns 80% of Sabre
Reference #19
Company Size
• 2000 Revenues of $2.6 billion ($1.94
billion airline infrastructure business
sale to EDS)
• Headquarters: Dallas/Fort Worth, Texas
• 6,000 employees located in 45 countries
Reference #19
Company Size – Cont.
• Connects > 59,000 travel agents
• Provides travelers content from 450
airlines, 53,000 hotels, 54 car rental
companies, eight cruise lines, 33
railroads and 228 tour operators
Reference #19
Major Products
• Get There
• Travelocity
• Virtuallythere
Reference #18 / 19
Major Products – Cont.
• eMergo
• Web-enabled application service provider (ASP)
• Comprehensive portfolio of airline industryspecific IT solutions includes 18 products
• Complete Airline IT solution
Reference #18 / 19
Major Products – Cont.
• Provide IT products to Airlines, Travel
Agencies, and Corporations
• Management Software and Service Support for:
•Air cargo
•Airline, Car, & Hotel Res.
•Airport Operations
•Crew Scheduling
•Dining & Cabin Services
•Flight Operations
•Finance Systems
Reference #19
•Airplane Maint. & Repair
•Planning & Scheduling
•Price & Yield Mgnmt
•Revenue Maximization
•Target Marketing
•Sales & Marketing
•Consulting
Serendipitous Creation
• Sabre technology was developed to
satisfy customer desires
• Employee’s all over the world required to access
flight schedules and seat information real time
• Sabre developed a system which the
industry adopted
Reference #18
Customer Characteristics
• Travel industry participants
• Geographically spread out
• Require timely, specific information
• Service demanding customers who require
accurate flexible travel customization
• Extremely accurate aircraft maintenance
and part scheduling
Reference #22
IT Structure
• IT Department organizational chart:
• The CIO is also a Senior Vice President
• Carol A. Kelly
• Reports directly to CEO
• Responsible for the development of internal
system architecture, and delivery of systems
that support Sabre business process
Reference #18 / 19 / 21
IT Structure
• March 2001 IT Mega deal with EDS
•
•
•
•
$2.2 Billion over 10 Years
Transferred 4200 IT people to EDS
“Wholesale outsource of IT”
Retained control through CIO and small
contract monitoring staff
Reference #21
IT Structure
• How many people work in the IT
department:
• Less than 100 and shrinking
• Annual IT budget
• Less that .1% of earnings
Reference #18
The Critical Difference
• Wholesale outsourcing
• “Big, gutsy, bold move, giving up
the data centers that once formed
the core of its business”
• “They obviously don't view anything
as a sacred cow,"
Reference #21 / 22
System History
• Brand new system, little history
• Past mega deals lessons learned
• Not always successful
• Constant monitoring
• Requires occasional renegotiation
Reference #18
How’s it Used
• Complete outsourcing designed to
reduce costs, and allow Sabre to
focus on its travel marketing and
ticket distribution business and
related operations, including eMergo
the application software suite
Reference #19
References
(18) Phone Interview with Mike Berman VP Corporate
Communications (0815, 30OCT01 #817-967-0001)
(19) Company Web Site (www.sabre.com)
(20) Lessons learned, insights gained; Informationweek, May 8, 2000;
Author: Larry A. Olsen
(21) Sabre sells IT Business to EDS; Computerworld, March 19, 2001;
Author: Michael Meehan
(22) EDS to boost Sabre’s ASP; Internetweek, March 26, 2001;
Author: Jade Boyd
(23) Dr. Mary Lacity
Difficult to Use IT to Gain a
Sustainable Competitive Advantage
• Business strategies may change
• Competitors always seeking to copy
(IT cannibalism)
• Customer expectations change
• Availability of financial resources for
research and development
Key Features of these
Successful Systems
• FedEx
• Developed package tracking and logistics
system that serves a air/ground express
industry. Used EDI to maximize information
exchange with customers, opening door for
added value, increased revenue streams
Key Features of these
Successful Systems
• Baxter
• Automation of previously manual processes
made the supply chain more efficient and
effective. Had jump on other suppliers in
making use of computers
• Sabre
• Created an IT application that was adopted
by the industry
• Spun off into own company
Lessons Learned
• Competitive advantage IT
development often “accidental”
• Competitive use of IT has to be an
integral part of business strategy
• Quick business reflexes and a clear
vision are required to sustain CA using
IT and win the race
Reference #6
QUESTIONS?