Using IT to Achieve a
Competitive Advantage
Presented by:
Paula Hayes, Tara Hines, Bill
Krampe and Andy Roth
“I guess we’ve always known that
information gives you a certain power,
but the degree to which we can retrieve
it in our computer really does give us
the power of competitive advantage”
Sam Walton from Made in America: My Story, Doubleday, 1992
What is IT?
Information Technology is the
amalgamation of hardware, software,
data, people, and procedures that
enables or inhibits business objectives
depending on management’s
involvement in IT.
IS480 lecture notes, Lacity, Fall 2001
Using IT to Achieve a
Competitive Advantage



Creating the Competitive Advantage
Features and examples of successful
systems
Sustaining the competitive advantage
through IT
Strategic Information Systems



Implement systems that cannot be easily
duplicated
Develop an SIS that can be integrated with
unique ideas and practical design solutions at
the end user level
Develop an SIS that can transform the whole
business
The Grassroots of IT and Strategy by Claudio Ciborra, 1994
IS Leadership
Contribution
to Business
Operations
Critical
Service
excellence
Useful
Low cost
Commodity
• Implements structures, processes,
and staffing to fill other 8 roles
Service
excellence
Migrate/
Eliminate
Differentiate
Contribution to Business
Positioning
• Alignment of IS strategy and business
• Fosters relationships with senior management
Nature of Information Technology,
Lacity, Fall 2001
Creating Competitive
Advantage through IT

Lowering costs

Enhancing differentiation

Changing competitive scope
How Information Gives You Competitive Advantage, by M. E. Porter and
V. E. Millar, 1985
Success Stories



Frito-Lay – first to use hand held computers
(HHC) in their ordering system
Boeing – high speed, 2 way Internet and live
television services to aircraft in flight
(Connexion)
American Airlines – SABRE system
Frito-Lay Sales 2000
PepsiCo 2000 Annual Report
Frito-Lay Market Share 2000
PepsiCo 2000 Annual Report






Lay’s Potato Chips
Ruffles Potato Chips
Doritos Tortilla Chips
3D’s Snacks
Tostitos Tortilla
Chips
Cheetos Cheese
Flavored Snacks







Sunchips
Cracker Jack
Grandma’s Cookies
Chester’s Popcorn
Funyuns Onion
Rings
Rold Gold Pretzels
Orbertos Meat
Snacks
PepsiCo 2000 Annual Report
Customers






Grocery Stores
Convenience Stores
Gas Stations
Restaurants
Bars
Vending Machines
IT at Frito-Lay
The Sr. VP of Technology is Arthur B.
Anderson
Critical Difference


Frito-Lay introduced its now classic
inventory replenishment system using
handheld computing technology.
Allowed Frito-lay to differentiate itself
from other snack companies in service
to its grocery store customers and to
reposition itself as a technology leader.
Expert Advice - Timing is
Everything - CIO Magazine
September 1, 1997
The Pioneer

Charles Feld



Vice president of MIS Frito-lay 1983-1992
Was able to translate complex technical
issues into business issues for upper
management and to help them sort out
priorities.
Able to build consensus in an organization
Charles Feld - Tough Optimist CIO Magazine September 15,
1997
The Problem


The field sales guys technically owned
the merchandise once they took it out
of the warehouse
Their day wasn’t done until the books
were settled
Survival Tips from the Pioneers Early Adopters - CIO Magazine
March 15, 2001
The Solution



First-generation handheld computers (HHC)
in 1986
Based on a Fujitsu device with a home grown
application
HHCs would transmit daily sales figures back
to the corporate mainframe in Plano, TX
Survival Tips from the Pioneers Early Adopters - CIO Magazine
March 15, 2001
The Problems



Very few vendors with this technology
There were no standards for hardward,
software or radio frequency data
transmissions
The skeptics believed it would never be
as reliable as the manual system
Survival Tips from the Pioneers Early Adopters - CIO Magazine
March 15, 2001
The Benefits



Frito-lay was able to change prices on
products quickly.
Frito-lay could have different prices for
different geographic regions.
The system paid for itself from day one
because the sales force agreed to give up 1
percent of their sales budgets to fund it.
Survival Tips from the Pioneers Early Adopters - CIO Magazine
March 15, 2001
Frito-Lays Information System


Everyday 10,000 salespeople use
handheld computers to track the 14
million Frito-Lay products sold off
shelves and vending machines.
It is combined with other data into a
gigantic database used to generate vital
market information.
http://www.smeal.psu.edu/miswe
b/infosys/emiscase.html
The Result

Because the database is updated daily,
Frito-lay has access to almost real-time
information on every aspect of their
business.

Financial, historical, and competitive data.
http://www.smeal.psu.edu/miswe
b/infosys/emiscase.html
The Competitive Advantage

Tightens the link between every function
involved in making, distributing and selling
the products.



Helps to locate potential problems in maintaining
sales levels and market share.
Helps reduce the costs of supplies.
Used to automate the production scheduling
process for the chips as they come off the line.
http://www.smeal.psu.edu/miswe
b/infosys/emiscase.html
The Most Important
Advantage

The most important advantage of FritoLays information systems comes
through centralizing data yet allowing
managers of regional operations access
to this vast database and software to
use it effectively in a distributed
processing environment.
http://www.smeal.psu.edu/miswe
b/infosys/emiscase.html
The Customer



Frito-Lay salespersons can key in orders
for each customer on-the-spot.
Customer receives a printout of the
order and a receipt, with tax, discounts,
and promotions and no errors.
Faster delivery and less “stales”
http://www.smeal.psu.edu/miswe
b/infosys/emiscase.html
The Boeing Company
• Heritage—Airplane maker founded in 1916,
Seattle, Washington
• Today
• Largest aerospace company in the world; largest
manufacturer of commercial airplanes, military
aircraft and satellites
• 198,000 employees
• Major operations in 27 states, Canada and Australia
• Customers in 145 countries
http://www.boeing.com
Company Leadership
Chairman and
Chief Executive Officer
Vice Chairman
Harry Stonecipher
Phil Condit
Business Unit Leaders
President and
Chief Executive Officer,
Space and Communications
President and
Chief Executive Officer,
Commercial Airplanes
Jim Albaugh
Alan Mulally
President and
Chief Executive Officer,
Military Aircraft and
Missile Systems
Jerry Daniels
Senior Vice President
President,
Connexion by BoeingSM
Senior Vice President,
Engineering & Technology
Chief Technology Officer
Scott Carson
Dave Swain
http://www.boeing.com
Global Sales
Dollars
in billions
International
United States
70
60
$56.1
$51.3
50
40
$58.0
26.5
23.5
17.6
30
20
10
29.6
34.5
33.7
1998
1999
2000
0
Boeing is the largest United States exporter.
http://www.boeing.com
Revenue by Market Segment
Year-end 2000
Military Aircraft
and Missiles
24%
Commercial
Airplanes
60%
15%
Space and
Communications
1%
Other
Total = $51.3 billion
http://www.boeing.com
Commercial Airplanes



In the next 24 hours, 3 million people will
board 42,300 flights on Boeing jetliners,
carrying them to nearly every country on
Earth.
Headquarters— Seattle, WA
Main products—717, 737, 747, 757, 767, 777
and Boeing Business Jet. Commercial
Airplanes is the world’s largest producer of
commercial jetliners, with more than 13,000
in service worldwide.
http://www.boeing.com
Space and Communications





In the next 24 hours, 335 satellites put into orbit by
Boeing launch vehicles will pass overhead.
Headquarters—Seal Beach in Southern California
Human space flight and exploration
 International Space Station and Space Shuttle
Missile defense and National Missile Defense and
space control
Information and communications
 Built the original 40 GPS satellites
http://www.boeing.com
Military Aircraft and Missiles


In the next 24 hours, 6,000 Boeing
military aircraft and missiles will be on
guard with the air forces of 20 countries
and with every branch of the U.S.
military.
Headquarters—St. Louis, Missouri
http://www.boeing.com
Connexion by BoeingSM



High-speed, two-way Internet and live
television services to aircraft in flight.
Personalized, real-time services for airline
passenger including on-line shopping and email services
Aircraft personnel have access to operational
data not currently available through
traditional communication channels

Helps to improve airline operational efficiency
http://www.connexionbyboeing.com
Connexion Market Segments

Private Jet Airliner Market


Commercial Airliner Market


Installation is expected to begin in early 2002
Governmental Market


Service is currently available for this market
Military planes
As the market matures, future markets
develop


Cruise Ships
Oil Drilling Platforms
Competitive Advantage




According to Larry DeShon, Marketing Vice
President for United Airlines, “There is
currently no service comparable to this in the
market.”
First truly broadband communication service
for people on the move
First-Mover (First-to-Market) Advantage
Fills the void area created by the limited
choices you now have when you fly, for
example:

Reading Books, Watching pre-recorded Movies, and
Sleeping
Daily Defense International December 15, 2001
Competitive Advantage
“Our competency in satellite systems,
commercial aircraft construction, and
high-speed, critical data transfer
methodology gives us a competitive
advantage that no narrowband provider
can match.”

Phil Condit, Boeing CEO
Sustainable Competitive
Advantage



Boeing is already the world’s largest
manufacturer of commercial airliners in the
world.
Four of the world’s largest airline companies
have signed deal with Boeing to pursue
Connexion.
Infrastructure to support Connexion is already
in place


Boeing owns the satellites required to make
Connexion work
Large Capital Investment Requirements keeps
competitors out of field
The “Mega” Deals

Three of the United States largest airlines and
Boeing



American Airlines
Delta Airlines
United Airlines


All signed Letter of Intent to pursue venture
Lufthansa and Boeing


Industry-leading European Air Carrier and Boeing
have signed a Memorandum of Understanding
International launch customer for Connexion
Connexion and the Customers

Business travelers need to stay connected in
the Information Age


Last year, Boeing’s CEO Phil Condit was in the
air for 600 hours or the equivalent of 75
eight-hour work days


Mobile communications have a dramatic impact on
business productivity
The airplanes he uses have the Connexion
capabilities and they act as his sky office
Leisure air travelers with has a more
complete and seamless flight experience
http://www.connexionbyboeing.com
Potential Problems

September 11, 2001 changed the airline
industry forever.


The future of some airline companies and the
industry as a whole is questionable.
Boeing lost the largest military aircraft
contract in history to Lockheed, a chief
competitor.

Could be good for Connexion as Boeing is forced
to pursue other strategies more forcefully.
American Airlines
SABRE Reservation System
Overview of American Airlines

Products





Sources: Morenet UMSL, Business and Company
Resource Center
http://galenet.galegroup.com
First Class
Coach
7 Day Advance
$16,377.0M Operating
Revenue (1999)
Customer Definition:
Anyone who has the
need for “fast and
convenient air travel,
both foreign and
domestic, for both
business and personal
trips.”
Organizational Chart
Donald J. Carty
President and CEO
Thomas W. Harton
CFO
Michael W. Gun
VP, Marketing
John R. Samuel
VP, Technology
Sources: Morenet UMSL, Business and Company Resource Center
http://galenet.galegroup.com
Organizational Chart (cont.)

Upper Management members of Board
of Directors




Needs of each division represented
Different frames of reference brought into
decision making
CIO reports to CEO
10600 other employees

$1,545,000 sales/employee
Sources: Morenet UMSL, Business and Company Resource Center
http://galenet.galegroup.com
The Traditional Purchasing
Chain
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo
(1998)
The Need for Automated
Reservation

1950’s introduction of jet planes
dropped price of airline tickets



Not enough employees to take reservations
Frequently changing schedules and fares
The idea of SABRE

Automate Reservation Process


Updated database reflecting changes in flight
schedules and fares
Printed tickets and boarding passes
automatically
The Success of SABRE




Processed 84,000 phone calls per day (a 40%
increase)
Saved 30% on American’s investment in staff
alone
Delivered an error rate of less than 1%
What this means to the customer:



“I’m choosing American b/c I won’t have to wait
as long on the phone or in line to get my ticket.
I’ve noticed their fares are a little cheaper than
the industry.
I know they’re going to get my reservation
correct.”
Sources: www.sabre.com/about/history/index.html
Problem in Sustaining
Competitive Advantage

Customers Needs Change



One stop shopping for hotel and airline
reservation available through travel agents
Travel agents marketed as pampering tool
and sign of status
Are travel agents the enemy?
The Travel Agent Model
No, they become the NEW CUSTOMER!
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo
(1998)
The Success of the Travel
Agent Model



Be a First Mover and you’ll be considered the “brains
of the operation.”
 SABRE used as term for every airlines’ entire IT
operation
Motivate the customer to use your product
 Free Microcomputer Workstation Terminals
What this means to the Travel Agent Customer:
 “Wow, American Airlines really knows a lot about
technology. They’re the industry leader.
 “Wow, American Airlines gave me a computer!
Would anyone else do that? I don’t think so. And
if other’s come around trying to sell a similar
product I won’t listen.”
Problem in Sustaining
Competitive Advantage

Competition will attempt to shut you down



Law suits poured in claiming “Unfair Advantage”
Other airlines began drafting their own automated
reservation systems
Result: The US Dept. of Justice Rules



SABRE continue in operation
Other Airlines be allowed to create similar systems
Only use one type of terminal per travel agency
Sustaining Competitive Advantage, Paul Saffo 1985
American Sustains Competitive
Advantage

First Mover



Already viewed as the brains of Automation
Successful track record used to retain existing
customers and seek out more
Switching costs high





Computer Terminal
Commission Incentive to travel agents
Lose all your previous transaction
Provided listing of all flights with all airlines
Travel agents made to sign contracts
Source: Parker and Case, MIS: Strategy and Actions,2nd ed., McGraw-Hill, 1993.
American Sustains Competitive
Advantage

Being the First Mover also allows you to stay
ahead of the game

Expanded services offered through the reservation
systems



Rental cars
Hotel rooms
Motivate everyone in the channel of
distribution to request your product


Commissions for the travel agencies
The “Pull Strategy”
Sustaining Competitive Advantage, Paul Saffo 1985
The Pull Strategy: The
Frequent Flier Model
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo
(1998)
Problems in Sustaining
Competitive Advantage

Once again, competition turned this into
a commodity

Changed the scope of business

Back to the drawing board
The Credit Card Model
Disintermediation:Longer, Not Shorter Value Chains are Coming. By Paul Saffo
(1998)
American Sustains Competitive
Advantage

Competitive Advantage can spawn
new business

Spun SABRE off into a subsidiary
“….If you told me I had to sell either the airline
or the system, I’d probably sell the airline.”
-Robert Crandall, CEO and President
There is a “…higher return on investment on
booking tickets than by operating aircraft.”
-Computer Network, 1990
-Computer Network, 1990
SABRE’s Success


Today, ROI is still in excess of 500%
3 out of 5 airline tickets are purchased
through SABRE



SABRE Roving Agent


Wireless check-in system
SABRE Pass Touch


Online
Travel Agents
Self Serve Kiosk passenger system
SABRE Wireless Check-In
What Should You Know?


CIOs Should Report to CEOs
Competitive Advantage is difficult to sustain





The customer’s needs change or the customer
changes all together
Competition will always imitate
Lawsuits will arise with seemingly unfavorable
outcomes
IT Competitive Advantage can change the scope
of business
There is a pattern: introduce competitive
advantage -> some problem makes it a
commodity->reposition for advantage
Rarely, A Product Sustains

SABRE sustained

Being the first mover

Offering tangible benefits to customer

Making switching costs high

Involving customers at every level
IT can Create Competitive
Advantage
• IT can differentiate a product or service
(Boeing and Frito-Lay)
• IT can shorten business processes:
(Frito-Lay - eliminates up to 30,000 to 50,000 man hours of
paperwork each week)
• IT can spawn new businesses
(Boeing)
• IT can change entire industry structures
(American Airlines)
Management of Information Systems, Lacity, Fall 2001
IT Systems
Contribution
to Business
Operations
Critical
Frito-Lay
American
Airlines
Commodity
Differentiate
Useful
Where will Boeing be?
Best Practices for Managing
IT: The CIO
1.
2.
3.
Serves as a bridge between IS, senior
management, and users.
Works to encourage joint problem solving
Provides vision and leadership to accelerate
the delivery of new competitive or businesscritical systems.
Paradigm Shift The New Promise of Information Technology, Don
Tapscott and Art Caston, 1993
Best Practices / Lessons




Timing – first to market
Innovative – offers a change to a
process or product
Flexibility – able to respond quickly to
market
Partnership – able to create customer
loyalty
IS480 lecture notes, Lacity, Fall 2001
Summary

Difficult to achieve a true competitive
advantage
-- Access to capital
-- Switching cost
-- Technical skills
-- Management IT skills
MIS Quarterly, 1995 “IT and sustained competitive advantage” by
Francisco Mata