2-1 the top is job lecture 4. 2-2 summary of previous lecture

2-1

The Top IS Job

Lecture 4

2-2

Summary of Previous Lecture

Summary.. The Top is Job

The responsibilities of the head of the IS function now go far beyond operating highly efficient “production programming shops.” These executives must understand the goals of the enterprise and work in partnership with line executives to deploy IT to attain the organization’s goals

2-3

Summary .. The Top is Job We shall discuss in next lectures the top

IS executive’s job, looking first at the top job itself by summarizing six major responsibilities, and then exploring several ways the information systems function is evolving in organizations

2-4

Summary … The Top is Job The SABRE system, Lifescan, BP, Aetna

Life and Casualty, Duke Energy International, Wal-Mart Vs. Kmart, AXA Financial, and Rexam provide examples of how the role of information systems management is changing

2-5

Today’s Lecture Introduction

Where is the IS Organization headed? The Escalating Benefits of Information Technology Case Studies SABRE International, BERGEN BRUNSWIG Wal Mart

2-6

Introduction Management of IT has changed drastically in the past 50

years

Early days = manage the technology: Get it to work Keep it running Reduce cost of doing business

Then = manage the information resources Support (management) decision making

Delivering information when and where it was needed

Now = IT is pervasive and is a mandatory link between enterprises

2-7

2-8

Introduction cont.

• Responsibilities of the head of IS now go far beyond operating highly efficient ‘production programming shops’

• These executives are now part of top management and help form the goals of the enterprise in partnership with the CEO, CFO and other members of top management

2-9

Where Is The IS Organization Headed?

• The Escalating Benefits of Information Technology– Kenneth Primozic, Edward Primozic, and Joe

Leben introduce the notion of “Waves of Innovation” which they define as how IT is used by industries and enterprises.

• There are five Waves of Innovation (Figure 2-1):

5. Reaching the consumer

6. Enhancing executive decision making

7. Enhancing products and services……………………………………………………………………………………

2. Leveraging investments

3. Reducing cost

2-10

Where Is the IS Organization Headed?

Escalating Benefits of IT

THE SABRE SYSTEMCASE STUDY

2-11

SABRESemi Automated Business Research Environment

Source : American Airlines, Simon Forty, 1997

SABRE : What is it? SABRE is a completely automatic ,

centralized , electronic airlines reservations system developed by IBM for American Airlines.

Source : IBM Corporate Archives, New York

Overview

Size of company : $ 2.1 billion revenue in 2001 Employee : Approximately 5,500 employees in 45

countries Major Product : Airline ticket Customers : Travelers and Travel agents Headquartered : Southlake, Texas SABRE connects more than 59,000 travel agents

around the world, providing content from 450 airlines, 53,000 hotels, 54 car rental companies, eight cruise lines, 33 railroads and 228 tour operators

Source : www.sabre.com and Business and Company Resource Center, www.infotrac.galegroup.com

Revenue from SABRE Inc. declined 19% from 2000 to 2001 and has grown a total of 18% since 1997

Source : Goldman Sachs, PrimeAccess Research

Data as of March 14, 2002

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

1997 1998 1999 2000 2001

Revenues inBillions

Organization ChartWilliam J. Hannigan

CEO

Sam GilliandCMO

Carol KellyCIO

Michael HaefnerHR

Jeffery JacksonCFO

Source : www.sabre.com

What prompted change?

Needed a system to regulate the flow of passengers due to the increasing number of people who want to travel by plane.

Lost millions of dollars due to the manual reservation system.

Source : High Technology Business, Wheeler Helen, Boston, 1987 Historical Dictionary of Data Processing Technology p.331-332, James W. Cortada, New York

The History of

“SABRE”

SABRE 1959-1969

- American Airlines and IBM signed contract for the development of a communications-bases reservation system - The first SABRE system is installed. SABRE

becomes one of the first of the large , online , real-time applications using computer developed in the United States.

1960

1959

SABRE 1959-1969

- SABRE system is complete. 1964

- The initial research, development and installation investment in this system took a 400 person staff and cost almost $40 million

Source : Historical Dictionary of Data Processing Technology p.331-332, James W. Cortada, New York www.sabre.com

SABRE 1959-1969 Initial startup success

Once the system was complete in 1964, AA saved 30% on its investments in staff alone.

Average time required to complete the processing of reservations transaction reduce from 45 minutes to 3 seconds.

Error rate reduce to less than 1% Automatically reminds AA agents at various

locations to advise their scheduled passengers of any changes affecting them.

SABRE 1959-1969 Initial startup success

More airline seats will be available to the customers. Automatically advise agents to check on passengers

who have not picked up their tickets within the time limit.

Maintain and automatically process waiting lists of passengers desiring space on fully-booked flights.

Automatically supply fare quotations for most flights. Automatically supply information on arrival and

departure time for the current day’s flight.

SABRE 1970-1979

- AA began marketing SABRE to travel agencies and airlines throughout the US.

- The SABRE system is installed in a travel agency for the first time. Passengers can also ask for hotel reservations, car rentals, special meals etc.

- 86% of the top 100 agency accounts located in highly competitive markets elect to use SABRE system.

- United Airlines introduces their Apollo System.

1976

1975

- Internal Users, Travel Agents, Travelers and External Users.

- United Airlines with the Apollo Computer Reservation System (CRS).

- Being a first mover with products and services

SABRE 1970-1979

Customers

Competitors

CompetitiveAdvantage

SABRE 1980-1989 - SABRE had 41% of the market share &

Apollo had 39%, started offering computer terminals to travel agents.

- Started to market a travel awards program AADVANTAGE

- Unveiled AAirpass with 5 year to lifetime options

- Reorganized to AMR Corporation- 10,000 travel agencies were now using

SABRE- AMR builds worlds largest private data

base in Tulsa Ok.

1981

19821985

Source : Business Week, Transportation, August 1982 www.sabre.com

1987

- Internal Users, External Users, Travel Agents and Travelers.

- Apollo, PARS (TWA) and Amadeus.


SABRE 1980-1989

Customers

Competitors


SABRE 1990 -1999

- SABRE introduces SABRE AirFlite a flight scheduling system

- To prepare for Y2K, new software is sent to 40,000 travel agents

- SABRE becomes a separate legal entity of AMR followed by an IPO of 18 percent of its stock.

- Travelocity.com is launched

1992

1995

1996

Source : Air Transport World, Sabre Unleashed, Nov. 1996 www.sabre.com

- External Users, Travel Agents and Travelers.

- Apollo, Galileo (buys Apollo in 1993), Amadeus, Expedia.com (Microsoft)


SABRE 1990-1999

Customers

Competitors


SABRE 2000- Present- SABRE acquires GetThere.com a B2B internet

provider of travel services.- SABRE is completely spun off from AMR

Corporation.- AMR spun off SABRE due to decrease in

options “SABRE is guiding AMR and it should be the other way around”.

- AMR looking for ways to expand profits.- Internet allows access to more people without

travel agents.- AMR is to retain 25 leading developers

2000

Source : Air Transport World, AAdios to Sabre, Feb. 2000 www.sabre.com

Reasons

SABRE 2000- Present- AMR now competes against SABRE with

Orbitz.com- SABRE signs a long term contract with AMR- SABRE sells IT outsourcing business to

EDS, SABRE will focus on software, distribution, travel marketing and reservation hosting - transfer 4,200 employees to EDS- transfer 250 employees to AMR Corp.- Selling the Data Center“They obviously

don’t view anything as a sacred cow”

2001

Source : Computerworld, Sabre sells IT business to EDS, March, 2001

SABRE Summary

- American Airlines designed the system initially to be a competitive advantage to increase the number of reservations and reduce transaction errors

- Sold CRS to external vendors (first mover)- Gave travel agents a terminal (first mover)- Added services, travel, hotel, etc. (first mover)- Added features – EaasySABRE, SABRE AirFlite

(first mover)- Added Travelocity.com (first mover)

SABRE’s Competitive Advantage

- New products- Set the market and make change – prefer not

to follow the competitors- Need continued change to keep

customers- Customers like new ideas and “better”

services- Update products & services

- Add extra features to feel continued “value added”

Waves of Innovation- Below the line (Saving $)

Wave 1: Reducing costs Began in the ’60s Focused on increasing the productivity of

individuals and business areas by e.g. automating manual processes

Wave 2: Leveraging Investments Began in the ’70s Concentrated on more effective use of corporate

assets Systems justified on ROI, cash flow etc.

2-33

Waves of Innovation- Above the line (Making $)

Wave 3: Enhancing Products & Services Began in the ’80s Attention shifted to using IT to produce revenue by gaining strategic

advantage or creating entirely new businesses

Wave 4: Enhancing Executive Decision Making Began in the late ’80s Changed fundamental structure of organizations Created real-time business management systems

Waves 1 & 2 = could be done at ‘any time’ (and are still being done!)

Waves 3 & 4 = must be implemented once an industry leader has set a precedent Companies that don’t do = cease to be competitive

2-34

Waves of Innovation- Above the line (Making $) cont.

Wave 5: Reaching the Consumer Began in the ’90s Uses IT to communicate directly with consumers leading to

new: Marketing Distribution, and Service strategies

Changes the rules of competition

Management must be involved in guiding IT use once you ‘cross the line’ Management must steer the company in the new (evolved)

business environment Not the ‘techies’

2-35

2-36

• Waves 1 and 2

– SABRE built to reduce costs of making airline seat reservations

• Wave 3

– System expanded so it could be used directly by travel agents

• Wave 4

– System expanded to include hotels and rental cars through alliances with these suppliers

The SABRE system (American Airlines)Case example: ‘Waves of Innovation’

2-37

• Wave 5

American extended their reach to the consumer:

– Introduced EAASY SABRE that enabled consumers direct access from their PCs

– AAdvantage – frequent flyer program

– Enhanced their Wave 5 connections to consumers via the Web (and mobiles?)

– Targeted its most profitable customers = Frequent Flyers

• Marketing strategy including ‘distressed inventory’ (the unsold seats)

• Note: this example also illustrates that as the benefits of IT increase, the importance of executive guidance also increases

The SABRE system (American Airlines)Case example: ‘Waves of Innovation’ cont.

BERGEN BRUNSWIG

Pharmaceutical Distributor

Bergen Brunswig Founded in 1969 from Lucien Brunswig’s

Brunswig Drug Co in Los Angeles; merged with Emil Martini’s Bergen Drug Co. in New Jersey.

Today : now called AmerisourceBergen as of 8/01

3rd largest pharmaceutical distributor in the world.

Source : bergenbrunswig.com

Company OfficersOrganizationa l Chart

K u rt J . H ilz in g erC O O /E xe c V P

L in da B urke ttC IO

M ich a e l D . C a n d iloC F O / S r V P

R . D a vid Y o stC E O /P re s id e n t

R o b e rt E . M a rtin iC h a irm a n o f the B o a rd


IT Organization

CIO- Linda Burkett 12,200 Employees for entire corporation 300 IT Employees 1999 Annual IT Budget : $58 million

Source : schwab.com/bergenbrunswig.com/Drug Store News 12/13/99 v21 i20 p36.

Major Products Being Sold

Generic Pharmaceuticals

Pharmaceutical Services

Pharmaceutical Solutions

Source : Bergenbrunswig.com

History of the System

1995 Linda Burkett promoted to CIO.

1996 Interlinx first implemented.

1999 Interlinx evolved into COE (Catalog & Order Entry), when Bergen moved from a desktop application to the web.

Known to customers as IBERGEN.COM

Source : Brooke Walton, Bergenbrunswig Marketing dept

Revenue Trend (bn)

$7.8$8.7

$9.8$11.7

$16.2

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

1997 1998 1999 2000 2001

1997

1998

1999

2000

2001

Source : Goldman Sachs PrimeAccess Research Mar 14-02

Earnings Per Share/Profit ($)

E$3.00

$2.10$1.90

$1.38$1.04$0.98

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

1997 1998 1999 2000 2001 2002

EPS

Source : S&P Stock Report 09-MAR-02

Customers

Hospitals

Traditional Pharmacies

Residential Delivery

Supermarket Pharmacies


Customer Interaction Orders placed through worldwide web.

Customers enter order, receive next day, sometimes same day.

Patients pickup prescription at pharmacy, store, hospital, or have home delivery.

Economic Forces on Bergen(1990-present) 1990-1992 Recession Clinton’s Healthcare Plan Mergers/Acquisitions FTC Antitrust concerns 1990’s Price fixing lawsuits FTC m&a approvals during G.W. Bush era HMOs, third party payers’ lower payments

Source : Drug Topics, Dec 13, 1993 v 137 n23 p102(3) ; Wall Street Journal

Critical Differentiatoro Rather than be acquired, Bergen Brunswig

decided to invest in IT to lower costs/maximize profit;

o Build the best pharmaceutical distribution platform through inventory/regional distribution centers;

o Moved from telephone ordering to desktop networks, and then onward to the worldwide web.

Sources : Brady, R. “The Strategic Use of Information : Seizing the Competitive Edge,” Information Week May 26, 1986 pp 26-62. Kettinger, William J. MIS Quarterly, Minneapolis; Mra 1994; Vol 18 Iss. 1; pg 31,28pgs

Key Features of a Successful System

Building relationships/Brand recognition. Mass of Force. Ability to grow leaps and bounds in a short time. Showing customers how Bergen can save them money which

keeps customers in business for the long run. Investing in IT to compete in low margin environment. Fulfillment. Regional distribution centers. Competitive pricing. Same Day Service/Next day service (bulk shipments). Solid supplier agreements as well as 3rd party carrier

agreements.

Source : Drug Store News, Dec 13, 1999 v21 i20 p20

EPS Comparisons

Bergen vs. main competitors

-$0.50

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

1997 1999 2001

Bergen

McKesson

CardinalHealth

D & K

Source : Schwab.com/S&P Stock Report 9-Mar-02

Competitive Advantage System Designed for Competitive

Advantage from the beginning to continue brand recognition and dominance while building solid long term relationships.

Wal Mart

2-53

Background Information Financials Customers/Suppliers/Competitors IT Organization and Architecture IT Strategic Advantage

EDI

Background Founded by Sam Walton in 1962 Company founded with first store in

Rogers, AR

Headquarters: Bentonville, AR 38 stores in 1970 4732 stores today

http://www.walmartstores.com/wmstore/wmstores/Mainabout.jsp

Financials

$191 Billion in Sales in 2001 Five Times that of AOL Time Warner

$8 billion in capital spending in 2001 Market Expansion

Cash flow of $9.8 billion Up 17 % from 2000

(5)

Competitors/Suppliers Competitors

KmartSearsTarget

SuppliersP & G Thousands of others

(4)

Distribution Structure

Vendor Vendor VendorVendorVendor

Distribution Center Distribution Center Distribution Center Distribution Center

Store Store Store Store StoreStore Store Store

IT Organization Most powerful computer system in the corporate

world Second largest data warehouse Logistics Technology

Retail LinkTM

Enormous Network Infrastructure CIO: Kevin Turner $500 million IT budget

.26 % of Annual Sales Revenue

(6)

Distribution Structure

• Supply Chain Management Create superior efficiencies through SCM

1. Decentralize distribution through multiple distribution centers

2. Centralize management and control

3. Excellent coordination with multiple suppliers

(4)(3)(2)

IT Critical Differentiator: EDI Transmission of data to and from various

companies Examples:

Purchase OrdersPayment information Inventory information Invoices

WHY EDI? Realized the complexity of their supply

chain Thousands of Stores, Suppliers and Products

Inventory management removed from store level

Also: Transaction Costs Paperless Environment Inventory Management Efficiencies JIT of Retail

“Everyday low price strategy” through up-to-date sales information(1)(4)

EDI • How does it work?• Through telephone line:

1. Item is purchased2. Computer Adjusts Inventory3. Need To Order Level reached4. Purchase Order sent to vendor5. Vendor replenishes and sends invoice6. Wal-Mart sends electronic funds transfer

(2)(4)

Retail LinkTm

Software that enhances EDI functionality Provided to vendor in 1991 Allows for much better forecasting and

reporting abilities Faster replenishment Better communication between Wal-Mart

and Vendors

(1)(3)(5)

EDI and Retail LinkTM Today No longer through telephone lines

Cisco Networking Web Enabled

Most vendors now utilize Retail LinkTm

Required enrollment: EDI

(1)(2)

EDI Critical Differentiator?YES

Has allowed for a 2-3 percent reduction in costs

Allowed for increased vendor responsivenessResulted in Wal-Mart out pricing it’s

competitorsSuperior Customer SatificationSales Revenues tell the story

(3)(4)(5)

Sales Revenue

020406080

100120140160180200

1991 1995 1998 2001

Sales(Billions)

2001 Annual Report, Wal-Mart Inc.

Summary of Todays

68

Where is the IS Organization headed? The Escalating Benefits of Information TechnologyCase Studies SABRE International, BERGEN BRUNSWIG Wal Mart

2-1 the top is job lecture 4. 2-2 summary of previous lecture

Documents