Lecture Business management information system - Lecture 4: 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. 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.

The Top IS Job

Lecture 4

Summary of Previous Lecture

Summary The Top is Job

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

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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

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

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Today’s Lecture

 The Escalating Benefits of Information Technology

 Case Studies SABRE International,

 BERGEN BRUNSWIG

 Wal Mart

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 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

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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

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

4 Enhancing executive decision making

3 Enhancing products and services

………

2 Leveraging investments

1 Reducing cost

Where Is the IS Organization Headed?

Escalating Benefits of IT

THE SABRE SYSTEM

CASE STUDY

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SABRE : What is it?

centralized , electronic airlines

reservations system developed by IBM for American Airlines.

Source : IBM Corporate Archives, New York 

 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

number of people who want to travel

by plane

dollars due to the manual reservation system

Source : High Technology Business, Wheeler Helen, Boston, 1987

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

SABRE 1959-1969

Initial startup success

saved 30% on its investments in staff alone

processing of reservations transaction reduce from 45 minutes to 3 seconds

locations to advise their scheduled

passengers of any changes affecting them

SABRE 1959-1969

Initial startup success

customers

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

of passengers desiring space on fully-booked

flights

flights

departure time for the current day’s flight

SABRE 1970-1979

agencies and airlines throughout the US

agency for the first time Passengers can also ask for hotel reservations, car rentals, special meals etc

located in highly competitive markets elect

to use SABRE system

System

1976

1975

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

Apollo Computer Reservation System (CRS).

products and services

SABRE 1980-1989

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

AADVANTAGE

options

1987

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

Amadeus.

products and services

of AMR followed by an IPO of 18 percent

- External Users, Travel Agents and Travelers.

in 1993), Amadeus, Expedia.com (Microsoft)

products and services

- 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

EDS, SABRE will focus on software, distribution, travel marketing and

reservation hosting

don’t view anything as a sacred cow”

2001

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

SABRE Summary

to be a competitive advantage to increase the number of reservations and reduce transaction errors

(first mover)

SABRE ’s

Competitive Advantage

to follow the competitors

customers

services

added”

Waves of Innovation

- Below the line (Saving $)

 Began in the ’60s

 Focused on increasing the productivity of

individuals and business areas by e.g automating manual processes

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

Waves of Innovation

- Above the line (Making $) cont.

 Wave 5: Reaching the Consumer

 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’

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– System expanded to include hotels and rental

cars through alliances with these suppliers

The SABRE system (American Airlines)

Case example: ‘Waves of Innovation’

• 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

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

8/01

world

Source : bergenbrunswig.com

IT Organization

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

Major Products Being Sold

History of the System

Order Entry),  when Bergen moved from a desktop application to the web. 

Source : Brooke Walton, Bergenbrunswig Marketing dept

Source : Goldman Sachs PrimeAccess Research Mar 14­02

Earnings Per Share/Profit ($)

Hospitals

Traditional Pharmacies

Residential Delivery Supermarket Pharmacies

Source : bergenbrunswig.com

Customer Interaction

sometimes same day

store, hospital, or have home delivery.

Economic Forces on Bergen

era

payments

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

Critical Differentiator

o 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 26­62.

      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 3 rd party carrier

agreements.

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

Cardinal Health

D & K

Source : Schwab.com/S&P Stock Report 9­Mar­02

Competitive Advantage

Advantage from the beginning to continue brand recognition and dominance while

building solid long term relationships

Wal Mart

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Background

 Five Times that of AOL Time Warner

 Market Expansion

 Up 17 % from 2000

(5)

Distribution Structure

Vendor Vendor Vendor Vendor Vendor

Distribution Center Distribution Center Distribution Center Distribution Center

Store Store Store Store Store Store Store Store

 Enormous Network Infrastructure

 26 % of Annual Sales Revenue

(6)

Distribution Structure

 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

WHY EDI?

chain

 Thousands of Stores, Suppliers and Products

up-to-date sales information(1)(4)

EDI

(2)(4)

EDI and Retail LinkTM Today

 Cisco Networking

 Web Enabled

(1)(2)

costs

competitors

(3)(4)(5)