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The Top IS Job

The Top IS Job. Lecture 4. Summary of Previous Lecture. Summary.. The Top is Job.

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The Top IS Job

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  1. The Top IS Job Lecture 4

  2. Summary of Previous Lecture

  3. 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

  4. 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

  5. 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

  6. Today’s Lecture • Introduction • Where is the IS Organization headed? • The Escalating Benefits of Information Technology • Case Studies SABRE International, • BERGEN BRUNSWIG • Wal Mart

  7. 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

  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

  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): • Reaching the consumer • Enhancing executive decision making • Enhancing products and services • …………………………………………………………………………………… • Leveraging investments • Reducing cost

  10. Where Is the IS Organization Headed? Escalating Benefits of IT

  11. CASE STUDY The sabre system

  12. SABRE Semi Automated Business Research Environment Source : American Airlines, Simon Forty, 1997

  13. 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

  14. 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

  15. Revenue from SABRE Inc. declined 19% from 2000 to 2001 and has grown a total of 18% since 1997 Data as of March 14, 2002 Source : Goldman Sachs, PrimeAccess Research

  16. Organization Chart William J. Hannigan CEO Sam Gilliand CMO Carol Kelly CIO Michael Haefner HR Jeffery Jackson CFO Source : www.sabre.com

  17. 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

  18. The History of“SABRE”

  19. 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. 1959 1960

  20. 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

  21. SABRE 1959-1969Initial 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.

  22. SABRE 1959-1969Initial 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.

  23. SABRE 1970-1979 1975 • 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

  24. SABRE 1970-1979 Customers • 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 Competitors Competitive Advantage

  25. SABRE 1980-1989 1981 • 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. 1982 1985 1987 Source : Business Week, Transportation, August 1982 www.sabre.com

  26. SABRE 1980-1989 Customers • Internal Users, External Users, Travel Agents and Travelers. • Apollo, PARS (TWA) and Amadeus. • Being a first mover with products and services Competitors Competitive Advantage

  27. 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

  28. SABRE 1990-1999 Customers • External Users, Travel Agents and Travelers. • Apollo, Galileo (buys Apollo in 1993), Amadeus, Expedia.com (Microsoft) • Being a first mover with products and services Competitors Competitive Advantage

  29. SABRE 2000- Present 2000 • 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 Reasons Source : Air Transport World, AAdios to Sabre, Feb. 2000 www.sabre.com

  30. SABRE 2000- Present 2001 • 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” Source : Computerworld, Sabre sells IT business to EDS, March, 2001

  31. 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)

  32. 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”

  33. 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.

  34. 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

  35. 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’

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

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

  38. BERGEN BRUNSWIG Pharmaceutical Distributor

  39. 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

  40. Company Officers Source : bergenbrunswig.com

  41. 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.

  42. Major Products Being Sold • Generic Pharmaceuticals • Pharmaceutical Services • Pharmaceutical Solutions Source : Bergenbrunswig.com

  43. 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

  44. Revenue Trend (bn) Source : Goldman Sachs PrimeAccess Research Mar 14-02

  45. Earnings Per Share/Profit ($) Source : S&P Stock Report 09-MAR-02

  46. Customers Hospitals Traditional Pharmacies Supermarket Pharmacies Residential Delivery Source : bergenbrunswig.com

  47. 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.

  48. 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

  49. Critical Differentiator 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 • Rather than be acquired, Bergen Brunswig decided to invest in IT to lower costs/maximize profit; • Build the best pharmaceutical distribution platform through inventory/regional distribution centers; • Moved from telephone ordering to desktop networks, and then onward to the worldwide web.

  50. 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

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