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Week 1 Monday, January 23

Week 1 Monday, January 23. Strategy & IT. From Automation to Integration. MIS Reporting. Decision Support. Enterprise Systems. EDP. Automation (Productivity and Efficiency). Organization Integration. 25 years. Strategic Planning. What is strategic planning?

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Week 1 Monday, January 23

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  1. Week 1Monday, January 23 Strategy & IT

  2. From Automation to Integration MIS Reporting Decision Support Enterprise Systems EDP Automation (Productivity and Efficiency) Organization Integration 25 years

  3. Strategic Planning • What is strategic planning? • What is the significance of strategic planning? • How does information technology (IT) fit into a strategic plan? • Are all strategic plans the same? • Why do some organizations succeed and other fail?

  4. AmericanAirlines and SABRE:Using IT to Gain a Competitive Advantage

  5. American Airlines and SABRE • After World War II, air travel in America became very popular • Large jetliners were soon to replace propeller-driven airplanes • A large number of passengers could be carried with one flight • The current method of processing passenger reservations needed to be changed to accommodate greater demands

  6. American Airlines and SABRE Passenger Reservations Sacramento New York Dallas

  7. American Airlines and SABRE Passenger Reservations Sacramento New York Dallas

  8. American Airlinesand SABRE Passenger Reservations Sacramento New York Dallas

  9. American Airlines and SABRE Passenger Reservations Sacramento New York Dallas

  10. Problem with Matching Passenger Names to Seats Reservation List Passenger Flight Date

  11. Problems with Manual Passenger Reservations • Difficult to match passenger names to seats • Resulted in poorly managed inventory (i.e., seats on a flight) • Overbooking: Dissatisfied customers • Underbooking: Lost revenue • Aircraft with greater seating capacity and greater frequency of use on the horizon • More inventory and passengers to keep track of

  12. Capacity Shifts 48-105 passengers Douglas DC-7 Cruising speed: 365 mph Greater number of passengers  114-149 passengers Greater utilization of resources Boeing 707 Cruising speed: 550-600 mph 

  13. American Airlines and SABRE • In 1953, C.R. Smith, president of American Airlines initiated a five-year study with IBM to assess the technical feasibility of an automated and integrated passenger name reservation system. • In 1958, American and IBM sign an agreement to develop and implement America’s first automated passenger reservation system • The system is named SABER (Semi Automated Business Environment Research)

  14. American Airlines and SABRE: System Objectives • Match passenger to seats • Contain seat availability on all the carrier’s schedules • Print passenger itineraries • Issue boarding passes • Perform all of the above in a travel agent’s office

  15. American Airlines and SABRE: Initial System • Installation begins 1961 • System comprised of • Two IBM 7090 mainframe computers • Six magnetic drums with 7.2 megabytes of storage • Records of seat inventory • Flight schedules • Application programs • Memory to handle 1,100 concurrent customers IBM 7090 Processing System

  16. American Airlines and SABRE: Initial System • Cont. • Sixteen disk storage units with 800 megabytes of storage • Passenger reservations • Duplicate copies of all information stored on the drums • The system was fully operational by 1964

  17. American Airlines and SABRE: Upgraded System • Subsequent upgrades included: • Fare quotation • Advance check-in • Boarding pass issuance • Stand-by passenger handling • Itinerary generation

  18. Retail Automation and theAirline Deregulation Act of 1978 • Retail automation • Objective: Extend the reach of the reservations system beyond the airline's organizational boundaries to the industry's distribution system • Operationalize:Placed reservation system terminals in travel agencies and in large corporate offices • Cooperation:Formed a joint task force with travel agencies and hardware vendors to solicit further specifications of the system (1974) • Use the system to exploit the deregulated market

  19. Retail Automation • American installs SABRE terminals with specifications made by the joint task force in travel agencies • Reservations centralized in Tulsa, Oklahoma Tulsa, Oklahoma

  20. American Airlines and SABRE: Retail Automation

  21. Co-Host Programs • American would display the schedules of other airlines on SABRE for a fee • Intended to increase SABRE’s presence in markets American did not service • Extended American’s reach to markets served by rival United

  22. Anti-Trust Law Suit • In 1984, eleven domestic airlines filed a suit against American and United claiming they possessed a monopoly in the electronic booking of seat reservations • Involved anti-trust violations • No carrier could afford to give up the chance to sell tickets to customers of travel agents booking a large portion of its revenues in the region it serves

  23. Anti-Trust Law Suit (Cont.) • Both American and United required travel agents using their systems to become franchised dealers, selling tickets on other carriers only to the extent the host permitted • The systems were powerful, anti-competitive weapons

  24. Anti-Trust Law Suit (Cont.) • The government ruled: • When a vertically integrated monopolist controls a non-duplicable resource at one level that is essential to competition at a second level, it must offer the resource to all on the same terms

  25. American Airlines and SABRE:Summary • Competitive Advantages • Accurate passenger inventories allowed American to manage under/overbookings to jointly optimize passenger service and capacity utilization levels • Reduced labor content in the reservations process while increasing the productivity of the remaining reservation personnel (efficiency) • Increased their presence in current markets • Increased their presence in markets not served

  26. Business Model and Strategy • What is a business model? • What is strategy and strategic planning? • What is the significance of strategic planning? • How does information technology (IT) fit into a strategic plan? • Are all strategic plans the same? • Why do some organizations succeed and other fail?

  27. Anthony's Levels of Management Strategic Planning Management Control Operational Control

  28. American Airlines and SABRE Strategic Tactical Reservations Operational

  29. American Airlines and SABRE Strategic Retail Automation Co-hosting Tactical Marketing Tool Operational

  30. Processes Outputs Inputs Business Model • Defines how an enterprise interacts with its environment to define a unique strategy, attract the resources and build the capabilities to execute it • Creates values for all stakeholders Defines how inputs are converted to outputs

  31. What are strategy, strategic plans and strategic management?

  32. What is Strategy? • Strategy is the pattern of missions, objectives, policies, and significant resource utilization plans stated in such a way as to define what business the company is in (or is to be in) and the kind of company it is or is to be. It defines: • The product line, markets and market segments for which products are to be designed • The channels through which these markets will be reached • The means by which the operation is to be financed • The profit objectives

  33. What is Strategy? Cont. • The size of the organization • The image which it will project to employees, suppliers and customers Bullen and Rockart, 1981

  34. What is Strategy? • Defines the revenue and growth potential of the organization • Focuses attention and resources on a specific set of goals and the projects required to achieve themApplegate, Austin and McFarlan

  35. Mission, Goal and Objectives What segment of the market do we want to target? Target Market

  36. Levels of Management • Strategic Planning "Strategic planning is the process of deciding on objectives of the organization, on changes in these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of these resources." • Management control "Management control is the process by which managers assure that resources are obtained and used effectively and efficiently in the accomplishment of the organization's objectives."

  37. Levels of Management (Cont.) • Operational control "Operation control is the process of assuring that specific tasks are carried out effectively and efficiently." Anthony, 1965

  38. Differences in Activities

  39. Some Distinctions Between Strategic Planning and Management Control

  40. Some Distinctions Between Strategic Planning and Management Control (cont.) Robert Anthony

  41. Some Distinctions Between Management Control and Operational Control

  42. Some Distinctions Between Management Control and Operational Control (cont.) Robert Anthony

  43. Planning within the Organization Strategic Strategic Plan Planning Tactical Plan Management Control Operational Control Operational Plan

  44. Information Technology • Coordinated application of • Hardware • Software • Networks • Workstations • Robotics • Smart chips Elements

  45. IT and the Organization • IT enables fundamental changes in the way work is done • IT enables the integration of business functions at all levels within and between organizations • IT causes shifts in the competitive climate of many industries • IT presents new strategic opportunities for organizations that reassess their mission and goals • Successful application of IT requires changes in management and organization structure • A major challenge exists for management to lead their organizations through the transformation necessary to prosper in the globally competitive environment

  46. Changes in Information Technology • Three major advances in technology of the 1990s • Telecommunications • Storage devices • Desktop computing We have the ability to access, store and process more data faster and in different ways.

  47. Model of Strategic IT Planning Management of IT depends on how the business views IT High Strategic Strategic IT plan, initiatives Factory Operational IT Impact on Business Operations Support Basic elements Turnaround Gradual adoption Low Low High Impact on Strategy

  48. Strategic Grid Quadrants: • Support – goals target local improvements and incremental cost savings (e.g., office automation) • Factory – designed to reduce costs and improve performance of the core operations • Automation and computerize functions • Turnaround – designed to exploit emerging strategic opportunities • Integration of the organization • Strategic – commitment to use IT to enable both core operations and core strategy • IT an integral part of strategy

  49. For example…

  50. Peapod

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