Using IT as a Competitive Weapon

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Using IT as a Competitive Weapon

• Group 2
• Joe Brennan
• Michelle Goff
• Bruce Eli Johnson
• Laura Paulick
• Kenny Yeung

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Col. John BoydUSAF

• Father of the F-15
• Father of the F-16
• Aerial Attack Study
• First Training manual for fighter Pilots
• Patterns Of Conflict
• Concept of fourth generation warfare
• Asymmetric Warfare

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American F86 Saber vs. Soviet MIG-1510-1 kill
ratio in Korea, why?
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OODA Loop

• Observe Orient Decide Act
• Saber pilots sat higher, joystick was hydraulic.
• We have to get inside their decision cycle

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OODA Loop
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OODA Loop

• Information Technology that moves one through the
  OODA loop faster will give a Competitive
  Advantage and be a weapon.

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Optimizing the Value ChainHow Information
Technology Gives you Competitive
AdvantageMichael E. Porter and Victor E.
Millar Harvard Business Review 1985

• Value Chain
• Activities connected by linkages
• Tradeoffs
• Coordination
• Physical and Information component
• To gain competitive advantage over rivals a
  company must either perform these activities at a
  lower cost or perform them in a way that leads to
  differentiation and a premium price.
• Information Technology
• allows you to build more value into the product
• helps to exploit the linkages
• improve coordination

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Nature of ITReview 9/28/2003
CONTRIBUTION COMMODITY DIFFERENTIATOR
CRITICAL Critical Commodities Critical Differentiators
USEFUL Useful Commodities Eliminate/Migrate
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Nature of ITReview 9/28/2003

• Critical-differentiators serve to differentiate a
  company from their competitors in the minds of
  their customers. Focus on service excellence.
• Critical-commodities are systems that everyone in
  the industry has, but whose operations are
  critical. Focus on service excellence.
• Useful commodities are standardized IT products
  and services. Focus on low costs.
• Useful differentiators are expensive distractions
  which need to be eliminated or migrated

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IT FOR COMPETITIVE ADVANTAGE

• Owens Minor
• Joe Brennan
• Political Fund-raising
• Laura Paulick
• OnStar
• Michelle Goff
• Bruce Eli Johnson
• Conclusion
• Bruce Eli Johnson
• Kenny Yeung

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IT FOR COMPETITIVE ADVANTAGE

• OWENS MINOR

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Owens MinorBackground

• 118 year old distributor of medical and surgical
  supplies.
• Fortune 500 company headquartered in Richmond,
  VA.
• 3.96 billion in sales
• Net Income of 48.7 million
• Gross Margin 10.6 of sales

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Owens MinorIT Organization

• The CIO, David Guzman reports to the CEO, Gil
  Minor.
• The IT budget is traditionally 1.2 of revenue.
• IT operations outsourced to Perot Systems.
• 165 people work on Owens Minor Perot team, 28
  involved with new development.

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Owens MinorIT OrganizationDavid Guzman, CIO

• Family migrant farm workers from Puerto Rico who
  settled in NJ
• Single mother household
• Welfare
• Worked in a textile mill at 12
• Yale on academic scholarship
• Fist Fights with uncle
• pajaritos de ambicion en tu cabeza
• little birds of ambition in my head

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Owens MinorCore Competency

• We are in the box moving business, says CEO Gil
  Minor. That is our core competency, that got us
  to the dance-getting the order there on time
  everyday, properly billed, the way the customer
  wants it, its fundamental block and tackling.
  Believe me if you mess around with that youre
  really going to fall on your face.

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Owens MinorEnvironment
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Owens MinorEnvironment

• For every dollar hospitals spend on supplies they
  spend another 40 cents on supply chain logistics.
• Hospitals buy 25 Billion worth of medical and
  surgical supplies each year.
• Very narrow margins-10 or less

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Owens MinorEnvironment

• Distributors of products dont have much say in
  prices, but they can help facilities manage their
  costs by focusing away from product costs,
  according to Christopher D. McFadden, VP of
  global investment research for Goldman Sachs
  Co. in New York.

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Owens MinorTraditional Distribution Business
Model
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Owens MinorWISDOM

• Wisdom-WebIntelligence Supporting Decisions from
  Owens Minor
• Web-based decision support tool that allows
  buyers a consolidated view of their information
  because it interfaces with the health care
  companies ERP, material management and clinical
  systems.
• Helps hospitals monitor purchasing data and
  contract compliance via the internet.

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Owens MinorWISDOM Impact

• Wisdom was key to winning 60million in new
  business and expanding existing business by
  100million in first year.1999
• In 2001 over a third of OM projected 3.8 Billion
  in sales will flow through wisdom
• Sales has grown every year since Wisdom has been
  instituted growing from 3.19 billion in 1999 to
  3.96 last year in 2002.
• Sales in the current year are projected to easily
  surpass 4 billion
• Profit has grown from 28 million in 1999 to 48.7
  million last year. This year profit is expected
  to hit a new record.
• Revenue increased 10 percent in 2000 to 3.5
  billion, a company record. Overall gains by
  competitors is about half that rate.

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Owens MinorWISDOM Impact

• Received Leadership Award from the Data
  Warehousing institute 1999
• Ranked 1 Information Week 500 2001
• Ranked 11 Information Week 500 2002
• Ranked 1 Information Week 500 2003

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Owens MinorWISDOM Impact

• Senior Management have come to view the Data
  Warehousing initiative as being so strategic that
  the director of decision services, Don Stoller
  was moved from the IS department to marketing.

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Owens MinorHistory of Wisdom

• 1995 OM purchased Stuart Medical
• Doubled the company from 1.5 to 3 billion
• Struggle to manage to dissimilar cultures
• First annual loss in 114 years
• 1998 Company unexpectedly lost two major
  contracts worth 400 million in annual sales.

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Owens MinorHistory of Wisdom

• 1996 Don Stoller was brought on board to head up
  data warehousing and decision support systems.
• Initially focused on supporting internal users
  who accessed data using BusinessObjects, a
  leading client-server query/reporting tool.

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Owens MinorHistory of Wisdom

• Oct. 1997 the warehouse team started to
  investigate moving to the web.
• Productivity-customers were asking OMs sales
  reps for more and more information. 30
  reports/month
• Greater Flexibility-Many users did not need the
  full functionality provided by BusinessObjects.
• Revenue Generator-Could charge for the service
  and be self sufficient profit center.
• Competitive Advantage-OM was the only health care
  company positioned to offer such a service
• Oct. 1999 WISDOM is formally launched
• Spring 2000 WISDOM2 launched

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Owens MinorWisdom2

• Decision support data and purchase history for
  all supplies bought be a health care company.
• This includes products the OM does not distribute
  such as pharmaceuticals, patient food, and linens
  and scrubs.

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Owens MinorWISDOM Benefits for Health
Organizations

• Contract Compliance
• Product Standardization
• Product Utilization
• Product Usage
• Service Level Tracking

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Owens MinorWISDOM Benefits for Suppliers

• Sales and Service Levels
• Contract Utilization
• Dropship Analysis
• Sales penetration Analysis
• Inventory Levels

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Owens MinorWISDOM3?

• Automated replenishment via
  Web-services

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IT FOR COMPETITIVE ADVANTAGE

• POLITICAL FUND-RAISING

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Competition to Raise Funds

• Company each candidate who wants to raise
  money
• Presidential Election 2004
• Candidates compete to raise funds
• Democratic candidates compete with each other
• Democratic candidates compete with George W. Bush
  as the Republican incumbent

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Direct Mail Fund-raising

• Traditional fund-raising by direct mail
• Survey by the Mellman Group in 1999
• Direct-mail reaches 12 million potential donors
• Two-thirds of these donors are age 60 or older
• Limitations of direct mail
• finite
• Aging
• Source Small Political Contributions Go a Long
  Way on the Internet, The New York Times, October
  19, 2003

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Internet Challenge to Direct Mail

• This class reached by direct mail is dwarfed by
  the potential internet market
• 50 million people have access to the internet and
  report giving time and money to social causes
• Source Small Political Contributions Go a Long
  Way on the Internet, The New York Times, October
  19, 2003

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Internet Advantages

• Internet has low-cost processing
• Less expensive than via direct mail
• Everybody now is looking for more efficient ways
  to raise the hard money at the least amount of
  cost
• Carla Eudy, Finance Director for John McCain,
  2000
• Source The Lefts Mr. Right, Newsweek, August
  11, 2003

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Internet Fund-raising History

• June 1999, Federal Election Commission permitted
  federal matching funds for credit-card donations
  over the Internet
• Former Democratic Presidential Candidate Bill
  Bradley lured thousands of younger, first-time
  givers to donate through his Web site
• Was yet to utilize full potential of web
  donations
• Source The Lefts Mr. Right, Newsweek, August
  11, 2003

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Fund-raising Potential

• By 2004, the Internet is expected to generate 25
  of all contributions of 100 or less
• Internet enables candidates to broaden their
  appeal
• Internet attracts more low-dollar donors
• Source The Lefts Mr. Right, Newsweek, August
  11, 2003

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Competition

• Dick Cheney went to South Carolina, raising
  300,000 at a 2,000-a-plate lunch
• Source The Lefts Mr. Right, Newsweek, August
  11, 2003

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• Howard Deans Web site ran this photo of him
  eating a turkey sandwich he raised 500,000
• Source The Lefts Mr. Right, Newsweek, August
  11, 2003

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Success of Howard Deans Internet Site

• Howard Dean raised three times as much money in
  the last three months as his Democratic
  competitors
• Deans fund-raising in the last three months
• fed by thousands of small Internet contributions
• financial front-runner in the nine-way race
• The fund-raising of some of his rivals declined
  in recent months.
• Dean raised at least 14.8 million in the last
  three months, closing the quarter with at least
  12.4 million in the bank. He has raised 25.4
  million this year
• Source Dean Outpaces Competitors in
  Fund-Raising and Spending, New York Times, Oct.
  16, 2003

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Success of Howard Deans Internet Site

• He compiled tens of thousands of small donors,
  many of whom gave over the Internet
• Internet contributions accounted for about half
  what was brought in this quarter
• Fewer than 1 percent of the campaign's
  contributors had reached the maximum 2,000 that
  an individual can give to a presidential
  candidate
• The campaign may be able to continue to draw
  money from its base of donors
• Though the campaign fell slightly short of its
  15 million goal, it set a single-quarter record
  for a Democrat in a presidential race.
• Source Dean Outpaces Competitors in
  Fund-Raising and Spending, New York Times, Oct.
  16, 2003

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Result of Fund-raising Success

• If the Service Employees International Union
  decide to endorse, Howard Dean could get the
  backing of the largest union of the AFL-CIO
• Huge blow to Dick Gephardts campaign
• Unions initially overlooked Dean as a marginal
  candidate. That changed when he surged in
  fund-raising
• Source www.cnn.com/2003/ALLPOLITICS

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Contribution Plans

• Source www.deanforamerica.com

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Monthly Contribution Plans

• Democratic Party effort to build a base of small
  regular donors
• Same marketing used in infomercials
• people can have donations automatically charged
  to their credit cards each month
• Match the base accumulated over the years by the
  Republicans
• Push within the Democratic Party to fill that
  void
• Source Small Political Contributions Go a Long
  Way on the Internet, The New York Times, October
  19, 2003

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Monthly Contribution Plans

• The plans appeal to constituents on more modest
  incomes who have to work within monthly budgets.
• In the Gephardt campaign, the average donation is
  17.08.
• ''A hundred dollars is a lot for someone who
  makes 300 a week,'' ''But I don't miss 5 a
  week.''
• Source Small Political Contributions Go a Long
  Way on the Internet, The New York Times, October
  19, 2003

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Role of New Campaign Finance Regulations

• Monthly contribution plans also act in response
  to these new regulations
• Individual contributions are capped at 2,000
• Source Small Political Contributions Go a Long
  Way on the Internet, The New York Times, October
  19, 2003

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Effects of Regulations on Competition

• ''The reason that the Democrats are now having to
  play catch-up is because the new campaign finance
  laws prevent them from being funded by a small
  universe of very wealthy people. They are forced
  to find new contributors.'
• Christine Iverson, a spokeswoman for the
  Republican National Committee
• Source Bushs 70 Million War Chest Dwarfs That
  of Democrats, The New York Times, October 15,
  2003

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Democrats Compete with Republicans

• During the last election cycle
• Two-thirds of the money from small donations (
  less than 200) went to Republicans
• The Democrats received 92 percent of unregulated
  contributions over 1 million.
• Source Bushs 70 Million War Chest Dwarfs That
  of Democrats, The New York Times, October 15,
  2003

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Democrats Compete with Republicans

• Social conservative groups have helped the
  Republicans strengthen a small regular donor base
  using direct mail to tap into single-issue
  constituencies
• gun control
• abortion
• Religion
• Source Bushs 70 Million War Chest Dwarfs That
  of Democrats, The New York Times, October 15,
  2003

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Howard Deans Internet Plea in Response

• If 2 million Americans each contribute 100, we
  will defeat this president -- and we will
  change America. The formula is simple
• 2 million Americans x 100 George W. Bush out
  of office

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IT FOR COMPETITIVE ADVANTAGE

• ONSTAR

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What is OnStar?

• OnStar is a unique, hands-free offering of
  services that enhance safety, security,
  entertainment, and productivity.

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History of OnStar

• 1994
• A GM engineering group proposed Project Beacon
• 1995
• GM created OnStar through an alliance of 3 GM
  units
• GMs North American Operations, Electronic Data
  Systems, and its Hughes Electric Corporation
• Launched at GMs North American Operations
• 1996
• GM made OnStar available in some Cadillac models

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OnStars Strategy Project Simulation Model
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Customer Acquisition and Retention

• Deals with the inflow and outflow of subscribers
• Positive feedback
• The probability of a buyer choosing OnStar
  depends on their demand for it relative to the
  demand of all the uses of money

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Customer Acquisition and Retention

• Subscription Volume for OnStar
• 1996 1,100 subscriptions
• 1997 20,000 subscriptions
• 1998 44,000 subscriptions
• 1999 50,000 subscriptions
• 2000 500,000 subscriptions
• 2001 1.8 million subscriptions
• 2002 over 2 million subscriptions

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Customer Choice and Alliances

• Customer Choice
• Dependent on the subscription fees, initial
  costs, and the cost for a combination of features

• Alliances
• Vehicle Manufacturer Alliances
• Toyota, Honda, VW-Audi, Subaru
• Partners
• Fidelity, ABC, Wall Street, ESPN, Disney

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Customer Service

• They must be able to match customer-service
  capacity to the demand for OnStar
• If not they
• Reduce the attractiveness of the service
• Lower acquisition of new subscribers
• Generate word of mouth
• 86 of existing customers have a better peace of
  mind due to OnStar, 85 feel safer at night, and
  60 believe it is important for their next car to
  have OnStar

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Customer Service

• On average, each month OnStar responds to
• 626 air bag notifications
• 655 stolen vehicle locations
• 13000 roadside assistance calls
• 14000 remote vehicle diagnostics
• 26000 remote door unlocks
• 260000 routing calls

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Dealer Behavior

• Until 1998 OnStar had been installed by a dealer
• Since 1998 OnStar has been factory installed
• Eliminates a need for dealers to convince buyers
  to purchase OnStar as an option
• Eliminates the cost of dealer installation
• Increases the number of cars with OnStar
  available leading to more subscribers

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Finances

• Sales
• GM 2002 180 billion in revenue
• OnStar 2002 approaching 1 billion in annual
  revenue
• 80 share of the telematics market in 2001
• Valued between 4 to 12 billion if it were spun
  off as an independent business
• 70 of a cost improvement in acquiring new
  customers with factory installation

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OnStars Guiding Principles

• Minimize eyes-off-the-road, hand-off-the-wheel
  time
• Minimize the number of steps required to perform
  a task
• Create a common interface in how consumers
  interact with the system
• Utilize a lockout protocol to prevent the use of
  systems that create unnecessary and excessive
  attention demands on the driver

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Critical Difference for GM Vehicles

• One-touch onboard system
• Roadside assistance, with location
• Emergency services
• Routing and location assistance
• Automatic notification of air bag deployment
• Remote door unlock
• Stolen vehicle tracking
• Voice-activated cell phone
• Convenience Services

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Critical Difference for GM Vehicles

• Convenience Services Explained
• Audio version of Wall Street Journal
• CNN news broadcast
• Stock trading
• Hotel and dinner reservations
• Flower delivery
• Weather.com

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Makes and Models
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Distribution Agreement

• RiverPark Inc.
• American Coach
• Fleetwood
• Monaco
• Newmar

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Distribution Agreement

• OnStar will excel in the motor home market not
  only with navigation assistance and travel
  information, but especially valuable to our
  customers is their emergency services. Mike
  Cloninger, Head of Fleetwood Product Development

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How OnStar is used

• Subscribe to one of 3 plans
• Safe Sound
• Directions Connections
• Luxury Leisure

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How OnStar is used

• Safe Sound
• Accident Assist
• Air bag deployment notification
• Emergency services
• Roadside assistance
• Remote door unlock
• Remote diagnostics
• Stolen vehicle tracking
• Remote horn and lights

71
How OnStar is used

• Directions Connections
• Safe Sound
• Information/Convenience
• RideAssist
• Driving directions

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How OnStar is used

• Luxury Leisure
• Safe Sound
• Directions Connections
• Personal Concierge

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How OnStar is used

• Price (Free for 1st year, then priced by month)
• Safe Sound 16.95
• Directions Connections 34.95
• Luxury Leisure 69.95
• Special pricing and packages for fleets

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How OnStar is used

• Additional services purchased by the minute
• Personal Calling
• Virtual Advisor

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Future Services

• Traffic reports
• Will be part of Virtual Advisor.

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How Technology Works
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How Technology Works

• GPS and cellular reach map
• http//www.onstar.com/us_english/downloadable/gl_c
  overage_map_us.pdf

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How Technology Works

• Three Button System
• http//www.onstar.com/us_english/jsp/whatisonstar/
  idont_whatisonstar.jsp

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How Technology Works
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How Technology Works
81
Sustainable Factors

• First to market
• License to other companies
• Ford to launch similar product in 2005

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Strategies for Survival

• License more companies before Ford jumps into
  market
• Focus on the creation of critical differentiators

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Conclusion

• First to market
• Owens Minor, OnStar, Political Fund-raising
• Spawn a new business
• OnStar
• Spawned a new way of doing business
• Political Fund-raising, Owens Minor
• Changed Industry
• Business must drive IT innovation
• Large expenditure is not always required
• Owens Minor
• Window of opportunity
• OODA Loop

84
Conclusion
CONTRIBUTION COMMODITY DIFFERENTIATOR
CRITICAL Critical Commodities Critical Differentiators
USEFUL Useful Commodities Eliminate/Migrate