INFORMATION TECHNOLOGY

INFORMATION TECHNOLOGY

AS A WEAPON FOR COMPETITIVE ADVANTAGE

IT’s Influence Within An Organization

IT effects revenues and profits in terms of: Helps market segmentation Helpful in increasing market share Allows fast design of new products

Better Management ControlBetter Asset & Liability Management

OROR

Don’t forget IT is also expensiveDon’t forget IT is also expensive

Information Technology as Competitive Advantage

Concept Emerged in 1980.

Slowly been accepted as valid.

Research has shown that very few companies are able to generate a competitive advantage through information technology

Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

Studies Involving IT as CA

How a number of companies successfullydeployed their IT weapon for strategicadvantage

Ex. Eric K. Clemons , Michael Row, “McKesson Drug Company: a case study of Economist—a strategic information system”, Journal of Management Information Systems, v.5 n.1, p.36-50, July 1988

Which are the frameworks that can helpmanagers identify applications that can bringcompetitive advantage to their own businessand the use of such frameworks within theorganization

Ex. Ives, Blake, Learmonth, Gordon, "The Information System as a Competitive Weapon," Communications of the ACM, Vol. 27, No. 12, December 1984, pp. 1193-1201

Prime question of using IT as CA

Can pioneers achieve rewards substantial enough to justify the costs and risks of being prime mover?

Subsequent entrants come at much lower costs. This is why you must create switching costs.


Information Technology as CA

Study of Thirty Major Companies Including GE, Xerox, FedEx, P&G 15 firms were able to sustain a

competitive advantage in terms of market share or profitability

Only 6 were able to sustain both

Companies are more likely to fail

Kettinger, William, “Strategic Information Systems Revisited: A study in Sustainability and Performance”, MIS Quarterly, vol.18 n.1, pg 31-58, 1994

Examples of Firms That Successfully Used IT

American Airlines: SABRE SystemBaxter: Hospital Supply SystemsMitek: Roofing SystemUK Telecom: Detailed Customer BillingFed Ex: Real Time Package Tracking

Contributions Commodity

Differentiator

Critical Oil Refining SABRE System

Useful Payroll ICI Paints

Aligning IT With Business Strategy

The Framework

Sustainable advantage

Project Life Cycle Analysis

Competitor Analysis Supply Chain Analysis

From Feeny And Ives “IT as a Basis for Sustainable C.A.”

First PillarHow long until

Response?

Second PillarWho canRespond?

Third PillarHow effectivewill response

Be?

Pioneer

Vision/idea Vision/idea

Win approval

Built •Technology• Application• Database

• Knowledge base

Project launch

•Enhance Vision/idea

Win approval Build etc.

Followers

Awakening•Awareness•Perceive

significance•Accept/assignresponsibility

Win approval

Build•Technology•Applications

•Database•Knowledge base

Project launch

Discovery

First Pillar

Project Life Cycle


First PillarProject Development Life Cycle


Can also be viewed as a sustainability analysisFor sustainability, an expensive hard to duplicate system can provide uneven playing field for years of profitability and market growth.

First PillarProject Life Cycle

Deals with the concept of lead time (Time from launch until substantive response).Anytime you use IT to generate CA, you can expect a response.


First PillarProject Life Cycle

Four variables of lead time: Awakening

Larger the CA, quicker the awakening Win Approval

Followers easier to win approval Project Build

Does not require vision of prime mover Project launch


Who Can Respond?

Generic lead-time can be made up easily. May even leap frog original system.

Therefore a new application that leverages dissimilarities between the prime mover and followers makes it more difficult to mount a response.

Second Pillar: Competitor Analysis


Three Major Areas of Second Pillar

1. Competitive ScopeGeographical scope

The geographical area that a firm chooses to compete in or locate particular types of work.

Segment Scope The breadth of products sold and the buyers served

Vertical scopeThe extend to which the firm has elected to pursue backwards or forward integration strategies

Industry scope The range of related industries in which the firm competes with a

coordinated strategy.


Three Major Areas Of Second Pillar

2. Organizational BaseStructure

Culture

Physical Assets


Three Major areas of Second Pillar

3. Information Resources

Technological infrastructure Application inventory DatabasesKnowledge bases


Third Pillar: Supply Chain AnalysisWill A Response Be Effective?

1.) Find exploitable link- Find point in chain where resources are finite and a limited number of participants control the link.

2.) Capture Pole Position- Create unique relationships

• Seek out applications which create unique relationships with that group

• In return for benefits, user will put mover in position of preferred partner

• Movers continued position is secured against any equivalent offering only superior will justify switching costs.Feeny, David & Ives, Blake, “IT as a basis for sustainable competitive

advantage” in Managing IT as a Strategic Resource, Willcocks, Leslie, Feeny, David (eds). McGraw-Hill Education-Europe, 1997, pp. 43-61

Third Pillar: Supply Chain Analysis

3. Keep the gate Closed- Users perceive a significant tangible/intangible cost of switching systems. This is the base for maintaining an advantage• Applications- people have to learn interface• Database- switching can cause loss of all data

gathered and learning of new system• Community- A community may form that leads

IT to be a part of infrastructure, switching loses this advantage


Case Studies

1. Celera Genomics GroupPresented by: Matt

Brickel2. Dell Computer Corporation

Presented by: Kevin Shipley

Celera Genomics GroupAchievement of Sustainable Competitive Advantage

Through the Use of IT?

Why Choose Celera Genomics AS A Case Study?

In 1998 the principles of the Applera Corporation decided to sequence the Human Genome. At that time the Scientific Community thought it would take 3,000 scientists 15 to 20 years.Celera Genomics did it in 2 years using IT.

www.pbs.org/wgbh/nova/genome/deco_venter.htmlViewed September 11, 2002

Company BackgroundEstablished in May 1998 by the PE Corporation and J. Craig Venter, Ph.DFormed to generate and commercialize genomic information.Celera Genomics Group is an operating company of the Applera Corporation, F.K.A. the PE Corp.

www.celera.com/company/home.cfm?ppage=overview&cpage=backgroundViewed October 12, 1992

Dr. Craig Venter Ph.D

Size of Celera In Terms of Sales and Profits

Celera Genomics Group:

Net Revenue 2001: $ 89,385,000Loss Before Taxes 2001: $232,662,000Net Loss: $186,229,000

Source: Applera Corporation Annual Report 2001

http://media.corporate-ir.net/media_files/NYS/CRA/reports/2001report.pdfViewed September23, 2002

Major Products Sold by Celera

Celera Discovery System (CDS)CDS is a subscription based web enabled system that allows users access to Celera databases and applications

Moving Into TherapeuticsCelera plans to begin developing and marketing novel therapeutic drugs identified through its genomic research.

www.findarticles.com/cf_bzwr/m0EIN/2000_April_6/61343200/print.jhtmlViewed October 12, 2002

Major Characteristics of Celera Customers

250 International Academic and Commercial Customers Now Use Celera’s Celera Discovery System

Some Notable Customers:

1. Pfizer2. Yamanouchi Pharmaceuticals3. National Cancer Institute4. Harvard University5. University of California System

www.celera.com/genomics/home.cfm?ppage=overview&cpage=customersViewed September23, 2002

Who Does the CIO Report To?

Jamie Lacey, Celera Genomics Corporate Communications,

interviewed via e-mail by Matt Brickel, September 24, 2002.

Tony WhiteChairman, President and CEO of Applera Corporation

Tama OliverCIO of Applera Corporation

John Reynders, Ph.DVice President, Information Systems, Celera Corp.

Celera Executive ManagementKathy OrdoñezPresident, Celera Genomics Mark Adams, Ph.D. Vice President, Genome ProgramsWerten Bellamy, Jr., J.D. Group Counsel David Block, M.D.Executive Vice President, Celera and Chief Operating Officer, Celera Therapeutics Robert Booth, Ph.D. Senior Vice President, Research & DevelopmentSamuel Broder, M.D. Chief Medical Officer

Ugo DeBlasi, CPA Vice President, Finance Jason Mollé Senior Vice President, General Manager, Online BusinessGene Myers, Ph.D.Vice President, Informatics ResearchScott Patterson, Ph.D.Vice President, ProteomicsJohn Reynders, Ph.D. Vice President, Information SystemsBridgette Robinson, A.B.D.Vice President, Human ResourcesMichael Venuti, Ph.D. Senior Vice President, Research and General Manager


How Many IT Personnel?

The most recent count shows that 50 people are employed in an IT capacity at Celera.

Jamie Lacey, Celera Genomics Corporate Communications,

interviewed via e-mail by Matt Brickel, September 24, 2002.

What is Celera’s Annual IT Budget?

Celera does not disclose information pertaining to IT budget.In 2001 Celera Spent $164,693,000 on research and development.


Description of the Critical Differentiator

300 robots @ $300,000 each = $90,000,000Each rung on the DNA chain contains 2 out of 4 possible letters; A, G, C or THuman Genome is 3 billion letters

Celera’s process uses robots that conduct polymerase chain reaction PCR processes to magnify and read DNA chains.

http://allserv.rug.ac.be/~avierstr/principles/pcrani.html

www.pbs.org/wgbh/nova/genome/deco_venter.htmlViewed September 11, 2002


Celera’s computer’s hard drive has 100 terabytes of data1 terabyte = 1,000 gigabytes1 gigabyte = 1,000 megabytesPerspective, my new Dell computer has a 40 gigabyte hard drive

X 2,500 = Celera Hard Drive Capacity

www.pbs.org/wgbh/nova/genome/deco_venter.html Viewed September 11, 2002


Celera uses a network of computers to process the data from the hard driveEach computer has 4 alpha chips in it20,000 CPU hours to decode the Human GenomeOne CPU hour = Use of 1 Alpha Chip for 1 HourCelera decoded Human Genome in one shift!


Celera Discovery System Overview

“The Celera Discovery System is an integrated, easy to use, web-based discovery platform that combines the most comprehensive set of genomic and biological data along with powerful visualization and analysis tools. It allows researchers to search, analyze, interpret and manage their genomic information in one place thus saving valuable time, reducing costs and accelerating their research.”

www.celera.com/genomics/academic/home.cfm?ppage=cds&cpage=defaultViewed October 12, 2002

History of the system:• In 1998 the principals of Applera Corporation decided to

sequence the human genome.

• The thinking at the time, by people outside of Applera Corp., was that it would take 3,000 scientists 15 to 20 years to sequence the human genome.

• The people at Applera thought that it could be done by 2002 using information technology.

• They formed Celera Genomics group to begin the process.

• They had an idea that they could use Robots to automatically conduct PCR processes but they had to build them first.

• Applied Biosystems, Celera’s sister company, built the robots from scratch.


History of the system:

• The building of these robots was the impetus for the genome race.

• Once the robots were built to perform and read the information derived from the PCR processes, Celera had to find computers to store the data and then process it (sequence the Genome).

• Once the system was assembled Celera started out by sequencing the genome of simple organisms that had already been sequenced so that they could verify that it worked.

• They then sequenced the mouse genome, and then they sequenced the human genome in 2000.

• Shortly thereafter the Celera Discovery System was launched and in 2001 the current advanced version was launched.


Was the System Designed for Competitive Advantage Or Was It a Surprise?

The people at Celera had the idea that they could sequence the human genome faster than was thought possible at the time.

Nobody new for certain that it was going to work.

Dr. Craig Venter was quoted as saying: “I am not afraid to take risks. I mean I said at the beginning that either this would be one of the most spectacular success stories in history or the biggest flame-out in history. There was clearly a risk element to this. In fact, when I look at all the things that could have failed and could have gone wrong, its stunning perhaps that it did work as well as it did.”


Was the System Designed for Competitive Advantage Or Was It a Surprise?Essentially Celera is not worried about others replicating what they have done because there is really no need to do so. Celera willingly shares the information that they have for a subscription fee.

In the case of Pharmaceutical companies the fee is negotiated and is in the millions of dollars.

For academic researchers there is a pricing schedule:


Was the System Designed for Competitive Advantage Or Was It a Surprise?

CDS pricing schedule:

Number of User(s) (1 year term) Additional Cumulative Annual User Fee Per User+

Per User $30,000 each

Number of User(s) (3 year term) Additional Cumulative Annual User Fee Per User*

1-5 Users $17,000 each

6 - 10 Users $15,000 each

11 - 25 Users $12,000 each

26 - 55 Users $11,000 each

56 - 75 Users $10,000 each

76 - 100 Users $ 8,500 each

101 - 250 Users $ 7,000 each

+Basic subscription (Human Reference SNP Database not included)*All fees should be calculated based on a 3-year term (Human Reference SNP Database not included).

www.celera.com/genomics/academic/home.cfm?ppage=pricelist&cpage=default, Viewed Oct. 12, 2002

How Do Customers Interact With the System?

The Celera Discovery System (CDS) is a web based tool that is accessed through www.celera.com. They can use the information available there to conduct their own research which can be saved on the customers computers behind their own firewall.

Does Celera’s Use of IT Give Them a Sustainable Competitive Advantage?

Pillar 1: Project Life Cycle analysis: How long until a response?

• Awakening• Approval• Building the System• Project Launch

The time it would take the government to respond would likely be substantial and its effectiveness uncertain. Celera’s competitive advantage is supported by the first pillar.

Does Celera’s Use of IT Give Them a Sustainable Competitive Advantage?Pillar 2: Competitor Analysis: Who can respond?

•Competitive Scope•Organizational Base•Information Resources

As stated previously the most likely competitive response would come from the US Government. The government does not have the competitive scope that Celera has. They do not have the necessary organizational base. They do not have the necessary information resources assembled. Celera’s competitive advantage is supported by the second pillar.

Does Celera’s Use of IT Give Them a Sustainable Competitive Advantage?

Pillar 3: Supply Chain Analysis: Will Copying Help?

Supply Chain Analysis: Will Copying Help?

•Find Exploitable Link•Capture Pole Position•Keep the Gate Closed

Even if the government copies what Celera has done it is unlikely that Celera’s customer base will switch.

Overall Conclusion

Celera’s systems provide a sustainable competitive advantage that is supported by the three pillar model.

Dell Computer CorporationEnabling business processes through information technology?

Company Background

Founded in 1984 by Michael DellStarted selling computers out of his dorm roomStarted by building computers with components made by other companies to meet customers needs.This became the basis for Dell’s direct-modelToday, Dell is valued at over 26 billion dollars

Size of DellIn terms of Sales and Profits

Dell Computer Company:

Net RevenueFebruary 2002 $31,168

2001 $31,8882000 $25,265

Net IncomeFebruary 2002 $1,246

2001 $1,7772000 $1,666

Dell Annual Report February 2002

Major Products Sold by Dell

Enterprise Systems servers and storage

Network switches and workstations

Notebook and Desktop computers

Peripheral Products

Various services and technical support

Major Characteristics of Dell’s Customers

The companies customer’s range from large corporations, government agencies, healthcare institutions, small businesses, and individual consumers

No customer represents more than 10% of businessRange from relational to transactional

More than $3 million a day in internet salesMost sales to business or government(>70%)

Shell, Exxon, MCI, Ford, Toyota, Boeing

Greater than 30% of sales from foreign customers

www.mhhe.com/business/management/thompson/11e/case/dell5.html

Dell’s Chief Information Officer

Randy Mott, former CIO of Wal-Mart Reports To Michael Dell Oversees more than 20 strategic and over

100 other major projects at any given time Consults with executive team and oversees

eight direct subordinates Constantly meets with customers to

understand customer and sales force needs Challenge is to make sure department uses

the right systems to support Dell’s model.

Worthen, Ben.: “Travelin’ Man.” CIO Magazine. Mar1, 2002

Dell’s IT Department

More than 2,500 IT personnelUses Cross-Functional Teams Global Matrix Team

250 members Ensure that Dell website functions

correctly Find enterprise solutions to help Improve ProductivityWorthen, Ben.: “Travelin’ Man.” CIO Magazine. Mar1, 2002

What is Dell’s IT Budget?

Not Available

Research Development and Engineering Costs

February 2002 $452

February 2001 $482

February 2000 $374

Dell Annual Report February 1, 2002


Dell’s Direct Model

Manufacture of

Components by suppliers

Purchase by Users

Customized Assembly

Service And

Support

Critical DifferentiatorAdvantages of Dell’s Direct Model

Eliminated time and costs of distributing through independent retailers.Eliminated need for various computer modelsNo longer need to discount slow selling PC’s before new models are introducedEliminated Mark-Ups.

www.mhhe.com/business/management/thompson/11e/case/dell5.html, October 16 2002

Critical DifferentiatorSupply Chain Management

Dell manages the relationships from the original supplier to the end customer.‘Supply chain management shortens the cycle between the component, the manufacturer and the end customer. We are allowing them to almost touch each other.’ –Michael Chong, Tech. Mgr.Dell looks for opportunities to cut costs throughout the process.

Shaving .1% off materials costs has a bigger impact than a Ten percent raise in manufacturing productivity

---. “How Dell Keeps from stumbling”. Business Week. May 14, 2001, page 38b

ITAC online Dell case study, see reference

Critical DifferentiatorIT’s Role in the Supply Chain

Dell uses information technology to continually refine the supply-chain to remain the low cost producer.

Key Components: i2 suite software Valuechain.dell.com Dell.com XelusPlan

Critical Differentiatori2 Suite Software

Implemented in 1999Planning i2 TradeMatrix Supply Chain Planner i2 TradeMatrix Buy Solution

Execution i2 TradeMatrix Factory Planner Rhythm Collaboration Planner

Critical Differentiatori2 Suite Software

“On the planning side, we decided to use the i2 TradeMatrix Supply Chain Planner and i2 TradeMatrix Buy Solution software to communicate our materials requirements to suppliers. On the execution side, we're deploying the i2 TradeMatrix Factory Planner and Rhythm Collaboration Planner to schedule our factories and communicate materials requirements to the supplier hubs,"

- Eric Michlowitz, Dell’s director of Supply Chain

http://www.dell.com/us/en/gen/casestudies/casestudy_dell_i2.htm, October 16, 2002

Critical Differentiatori2 Suite Software Advantages

Enhances efficiency of the pull system Only .05% of costs to obsolete inventory

Precise delivery of components Can specify what door and what time

components arrive

Orders arrive exactly when needed Factory has five to six hours worth of inventory

Allows for order prioritization Three times the number of units per square

foot

---. “How Dell Keeps from stumbling”. Business Week. May 14, 2001, page 38b

Critical Differentiatori2 Suite Software Advantages

“It was important for us to have a global view of Dell's entire supply chain. We wanted to be able to see - on a real-time basis - what materials are available at the supplier hubs, what suppliers have committed to worldwide and what demands they haven't been able to support." Michlowitz

http://www.dell.com/us/en/gen/casestudies/casestudy_dell_i2.htm October 16, 2002

Critical Differentiator ValueChain.Dell.Com

Secure extranet that allows suppliers to collaborate in managing the supply chain Provides suppliers with the ability to

drop off invoices, check engineering change orders, cost reports, and overall performance.

Allows suppliers to more accurately forecast future demand.

ITAC online Dell case study, see reference

Critical Differentiator ValueChain.Dell.Com

Enhances Supplier relations Number of Suppliers has dropped

from 1,000 to 100 90 percent of Material Supplies

purchased online Suppliers are more likely to

collaborate Color of monitor example

Critical Differentiator Dell.com

Converted to XML in 1999 Uses eXcelon

Redesign uses customerization Takes into account local factors Remembers product purchased Reaches 80 countries with 22 different

languages Maintains 20,000 pages in service section

alonehttp://www.wdvl.com/Authoring/Languages/XML/Conferences/XML99/dell.html October 16, 2002

Critical Differentiator XelusPlan

Service logistics program “XelusPlan allows us to forecast, plan, and

track forecast accuracy against actual demand. It provides us with a single, centralized database and standard planning procedures.”

–Don Smith, business analyst

Focuses on service organization More than 6,000 orders a day

http://www.xelus.com/CaseStudies/cs_dell.asp, October 16, 2002

Critical Differentiator XelusPlan Advantages

Quickly process ordersUse scenario analysisAppropriately adjust inventory levels to maintain proper service levelsIn continuously changing environment allows Dell to forecast demand for both new and old components

http://www.xelus.com/CaseStudies/cs_dell.asp October 16, 2002

Reasons IT generates a Competitive Advantage

Cuts materials costs Materials cost account for greater

than $21 billion More than 70% of revenue spent on

materials Reduces inventory levels and cycle time Very little obsolete products

Reduces transaction costs Most transactions occur online

Shah, Jennifer. “Dell writes the book on efficiency.” EBN. Dec 17,2001. pg32

Reasons IT generates a Competitive Advantage

“Putting Technology behind the Supply Chain process has also provided a gateway for greater efficiencies, facilitated Communications with suppliers, and improved operations between internal groups” Jennifer Shah, EBN

Shah, Jennifer. “Dell writes the book on efficiency.” EBN. Dec 17,2001. pg32

Does Dell’s use of IT Give Them a Sustainable Competitive Advantage?

Pillar 1: Project Life Cycle: How Long Until Response?AwakeningApprovalBuilding the SystemProject Launch

Dell’s system is largely internal and complex. This makes it hard for the competition to build and introduce a similar product.


Pillar 2: Competitor Analysis: Who can respond?

Competitive ScopeOrganizational BaseInformation Resources

Competitors were too vertical and had too many products.

Structure, cultures, and physical assets were geared toward other system

Competitors had investments in current inventory methods and technological infrastructures

www.mhhe.com/business/management/thompson/11e/case/dell7.html October 16, 2002


Pillar 3; Supply Chain Analysis: Will Copying Help?

Find Exploitable LinkCapture Pole PositionKeep the Gates Closed

Found points in supply chain where participants control the link, created unique applications that encourage strong relationships with suppliers and customers, found ways to ensure that suppliers and customers will continue to be loyal to Dell.

Dell Conclusion

Dell uses IT to:

Enable its business model

Create a sustainable competitive advantage over its competitors.

Conclusion

IT is important to an organization because it effects profits, revenues, and a company’s business systemsIT can be used to create a sustainable competitive advantageCompanies can succeed by following certain rules regarding the use of ITMore companies fail than succeed

Effective Use of IT

Celera’s System Meets the Criteria Set Forth by the Three Pillars Model

Project Life Cycle Analysis Competitor Analysis Supply System Analysis

Effective Use of IT

Celera Genomics Group Celera Genomics Group Used IT To:

Develop a ground breaking system enabling users to perform accelerated genome research

Research institutions do not have to invest the vast amounts of capital required to perform this type of research

The genome of any organism can be mapped Will aid in the discovery of new medicines and

therapies Create a new business niche

Automated genome mapping and research at previously impossible speed

Effective Use of IT

Dell’s System Meets the Criteria Set Forth by the Three Pillars Model

Project Life Cycle Analysis Competitor Analysis Supply System Analysis

Effective Use of IT

Dell Computer Dell used IT to:

enable its business model enhance business processes Manage its supply chain

Better supplier relations Real-time management Forecast and respond to demand Reduce Inventories Improve customer relations

Lessons for the CIO

Factors in the Success of IT Complexity of system Switching costs Dissimilarities between prime mover

and competition Use of exploitable link Customers understand system

Lessons for the CIO

Make a complex system that is hard to replicateCompanies had CIO’s that were valued by their organizationCompanies viewed IT as an important part of creating a competitive advantage

Lessons for the CIO

Used weaknesses of their competitors to leverage dissimilaritiesCaptured the Pole PositionFound ways to deter customers from switching to a competitorUsed the right system

Information Technology as Competitive Advantage

Questions

http://www.itac.ca/client/ITAC/ITAC_UW_MainEngine.nsf/cd0bbbe7b8237e1e85256482005b6998/6baed26bb718c58f85256a23004d7688!OpenDocument 10/17/02

Additional References

1. http://www.itac.ca/client/ITAC/ITAC_UW_MainEngine.nsf/cd0bbbe7b8237e1e85256482005b6998/6baed26bb718c58f85256a23004d7688!OpenDocument 10/17/02

• Blau, John, “E.U mulls How To Boost Its R&D” Research Technology Management, Vol. 45, Sept./Oct. 2002, pp. 5-6.

• Thackray, John, “Bioinformatics Grows Legs” Electronic Business; Highlands Ranch, Vol. 27, July 2001, pp. 76-82

• Mearian, Lucas and Weiss, Todd R., “HP User Defects; EMC, IBM Score” Computerworld; Framingham, Vol. 36, Sept. 30, 2002, pp. 1,16

• Anonymous, “Tech Quarterly: Microchips In the Blood” The Economist, Vol. 364, Sept. 21, 2002, pp. 7

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INFORMATION TECHNOLOGY